For nonprofit leaders, one of the most important responsibilities is equipping the board with the insight and tools they need to advance the organization’s mission. That includes presenting key financial documents like the annual Form 990—an IRS filing that offers a comprehensive snapshot of your nonprofit’s operations, finances, and governance.
But Form 990 isn’t just about compliance; it’s also a public-facing document that tells your organization’s story to funders, partners, and the communities you serve.
Board members play a vital role in reviewing and interpreting the 990. Within its pages are clues to organizational health, areas of opportunity, and impact achieved. A well-prepared board can use this information to make more informed decisions about strategy, support, and oversight.
This article offers practical tips for both nonprofit leaders and board members as they prepare to review the 990 together—helping ensure clarity, accountability, and alignment across the organization.
Detailed Guidance
For Nonprofit Leaders:
- Provide a High-Level Overview: Present key sections of the 990, beginning with Page 1’s financial summary. Allow finance committees to review deeper details prior to board approval.
- Highlight Narrative Sections: Focus attention on Part I and Schedule O to emphasize mission-related activities and compliance context as well as Part III which focuses on the programs the organization offers and describes key facts about the programs as well as any current year accomplishments
- Explain Quantitative Sections: Help identify funding gaps and compare revenue to program expenses to support future budgeting.
- Contextualize Compensation: Prepare to explain salaries listed in Part VII. Reassure the board of market-rate compensation and notify employees ahead of time if they are listed, as this data is public.
For Board Members:
- Examine Key Metrics: Review revenue, expenses, and ratios of program vs. management and fundraising costs. Be alert to any anomalies.
- Understand Expense Allocations: Aim for 70–80% of expenses to be programmatic; ensure fundraising expenses are reasonably represented.
- Evaluate Governance Practices: Confirm presence of conflict of interest, whistleblower, and document retention policies. These are not mandatory policies for non-profits to have but are best practices to implement.
- Assess Community Impact: Scrutinize program outputs and outcomes. Ensure descriptions address donor priorities and provide clarity on who benefits and how.
- Compare Executive Compensation Year-over-Year: Look for substantial changes and verify with market comparisons. Ensure a compensation study is done every 2–3 years.
Summary
The 990 is more than a financial report; it’s a strategic document that reflects the organization’s mission, values, and leadership. Effective use of the form can bolster transparency, stakeholder trust, and operational alignment. By combining financial oversight with thoughtful narrative framing, leaders and board members can make the 990 a valuable tool for mission success.
For expert support on Form 990 or to discuss other tax or accounting related nonprofit matters, contact us at Han Group.
