So, You've Been Asked to Serve on a Non-Profit Board of Directors...
Research a Not-for-Profit's Form 990 Before Committing to Serve
Many of us take the opportunity to support charitable organizations, either through cash donations or the contribution of our time. Eventually this may result in an invitation to sit on the organization’s board of directors. Most of us are honored when asked and agree without giving it much thought. However, with all the scrutiny of financial practices over the last several years, it’s good to understand the organization, its mission, and policies. It’s also important to recognize all the rules and regulations that a non-profit must abide by in order to keep their exempt status, as it is the board’s responsibility to ensure its organization adheres to them.
Probably the easiest way to understand most of these requirements is to understand the Form 990 – the IRS form which reports the non-profit’s information and activities. This form serves two functions – it reports the activities of the organization to federal and state governments to ensure continued tax exempt activities are taking place. It also provides financial information in detail so that someone reviewing the 990 can make decisions about the strength of the organization. Form 990 is considered a public document and is posted to the internet by organizations such as Guidestar (www.guidestar.org). The public nature of this document allows a potential donor to review the financial status of a charitable organization and its organizational/operational structure to help determine if they would like to make a contribution.
Recently, the IRS overhauled Form 990, with increased transparency into the organization; not only its programs and financial activities, but board governance and operations, as well. The form can be divided into three categories of information:
- Factual information about the organization; who it is, what it does, board members, etc.
- Financial information, including documenting compensation.
- Board governance and potential abuse issues (personal inurement, conflicts of interest, etc.
Let’s focus on the third category. The largest area of change rests here. The IRS has increased emphasis on the board of directors, how it operates and governs the organization, and the level of accountability it requires within the organization. Inquiries on Form 990 include questions regarding conflicts of interest and independence of board members (individual & business relationships amongst board members and the organization). Due diligence should be a part of an organization’s processes to justify any transactions between related or non-independent members. Compensation to board members and the executive director is also examined heavily. These questions are designed to identify those who are getting paid and that they are remunerated for services they have actually provided. Questions regarding whistleblower policies, document retention policies, and board meeting minutes are other examples of the inquiries made on Form 990.
As you can see, serving on the board of a not-for-profit organization should not be taken lightly. Always be mindful of what you are getting into before you make a final decision. Be aware of the commitment expectations – in terms of time and money. And know the organization with which you are getting involved, inside and out! Utilize Form 990 for your research. As we’ve discovered, it contains a lot of pertinent information about the operations of the organization that can help you in your decision making!
For more material on Board Service, see www.boardsource.org, and for additional information on Form 990 and non-profit tax reporting, feel free to contact me at Lori.Kelley@warrenaverett.com or (850) 837-0398.