Minnesota Council on Foundations Blog – Philanthropy Potluck

The changes to the IRS 990 have nonprofits and foundations paying attention.

There’s been a lot of buzz about the IRS 990 in the nonprofit sector lately. Many people are talking about the changes in the form, particularly in the governance section, and nonprofit organizations are updating their policies and procedures to reflect those changes.

We also just recently passed nonprofit doomsday, the day when many nonprofits were slated to lose their tax-exempt status for not submitting their IRS 990-N.  Not only that, but Minnesota raised the audit threshold from $350,000 to $750,000, meaning only organizations with revenues greater than $750,000 are required to have an audited financial statement.  And that means more nonprofits under the threshold will use the IRS 990 rather than an audit financial statement as their supporting financial documents.

As nonprofits prepared for all of these changes, foundations have prepared as well. With the new audit threshold, grantmakers realize they need to become more familiar with the form if they will review it more frequently with grant requests.  And they want to become savvier in interpreting the information supplied from the form by calculating the ratios they usually use with audited financial statements to analyze a nonprofit’s financial health.

In May, the Minnesota Grants Managers Network organized a program on the IRS 990 to go over the changes to the form and to highlight what information foundations should pay attention to during grant review.  Paul Verrette from the Minneapolis Foundation gave some useful tips for what to look for on the form when you want to do a quick analysis of a nonprofit’s financial status.  In his slides, he points out which lines on the IRS 990 will give you the snap shot of the organization’s financial health:

• Verification: What does the IRS 990 say about the organization’s mission statement and programs?  Ideally, nonprofits will provide enough information that you can use the information in the IRS 990 to get a good idea of what the organization does.
• Resources: What are the income and expenses for the organization?  How did they do year to year?  How diversified are their funding resources?  And how are their unrestricted reserves?
• Governance: Are there any governance issues that you should be concerned about?  Schedule O provides more detail about some of the problems an organization may be facing from a financial oversight perspective.

If you need to do more than a quick review of an IRS 990 to analyze a nonprofit’s financial situation, the Nonprofits Assistance Fund has created an incredibly useful new tool called the 990 Decoder – A Guide to Creating Financial Statements and Ratios. The decoder “translates the financial information from the revised 990 into easy to use financial reports and ratios.”

You simply enter the numbers from the IRS 990 into the spreadsheet, and it will put the information in a format that resembles a financial statement.  It also calculates some crucial ratios as well.  This is a great tool for anyone who needs to thoroughly analyze the financials of a nonprofit using the IRS 990.

- Stephanie Jacobs, MCF member services manager

Image CC alykat

This entry was posted on Tuesday, June 1st, 2010 at 11:37 am and is filed under nonprofits. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.