The purpose of the Form 990 is to offer disclosure about the activities and finances of nonprofit organizations. However, even when an organization is documented with correct information that would expose conflicts of interest, an organization’s relationships also need to be examined. All touch points need to be considered: board members, management, employees and third-party relationships.
In addition to the information reported on the Form 990, organizations need to have policies and procedures in place to capture disclosure information in real time. Information about financial transactions and relationships need to be readily available, not just collected for filing the Form. This is a way that organizations can be protected from perceived conflicts of interest. The policy needs to include the method used to determine conflicts of interest, how conflicts are resolved and the procedure for disclosing relationships.
Additional ways to ensure independence include:
- Hiring an audit firm with no ties whatsoever to the organization being audited.
- Forbidding loans to board members and key employees. In Texas, it’s illegal to make these type of loans.
It is also a good idea to discuss policies and procedures of this magnitude with your organization’s legal counsel. Before you get frustrated with all of the rules and regulations, remember the overall purpose. You are demonstrating and ensuring that your organization’s assets and revenues only go towards furthering your mission, not the personal agendas of individuals close to the organization.