The Form 990 includes numerous governance and management questions. A brief summary of the more significant governance and management questions are provided below. The IRS has indicated that, although a negative response to a question on the Form 990 will not necessarily result in an audit, the IRS will use such negative responses in conjunction with other information on the Form 990 to determine whether further inquiry is necessary. It is important for the leadership of public charities to become familiar with these provisions and should analyze each of the following:
- Records Management Program – Form 990 asks whether the organization has a written document retention and destruction policy. Nonprofit corporations should adopt a document retention and destruction policy, along with a records retention schedule, utilizing the standards under Sarbanes-Oxley, 18 U.S.C. 1512(c), and the new Federal Rules of Civil Procedure regarding e-Discovery, Fed. R. Civ. P. 34. Such a policy should cover the responsibilities of staff, volunteers, board members, and outsiders to maintain, store, or dispose of the organization’s records.
- Whistleblower Protection Policy – Form 990 asks whether the organization has a whistleblower policy. Nonprofit corporations should adopt a whistleblower policy, utilizing the standards under Sarbanes-Oxley, 18 U.S.C. 1513(e), that identifies specific staff members, board members, or outside parties to whom a staff member or volunteer can report information on illegal practices or violations of organization policy.
- Conflict of Interest Policy – The Form 990 asks whether the organization has a Conflict of Interest Policy. Although not legally required, the IRS strongly recommends that each section 501(c)(3) organization adopt a Conflict of Interest Policy. This policy should include procedures to prevent an officer, director, or manager from making a decision from which that officer could personally benefit and a requirement that key employees, officers, directors, and managers annually disclose potential conflicts. Form 990 also requires the organization to explain how it monitors and enforces compliance with the policy.
- Compensation Review Process – Form 990 requires each organization to describe the process used to determine the compensation for the top management official, other officers, and key employees of the organization. The IRS has issued procedures for public charities to follow in order to establish a rebuttable presumption that compensation is reasonable. We recommend each organization follow these procedures to the extent feasible.
- Director Review of Form 990 – Form 990 requires organizations to describe the process the organization uses to review Form 990 before it is filed with the IRS and whether members of the governing body are provided with a copy of Form 990 before it is filed.
- Gift Acceptance Policy – Form 990 asks whether the organization has adopted a Gift Acceptance Policy that requires the review of non-standard contributions. The new Form 990 also requests additional information regarding non-cash contributions. These items are often addressed in a Gift Acceptance Policy.
- Mission Statement – Form 990 provides that organizations, which do not have a Mission Statement adopted by their governing body, are required to describe their organization’s mission as “None.” To the extent necessary, each organization should have its governing body adopt a short Mission Statement.
- Others – Among other requirements, Form 990 asks whether the organization contemporaneously documents its meetings, engages in foreign activities, has issued tax-exempt bonds, participates in joint ventures with for-profit entities, and has local chapters or branches and related policies.
Whether one or more of these policies or procedures is appropriate will depend on each organization’s particular circumstances. However, to the extent an organization does not adopt any one of these policies, it must be prepared to explain its circumstances.