Board Governance and
Its Relevance to the New Form 990
Board Governance and Its
Relevance to the New Form 990
Presented by Parent, McLaughlin & Nangle
November 13, 2009
Board Governance and Its
Relevance to the New Form 990
Table of Contents
Page
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Presentation Slides
IRS Conflict of Interest Policy
Sample Whistleblower Policy
Document Retention/Destruction Policy
Gift Acceptance Policy
Contact Information
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23
25
28
31
37
Overview – How did we get here?
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First complete overhaul of Form 990 since 1979
Private Sector – Enron/Sarbanes-Oxley 20012002
June 2007 – IRS issues draft of new Form 990
December, 2008 – the IRS releases new Form
990
Basic duties of Board members have not
changed.
1
Duties of Board Members
I.
II.
III.
IV.
Care
Loyalty
Manage accounts
Obedience to Purpose
Source: PCPS of AICPA
2
I. Duty of Care

The care that “an ordinary prudent person
would exercise in a like position and under
similar circumstances”
 Attending
Board meetings regularly
 Showing independent judgment
 Being informed about organization resources
 Delegating only to responsible individuals
 Following up regularly
3
II. Duty of Loyalty
Give undivided allegiance to organization
when making decisions
 Personal, family or business interest
cannot be put above the organization’s
interest
 Avoid conflicts of interest in fact and in
appearance
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4
III. Duty to manage accounts
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Ensure financial accountability by:
 Overseeing
the organization’s chief business officer
 Checking that resources are used prudently
 Implementing procedures to ensure accurate records
 Ensuring that no one person has control over finance
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Accurate documentation of decision making
considerations using Board meeting minutes
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IV. Duty of Obedience
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Ensure that your organization remains obedient
to its central purpose
Establish accountabilities
 Policies
 Programs
 Performance
 Process
 Outcomes
& effectiveness
 Planning, allocating & managing
6
New Form 990
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Increased transparency – gives donors more
information to make informative decisions
Provides the IRS with more factual data in areas
that the IRS perceives to be indicators of abuse
Administrative burden – significant increase in
record keeping and disclosure requirements
There are many questions on policies, and
although not required by tax law, noncompliance may pose audit and credibility risks
7
Policies Addressed by the Internal
Revenue Service in the New Form 990
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Conflict of Interest
Whistleblower
Document Retention/Destruction
Audit Committee/Finance Committee
Review of Executive Compensation
Gift Acceptance
Review and Distribution of Form 990 prior to the
filing
Meeting Minutes
8
Policies Addressed by the Internal
Revenue Service in the New Form 990
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Conflict of Interest Policy
 Annual
disclosure by all directors, officers and key
employees of possible conflicts
 Disclosure of any transaction in which director, officer
or key employee has a personal financial interest
 Recusal of interested director from discussion and
voting
 Determination by disinterested directors that terms
are fair and as favorable as those available from a
third party
9
Policies Addressed by the Internal
Revenue Service in the New Form 990
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Whistleblower Protection
 Encourages
reporting of improper behavior
 Identifies persons to whom violations should
be reported
 Promises protection from retaliation
10
Policies Addressed by the Internal
Revenue Service in the New Form 990
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Whistleblower Policy
 The
Organization should ensure that employees
have a secure means by which to report fraud,
accounting irregularities, noncompliance or other
misconduct.
 The Organization should ensure any reporting of
fraud, accounting irregularities, noncompliance
with policies or other misconduct can be made
without fear of reprisal.
11
Policies Addressed by the Internal
Revenue Service in the New Form 990
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Document Retention/Destruction Policy
 Clear
guidelines on retention and destruction
of paper and electronic records
 Prohibit destruction of records for purposes of
preventing use in an official proceeding
 Provide security and confidentiality
12
Policies Addressed by the Internal
Revenue Service in the New Form 990
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Audit Committee/Finance Committee Policy
 Audit
Requirements
 Committee responsible for oversight
 Understand the different roles of Audit and
Finance Committees
13
Policies Addressed by the Internal
Revenue Service in the New Form 990
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Audit Committee vs. Finance Committee
Audit Committee
Shared Responsibility
Finance Committee
The audit committee is authorized to
consider matters related to (a) the financial
statements of the organization and other
financial information provided to the third
parties:
The finance committee ensures that
budgets and financial statements are
prepared; the audit committee has
oversight for ensuring that reports are
received, monitored and disseminated
appropriately.
The finance committee shall oversee the
preparation of the annual budget and
financial statements.
(b) The systems of internal controls,
including overseeing compliance by
management with applicable policies and
procedures and risk management; and
The finance committee monitors
financial transactions; the audit
committee makes sure things are done
according to policy and with adequate
controls.
The finance committee shall oversee the
administration, collection and
disbursement of the financial resources of
the organization.
(c) The annual independent audit process,
including the recommended engagements
of, and receiving of, all reports from the
independent certified public accounts. The
audit committee shall have such other
duties as may be designated to it by the
board.
The finance Committee provides
guidance about what can be done; the
audit committee ensures that
independent oversight occurs.
The finance committee shall advise the
board with respect to making significant
financial decisions.
Source: NonProfit Risk Management Center Website
www.nonprofitrisk.org
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Policies Addressed by the Internal
Revenue Service in the New Form 990
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Executive Compensation Policies
 Rebuttable
 Applies
presumption/safe harbor
to
 CEO,
Executive Director and their equivalents
regardless of title
 Officers
 Key employees ($150,000 compensation and
benefits)
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Policies Addressed by the Internal
Revenue Service in the New Form 990
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Executive Compensation Policies
 Review
and approval by board or compensation
committee
 Recusal of anyone with a conflict of interest, including
anyone who
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Is related to the key employee
Is in an employment relationship subject to the direction or
control of the key employee
Receives compensation or payments subject to the approval
of the disqualified person
Has a material financial interest affected by the arrangement.
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Policies Addressed by the Internal
Revenue Service in the New Form 990
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Executive Compensation Policies
 Comparable
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data
Must be comparable as to type of organization, size of
organization, annual revenues, number of people served,
geographic area
Independent compensation studies
Written offers from competing employers
Organizations with gross receipts of less than $1 million can
rely on data from three comparable organizations
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Policies Addressed by the Internal
Revenue Service in the New Form 990
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Executive Compensation Policies
 Contemporaneous
documentation
 Terms
 Date
approved
 Members of the authorized body who were present
and how they voted
 Comparable data relied upon
 Actions by any member of the authorized body
with a conflict of interest
18
Policies Addressed by the Internal
Revenue Service in the New Form 990
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Gift Acceptance Policy - Does your
organization have a gift acceptance policy
that requires the review of any nonstandard contributions?
19
Policies Addressed by the Internal
Revenue Service in the New Form 990
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Form 990 Review Policy
 Provide
as-filed copy to Board prior to filing
 Process for review of Form 990 by
management or Board
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Policies Addressed by the Internal
Revenue Service in the New Form 990
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Meeting Minutes Policy
 Contemporaneously
prepared within 60 days,
but no later than the next meeting
 Includes all committees with power to act for
Board
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How do you as a Board member initiate
the Adoption of New “Best Practices?”
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Develop an understanding Yourself and Discuss
with decision makers
Include an agenda item for a Board meeting
Promote a consciousness of “running your
organization like a business”
Highlight consequences of not following “best
practices”
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Policies Addressed by the Internal
Revenue Service in the New Form 990
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Document Retention – Permanent
Actuarial reports
 Articles of incorporation
 Audit reports
 Bylaws
 Capital stock and bond records: ledgers, transfer registers,
stubs showing issues, record of interest coupons, etc.
 Cash books
 Chart of accounts
 Checks (canceled for important payments, i.e. taxes,
purchase of property, special contracts, etc. Should be filed
with underlying transaction)
 Contracts, mortgages, notes and leases (still in effect)
 Copyrights/trademarks
 Correspondence (legal and important matters only)
 Deeds, mortgages, bills of sale
 Depreciation schedules
 Directives – executive
 Financial statements (year-end)
 General/private ledgers, year-end trial balance
 IRS determination/approval letters
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Insurance records, current accident reports, claims, policies,
etc.
 Invoices of property
 Journals – all types
 Minute books of directors, stockholders, bylaws and charter
 Note register
 Patents and related papers
 Pension/profit sharing plan/trust documents
 Procedure records
 Property appraisals by outside appraisers
 Property records, including costs, depreciation reserves, yearend trial balances, depreciation schedules, blueprints and plans
 Retirement and pension records
 System records
 Tax returns and worksheets, revenue agents’ reports, and
other documents relating to determination of income tax liability
 Trademark registrations and copyrights
 Training manuals
 Union agreements
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Policies Addressed by the Internal
Revenue Service in the New Form 990
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Document Retention – 7 Years
Accident reports/Claims (settle cases)
 Accounts payables/invoices
 Accounts payables ledgers and schedules
 Accounts receivable ledgers and schedules
 Bank statements
 Checks (canceled – see exceptions above)
 Contracts, mortgages, notes and leases (expired)
 Expenses analysis/expense distribution schedules
 Expense reports
 Garnishments
 Inventories of products, materials and supplies
 Notes receivable ledgers and schedules
 Option records (expired)
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Payroll records (expired)
 Personnel files (terminated)
 Plant cost ledgers
 Purchase invoices
 Purchasing orders (purchasing department)
 Sales invoices
 Sales records
 Scrap and salvage records (inventories, sales, etc.)
 Subsidiary ledgers
 Time books/cards
 Vouchers for payments to vendors, employees, etc.
 Withholding tax statements
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Policies Addressed by the Internal
Revenue Service in the New Form 990
Document Retention
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Retain for 5 Years
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Excise tax computations
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Retain for 3 Years
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Bank reconciliations
Bills of lading
Employee expense records
Freight bills
Insurance policies (expired)
Internal audit reports
Internal reports (misc)
Petty cash vouchers
Sales commission reports
Retain for 2 Years
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Budgets – projections
Duplicate deposit slips
Employment applications
Retain for 1 Year
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Purchase orders (except purchasing department
copy)
 Receiving sheets
 Requisitions
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Contact Information
Peter H. Dinsmore, CPA
617.426.9440
pdinsmore@pmn.com
Parent, McLaughlin & Nangle, CPAs
Barry N. Chait, Esq.
617.426.9440
bchait@pmn.com
160 Federal Street
Boston, MA 02110
T: 617.426.9440
F: 617.423.3955
85 Rangeway Road
Forest Ridge Office Park, Bldg #1
Billerica, MA 01862-2105
T: 978.663.9750
F: 978.663.5151
100 Cummings Center, Suite 335G
Beverly, MA 01915-6106
T: 978.921.0005
F: 978.927.3428
10 Commerce Way
Raynham, MA 02767
T: 508.880.4955
F: 508.823.6976
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