Advice for CEOs & EDs
At her recent workshop for financial managers, CPA Karen Kowgios discussed several issues that often fall solely on finance, but that, in fact, should have input from the executive director, board and audit committee, and are ultimately their responsibility.
IRS Form 990
Discussing the changes made to the 2005 IRS Form 990, Kowgios pointed out that the 990 is really not a tax form. Rather, it is an information return: approximately four pages cover true financial information whereas over 25 pages are questions, narratives and attachments.
So, if the responsibility to complete the 990 falls on your financial person, he or she may not be the best person to answer all the questions or complete all of the narrative portions. Those who are closest to the organization’s programs should complete the program-related questions — whether the executive director, the program staff, or the board. Kowgios also recommends that key staff and all board members should review the 990 before it is submitted.
Think about who’s reading your 990: potential funders, individual donors, curious individuals, and just about anyone who goes online to GuideStar.org. This is your opportunity to put your best foot forward and clearly present to the world the good works your organization does.
The 2005 Form 990 now asks about whether the organization has a conflict of interest policy and asks about interested party transactions. Kowgios noted that conflicts of interest aren’t necessarily bad. You can have a “good” conflict: For example, a relative of a board member offers a great discount on his service. The point is that you just have to disclose these arrangements.
Conflict of interest policies are not necessarily trying to prevent anything, but more to disclose any dealings that may be viewed as not being at arms-length. A conflict of interest policy provides the mechanisms for board analysis and disclosure. Kowgios always recommends erring on the side of disclosure, because if you don’t disclose and someone finds out, they’ll wonder why you didn’t do so.
However, the flip side to honest, fully disclosed conflicts of interest, is that they may lead to more questions to those reading the 990—all the more reason to fully explain and justify why important decisions were made. All of which points back to Kowgios’ mantra, “Documentation, and more documentation.”
Annually, board members and consultants should read the organization’s conflict of interest policy. This should include a certification that each person signs attesting to the fact that they do or do not have any conflicts of interest. The results of these certifications must also be reflected in the board meeting minutes to ensure that all potential conflicts are disclosed. Since this procedure is done annually, the staff needs to make sure that its policy is up-to-date.
If an organization makes monetary grants or even non-monetary awards by a committee (beyond board members) of members who are part of the industry, they should also be required to sign conflict of interest policies. Always think about how the public might view a situation if questions started arising.
Travel & Entertainment Approvals
Approving the expense report of an employee should not be done by an individual who either reports to or is below that person’s position, whether it’s the financial manager, the CFO, or the executive’s assistant. Expenses of the executive director, for instance, must be reviewed and approved by a committee of the board, and not merely submitted by the executive assistant or approved by the finance director. Otherwise, there’s no accountability.
Where Kowgios often finds groups running into trouble is when the organization pays personal expenses of the executive, and she often sees this with founders. “They can be geniuses and work untold hours,” Kowgios says, “But, an organization should not pay for these personal items, whether it’s her dog walker or his tuxedo. Pay it in salary; don’t pay the expenses directly.” Once that founder incorporated his or her dream into a 501(c)(3) organization, it’s no longer his or her organization. It belongs to the public, and the board now has fiduciary oversight and control.
Karen Kowgios is partner with Fried & Kowgios LLP and can be reached at 212-490-2200. NPCC has a sample conflict of interest policy for download at www.npccny.org/compliance_checklist.htm.
How to Read the IRS Form 990 Updated
NPCC has updated and revised its bestseller, How to Read the IRS Form 990 & Find Out What it Means to reflect the changes made in the revised 2005 Form 990. How to Read the IRS Form 990 offers the ten most significant pieces of information that can be found in the Form 990 and shows you exactly where you can find the information.
How to Read the IRS Form 990 & Find Out What it Means can be downloaded for free at www.npccny.org/Form_990/990.htm.
This article originally appeared in the August 2006 issue of New York Nonprofits, the monthly newsletter of the Nonprofit Coordinating Committee of New York, Inc. www.npccny.org