by Linda Lampkin

Scanned images of all IRS Forms 990 filed by public charities, an essential and widely used source of information on the sector, are now easily and instantly accessible on the Internet. The Urban Institute=s National Center for Charitable Statistics (NCCS) and Philanthropic Research, Inc. (PRI) with its GuideStar Web site have worked together on this project to create the most accessible data on the sector ever available.

The Form 990 is the information return that most 501(c)(3) charities file annually with the IRS. (Organizations with revenues of less than $25,000 or those that are religious organizations are exempt.) Although audits provide more comprehensive financial information, few not-for-profit organizations conduct or are required to conduct audits. Consequently, the Form 990 is the primary source of information about the nonprofit sector.

In addition to the scanned images, NCCS and PRI are also digitizing information from the forms to create a searchable database of over 600 fields for the over 220,000 nonprofit organizations that file Forms 990 annually. This represents a revolution in easily available data. An assessment of the quality of the data and identification of what needs to be improved are crucial first steps in improving information on the sector.

• Compliance — Filing accurate and complete Forms 990 with the IRS and state charity officials is required by law for most charities. As stewards of the public's money, nonprofits have a responsibility to report on their activities, including their finances. Yet many nonprofits, including their executives, board members, and accountants, pay scant attention to the form. This lack of attention can lead to incomplete and inaccurate data, as well as fines and other legal action.
• Accountability — Public trust and confidence are the foundations of the nonprofit sector. To keep that trust, nonprofits must show that they are accountable and responsible. By submitting accurate and complete financial and operating information on the Form 9990 in a timely manner, the nonprofit sector can demonstrate that it deserves the public’s support.
• Public Relations — Completing the Form 990 is considered a bothersome chore by most organizations. However, nonprofits can use the form as an opportunity to present themselves and their programs in the most accurate and positive way. Often, the form may be the first introduction of an organization to a potential donor.

In the past, a nonprofit only had to disclose its Form 990 if a request was made in person at the nonprofit's offices, and was not even required to make a copy. New regulations, effective in June 1999, require that a 501(c) organization make copies of its three most recent Forms 990 for anyone who requests them, whether in person or by mail, fax, or e-mail. Anyone can also request a copy of a nonprofit organization's Form 1023, the IRS form used to apply for tax-exempt status. Nonprofits can avoid the photocopying requirements by posting their forms on the Internet. The material may either be posted on a nonprofit's own Web site or at another site that functions as a database of information about nonprofit organizations. (However, several requirements must be met with the posting before nonprofits can be exempt from the photocopying requirements.)

The form presents a portrait of the organization to donors and to others in the sector, including the media, policymakers, and other nonprofits. It is useful for a number of audiences.

• Donors — It may be the first document that a potential donor checks after receiving a fundraising letter in the mail or a phone call about making a contribution. If the activities described in the letter or the phone call match the programs listed in Part III of the Form 990, and there is additional information in a GuideStar report or on the organization’s own Web site, the investigator will feel more comfortable making a donation. Having a descriptive and accurate form and taking advantage of the opportunity to supplement that form will provide another approach to cost efficient fundraising. After all, the person was already interested enough to look for further information on the organization.
• Nonprofit Organizations — Nonprofits will find the newly available information useful in helping to improve operating and financial practices, and aid in their decisionmaking. They will be able to obtain comparative salary information to support salary decisions and to develop comparative information on finances for organizations that are similar in size or mission. They can demonstrate their accountability by providing information and making their operations transparent. They can reduce their burden of providing copies of requested materials by making them available on the Internet, as well as use the Web site as a communication and potential fundraising tool.
• Researchers — For the first time, researchers will be able to spend their time and resources on analysis, rather than data collection. There is a wealth of information provided on the Forms 990 — on fundraising and administrative expenses, on descriptions of program service activities and beneficiaries, on salaries, on sources of revenue, for example — that have never been available for detailed study by researchers. Using the National Taxonomy of Exempt Entities (NTEE) classification system, detailed portraits of nonprofit organizations by subsector (art museums, employment training programs, etc.) can now be created. NCCS has created a new system to classify the programs and beneficiaries that will permit better descriptions of what nonprofits actually do. This research can only be completed with the creation of the digitized database from the Forms 990.

Chuck McLean, Research Director of PRI, and Linda Lampkin, Manager of NCCS, recently completed an analysis of the Forms 990 of over 50,000 organizations (32,599 Form 990 filers and 18,515 Form 990-EZ filers). These forms were part of the new database created by NCCS and PRI from the scanned images from the Internal Revenue Service (IRS) starting in July 1998. All of the forms were reviewed for math and omission errors. In addition, a sample of scanned images for about 400 Form 990 and 990-EZs were reviewed for the quality of the attachments.

• Analysis of Financial Information —

1. Over 71 percent of the Form 990 filers completed the form with no mistakes; another 18 percent had one or two errors;
2. Over 83 percent of the Form 990-EZ filers completed the form with no mistakes; another 11 percent had one or two errors; and
3. The average number of errors per return was 0.77 for Forms 990 and 0.38 for Forms 990-EZ.

• Examination of Attachments

1. Although both Forms 990 and 990-EZ require many attachments and explanations, full compliance is unusual. Fourteen line items were analyzed; less than 75 percent of organizations required to provide additional information actually did so.
2. When filers did provide an attachment, often the level of detail requested by the IRS was not provided. In all but one instance (Line 8c, Column A, Net Gain or Loss from Sale of Securities), filers supplied the required detail less than half of the time.
3. Under Part II of the Form 990, the "Statement of Functional Expenses" requires that organizations split their expenses across program services, management and general, and fundraising in various categories, but many returns have an unlikely percentage of expenses categorized as "other expenses"; a cursory review shows that, in many cases, items categorized as "other expenses" could in fact have been detailed in the categories listed on the form.

• Conclusions — The Forms 990 filed by public charities have long been subject to public scrutiny, but organizations have become accustomed to their relatively low usage. Before June 1999, organizations did not have to show copies of the form to members of the general public unless they showed up in person during business hours. Even then, organizations were not required to provide copies, only to allow the inspection of the form. The new disclosure regulations, as well as the posting of the forms on the Web through the joint NCCS/PRI project, makes these documents more easily available than they have ever been.

• First and foremost, nonprofits must pay more attention to the forms, filling them out completely and accurately;
• Improvements in the software used to prepare the forms could help eliminate arithmetic and omission errors and prompt the need to attach supplemental statements with all the necessary information;
• A more standardized approach to accounting practices in the sector that aligns with the Form 990 as well as the various government and professional requirements would help standardize and reduce the burden of reporting; and
• Instructions for line items that were common source of errors should be examined for possible clarification.

• 990 in 2000 Project, with its three components:

1. National and local Nonprofit Accountability Collaboratives (990-NACs) to promote widespread discussion about nonprofit reporting and accountability;
2. Publication of a unique financial reporting guide aligned with IRS Form 990 and other nonprofit reporting requirements; and
3. Development of technical assistance materials.

• www.qual990.org — A Web site that serves as a communication tool and resource for nonprofit organizations, the accounting profession, and government charity regulators. Updated periodically, the site provides information about IRS Form 990 disclosure regulations, various uses of Form 990, and 990-NAC activities to improve the quality of reporting.
• Annual meetings hosted by NCCS for the National Association of Attorneys-General/National Association of State Charity Officials (NAAG/NASCO) that provide an opportunity for the nonprofit sector practitioners and researchers to make recommendations to the IRS about the Form 990.
• The Unified Registration Statement (URS) and Multistate Filer Program — A project that works to consolidate the various state charity offices’ registration requirements for nonprofit organizations into one form accepted by all the states with requirements.
• www.form990.org —A demonstration Web site that illustrates how a nonprofit organization might complete and submit a Form 990 via an electronic filing system.
• Philanthropic standards promoted by various charity review organizations, such as the Philanthropic Advisory Service of the Council of Better Business Bureaus, the National Charities Information Bureau, Evangelical Council for Financial Accountability, the Charities Review Council of Minnesota, and the Maryland Association of Nonprofits.

With the Form 990 now "widely available," it will be feasible to study numerous issues in a breadth and depth never before possible. More people than ever will be looking at the Form 990. This focus should lead to higher quality data for use by all who are interested in the nonprofit sector.