Form 990: Everything Nonprofit Board Members Should Know
Nonprofit board members might think of Form 990 as just an administrative task; something the finance team or an outside accountant handles once a year and files away.
That’s a mistake.
Unlike a corporation’s tax return, which is private even if the company is publicly traded, a nonprofit’s Form 990 is a public record. Anyone can pull it up: donors deciding whether to give, watchdog groups rating your organization’s efficiency, journalists looking for a story, even competing nonprofits sizing up your finances.
For board members, that makes Form 990 one of the most important documents your organization produces each year. And it deserves careful review before it’s submitted, not after.
What Form 990 Actually Reveals
Form 990 is the annual information return that most tax-exempt organizations must file with the IRS. Depending on the organization’s size, that might mean the full Form 990, the shorter Form 990-EZ or the simple Form 990-N (aka the “e-postcard”) for the smallest nonprofits.
But regardless of which version applies, the purpose is the same: to give the IRS and the public a detailed picture of the organization’s finances, operations and governance.
That picture includes far more than revenue and expenses. Form 990 asks organizations to report:
- Executive compensation, including salaries for the highest-paid employees and key officers
- Program service accomplishments (what the organization actually did with its money)
- Governance practices, such as whether all members of the board received a copy of Form 990, whether conflict-of-interest policies exist and how independent the board actually is
- Fundraising costs and efficiency (how much of every donated dollar went toward the mission vs. went toward overhead)
- Related-party transactions, flagging any financial dealings between the organization and its officers, directors or their family members
Because this information is public, it’s also easy to misread out of context. A single large severance payment, an unusually high fundraising expense ratio in a startup year or a governance question answered “no” without explanation can raise red flags for someone skimming the return without the full story. That’s precisely why board oversight matters so much before filing.
The Importance of Board Review
Many board members assume their responsibility ends with a treasurer’s report or a quick nod at the annual meeting. Technically speaking, that might very well be true.
But while the IRS explicitly asks on Form 990 whether the organization’s governing body all received completed copies of Form 990 before it was filed, and while Schedule O asks for a description of how the organization reviewed it, boards aren’t required to review Form 990. It’s optional.
Thus, boards shouldn’t treat a review of Form 990 as a box to check … because it isn’t.
But a thoughtful pre-filing review by the board is worth going through, as it accomplishes several things at once.
First, it catches errors while they’re still fixable. Missing schedules, numbers that don’t reconcile with audited financials or compensation figures that don’t match what was actually paid are far easier to correct before submission than after the document is public and already being scrutinized by a donor or reporter.
Second, it protects the organization’s narrative. Program accomplishments, mission impact and financial context are all told in the board’s own words in certain sections of the form. A board that hasn’t reviewed the draft might miss the chance to make sure that story is told accurately and compellingly.
Third, it reinforces good governance in substance, not just on paper. Boards that treat Form 990 review as a genuine agenda item, rather than a rubber stamp, tend to have better internal controls overall, because the review process naturally surfaces questions about compensation decisions, related-party transactions and financial policies that should be discussed anyway.
What Board Members Should Look For
Reviewing Form 990 doesn’t require an accounting degree, but it does require some focus. Board members should pay particular attention to a few key areas:
- Compensation reasonableness (Does executive pay align with comparable organizations and with board-approved policies?)
- The accuracy of program versus administrative expense allocations
- Whether governance questions are answered consistently with how the organization actually operates.
If the form states the organization has a whistleblower policy or document retention policy, for example, the board should confirm that policy genuinely exists and is followed.
It’s also worth comparing the current year’s return to prior years. Significant swings in revenue, expenses or compensation should have a clear explanation. If board members can’t explain a major change, that’s worth investigating before the form goes out the door, not after a donor or watchdog organization asks the question first.
Building a Culture of Financial Transparency
Ultimately, Form 990 review is about more than avoiding embarrassment or IRS scrutiny. It’s an opportunity for the board to reaffirm its fiduciary role. And it’s a chance to demonstrate to donors, grantmakers and the community that the organization takes financial stewardship seriously.
Nonprofits that build a formal Form 990 review process into their annual calendar (ideally with enough lead time to ask questions and request changes) tend to file stronger, more accurate returns. They also face fewer surprises when the document becomes public.
Need Help Preparing for Filing Season?
Form 990 touches on nearly every part of a nonprofit’s operations, from executive compensation to program spending to governance policy. This makes early, thorough preparation essential. Getting ahead of the filing deadline gives your board the time it needs to review the return carefully and ask the right questions before it becomes a public document.
McManamon & Co. is an accounting, tax, fraud, forensic and consulting firm that serves not only small and midsize businesses, but also nonprofit organizations. Our team can help you prepare an accurate, well-supported Form 990, review your organization’s governance practices and make sure your board has what it needs to sign off with confidence.
Call us at 440.892.8900 or contact us online today to learn how we can help your nonprofit navigate filing season.
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