Back to School Night--2008 Form 990 Governance, Management and Disclosure
by Michelle L. McCann, CPA, Partner
October 9, 2008
Back to School Night
Course: 2008 Form 990 Governance, Management and Disclosure
Course Completion Date: May 15, 2009 (for calendar-year organizations)
In the spirit of "Back to School Night," we are taking a closer look at the Governance, Management and Disclosure section of the 2008 Form 990. With the redesigned Form 990, the IRS (the teacher) has explained the purpose of the new Form (the course) and has set the standards (course requirements) high for management of tax-exempt organizations.
It's going to take more than a shiny red apple to convince the IRS and the public that your organization deserves a passing grade. Following, we highlight the areas of the redesigned Form that will "test" your organization and provide sample policies and procedures needed to make your organization a star student!
Pop Quiz:
Was a copy of the Form 990 provided to the organization's governing body before it was filed? All organizations must describe in Schedule O the process, if any, the organization uses to review the Form 990. (Part VI, Section A, question 10)
To answer "yes" means that a copy of the organization's final Form 990 (including required schedules) was provided to each voting member of the governing body of the organization, whether in paper or electronic form, prior to its filing with the IRS.
Explanation of the process should identify who conducted the review (i.e. trustees, directors, officers, board committee members, etc.), when they conducted it and the extent of any such review. If no review was or will be conducted, the organization must state, "No review was or will be conducted."
Does the organization have a written conflict of interest policy? (Part VI, Section B, question 12a)
If yes: Are officers, directors or trustees, and key employees required to disclose annually interests that could give rise to conflicts? (Part VI, Section B, question 12b)
Does the organization regularly and consistently monitor and enforce compliance with the policy? If "Yes," describe in Schedule O how this is done. (Part VI, Section B, question 12c)
As defined by the IRS in the Instructions for Form 1023, "...a conflict of interest arises when a person in a position of authority over an organization, such as a director, officer, or manager, may benefit personally from a decision he or she could make. A conflict of interest policy consists of a set of procedures to follow to avoid the possibility that those in positions of authority over an organization may receive an inappropriate benefit." Ongoing disclosure, monitoring and enforcement are also considerations when implementing a conflict of interest policy.
For organizations with fiscal years of December 31, a written conflict of interest policy needs to be adopted no later than December 31, 2008.
Note that policies can vary widely, from simple to very complex, depending on the structure, operations and culture of the organization. Following Lindquist LLP has provided a simple sample conflict of interest policy meant to provide a starting point for your organization to discuss and develop its own policy. This sample policy is provided with the understanding that Lindquist LLP is not rendering accounting, legal or other professional advice or opinions on specific facts or matters, as each individual circumstance is unique. We urge you to seek the advice of legal counsel to address your specific concerns.
Click here for a sample conflict of interest policy.
Does the organization have a written whistleblower policy? (Part VI, Section B, question 13)
A whistleblower policy establishes procedures for handling the submission of concerns regarding illegal practices or violations of adopted policies of the organization, specifies that the organization will protect the individual from retaliation, and identifies those staff or board members or outside parties to whom such information can be reported.
For organizations with fiscal years of December 31, a written whistleblower policy needs to be adopted no later than December 31, 2008.
Note that policies can vary widely, from simple to very complex, depending on the structure, operations and culture of the organization. Following Lindquist LLP has provided a simple sample whistleblower policy meant to provide a starting point for your organization to discuss and develop its own policy. This sample policy is provided with the understanding that Lindquist LLP is not rendering accounting, legal or other professional advice or opinions on specific facts or matters, as each individual circumstance is unique. We urge you to seek the advice of legal counsel to address your specific concerns.
Click here for a sample whistleblower policy.
Does the organization have a written document retention and destruction policy? (Part VI, Section B, question 14)
When preparing the document retention and destruction policy, an organization needs to make sure that the policy complies with federal and state laws. In addition to having a written policy, the organization should have procedures in place to identify the record retention responsibilities of staff, volunteers, board members and outsiders for maintaining and documenting the storage and destruction of the organization's documents and records.
For organizations with fiscal years of December 31, a written document retention and destruction policy needs to be adopted no later than December 31, 2008.
Note that policies can vary widely, from simple to very complex, depending on the structure, operations and culture of the organization. Following Lindquist LLP has provided a sample document retention policy for employee benefit plans. This sample policy is meant to provide a starting point for your organization to discuss and develop its own policy. It is provided with the understanding that Lindquist LLP is not rendering accounting, legal or other professional advice or opinions on specific facts or matters, as each individual circumstance is unique. We urge you to seek the advice of legal counsel to address your specific concerns.
Click here for a sample document retention and destruction policy.
Did the process for determining compensation of the following persons include a review and approval by independent persons, comparability data, and contemporaneous substantiation of the deliberation and decision: The organization's CEO, Executive Director, or top management official?
Other officers or key employees of the organization?
Describe the process in Schedule O. (Part VI, Section B, questions 15, 15a and 15b)
To answer "yes" means that the process for determining compensation of the CEO, Executive Director, or top management official included:
- Review and approval by a governing body or compensation committee, provided that persons with a conflict of interest were not involved;
- Use of data for comparable compensation for functionally comparable positions at similarly situated organizations; and
- Documentation maintained of the deliberations and decisions regarding the compensation arrangement.
In describing the process, the organization must identify the offices or positions for which the process was used to establish compensation and state the year in which this process was last used for each such person.
IRC Section 6104 requires an organization to make its Form 1023 (or 1024 if applicable), Form 990 and Form 990-T [501(c)(3)s only] available for public inspection. Indicate how you make these available. Check all that apply...own website, another's website, or upon request. (Part VI, Section C, question 18)
Exempt organizations must make their tax exemption application available for public inspection (Form 1023 for a charitable organization or Form 1024 for a noncharitable organization). There is an exception to this rule for organizations that applied and received tax exemption prior to July 15, 1987.
Organizations that file Form 990 must make it publicly available for a period of three years from the date it was required to be filed (including extensions).
Describe in Schedule O whether (and if so, how), the organization makes its governing documents, conflict of interest policy and financial statements available to the public. (Part VI, Section C, question 19)
If an organization makes its governing documents, conflict of interest policy and financial statements available to the public, the organization must provide an explanation and indicate how such documents are made available to the public (i.e. organization's website, another website, upon request, etc.)
If an organization does not make any of these documents available to the public, the organization must provide such statement.
Conclusion
Although most of the above policies and procedures are not required by the Internal Revenue Code, organizations can benefit from implementation and enforcement of such policies and procedures to strengthen controls. Procrastination may be costly to your organization if you are not prepared when facing the "final exam"-preparation of the 2008 Form 990. We strongly encourage exempt organization management to take a proactive look at their organization's existing policies and procedures now. For organizations with fiscal years of December 31, written policies for conflict of interest, whistleblower, and documentation retention and destruction need to be adopted no later than December 31, 2008.
Scoring an "A" on the final exam will likely impress the IRS and those that provide funding to your organization!
Please contact Michelle McCann at mmccann@lindquistcpa.com or (925) 277-9100 if you have any questions about Form 990.
Michelle L. McCann, CPA, is a partner in Lindquist LLP's San Ramon office. She is primarily responsible for overseeing quality control for preparation of exempt organization and employee benefit plan returns, including Forms LM-2, 5500, 990 and 199. Michelle also provides QuickBooks training and support for the firm's clients. Michelle can be contacted at mmccann@lindquistcpa.com or (925) 277-9100.
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