💡 Lessons Learned from Reviewing 990 Filings: Why Nonprofits Deserve Better

At TruDBooks, we’ve had the opportunity to review and clean up several Form 990 filings prepared by third-party providers. While every nonprofit’s situation is unique, we’ve consistently encountered issues that go beyond technical errors—they reflect a lack of care, collaboration, and understanding of what the 990 truly represents.

Here are some of the most critical lessons we’ve learned:

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🔍 1. Unsupported Financial Statements: A Risk to Trust and Compliance

Too often, the numbers reported on Form 990s don’t tie back to audited financials or internal records. This not only raises red flags with the IRS but also erodes donor confidence and stakeholder trust.

In one striking case, a client’s Statement of Activities and Balance Sheet showed balances nearly double the amounts reconciled to their bank accounts. When we inquired, no plausible explanation was provided.

This kind of discrepancy:

• Undermines the credibility of the organization’s financial reporting

• Exposes the nonprofit to audit risk

• Damages its reputation with funders, regulators, and the public

✅ Lesson: Always reconcile reported figures with internal records and ensure that financial statements are reviewed by qualified professionals before submission.

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🧩 2. Inappropriate Governance Disclosures: More Than Just Checkboxes

Governance disclosures on Form 990 are not just formalities—they reflect the organization’s integrity, accountability, and leadership culture.

Yet, we’ve seen these questions answered without proper due diligence. For example:

• Some filings claimed the board reviewed the 990, but no such review had occurred.

• Others indicated the existence of governance policies—such as conflict of interest, whistleblower, or document retention—that were either outdated or nonexistent.

• In one case, leadership was unaware of how governance questions were answered, despite the form being submitted under their name.

These misstatements can:

• Undermine public trust

• Invite IRS scrutiny

• Signal weak internal controls

✅ Lesson: Governance responses should be accurate, current, and reflect actual practices. Involve leadership, document policies, and ensure the board is engaged in the review process.

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📝 3. Incorrect Responses on the Checklist of Required Schedules

We’ve also seen errors in Part IV of Form 990, which determines which additional schedules must be filed. These questions are critical—they guide the structure and completeness of the return.

In one case, the organization answered “Yes” to Question 1, indicating it was a private foundation. However, upon reviewing the IRS determination letter, it was clear the organization was actually classified as a public charity.

❗ This kind of mistake can:

• Trigger unnecessary or incorrect schedule filings (e.g., Schedule A vs. Schedule B)

• Confuse readers and funders

• Signal poor internal controls or lack of review

✅ Lesson: Always cross-check IRS classification letters and exemption status before completing Part IV. A single checkbox can change the entire structure of your 990.

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🤝 4. Lack of Leadership Engagement: A Missed Strategic Opportunity

Form 990 should be more than a compliance exercise—it should be a collaborative effort that reflects the organization’s mission, values, and impact.

Too often, we’ve seen the 990 treated as a back-office task, with no involvement from the board or executive leadership. In these cases, critical context is lost, and opportunities for strategic storytelling are missed.

When leadership is disengaged:

• Governance questions may be answered inaccurately

• Financial narratives may not align with organizational priorities

• The 990 fails to reflect the full scope of the nonprofit’s work

✅ Lesson: Involve leadership early in the process. Their insights ensure the 990 is not just accurate—but also compelling, mission-aligned, and trustworthy.

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💰 5. Improper Revenue Classification: A Risk to Financial Clarity

Revenue classification on Form 990 is more than a technical detail—it’s essential for accurate financial storytelling and regulatory compliance.

We’ve frequently seen revenue streams misclassified, especially between:

• With Donor Restrictions vs. Without Donor Restrictions

• Earned Income vs. Contributions

In some cases:

• Grant income was incorrectly reported as program service revenue

• Restricted funds were lumped into unrestricted totals

These errors can:

• Mislead funders and stakeholders

• Obscure the organization’s true financial position

• Create compliance issues with donor intent and IRS reporting

✅ Lesson: Proper classification requires a clear understanding of revenue sources, donor restrictions, and accounting standards. It’s not just about numbers—it’s about telling the truth behind the mission.

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📊 6. Arbitrary Functional Expense Allocation: Undermining Financial Credibility

Functional expense allocation—dividing costs among program services, management, and fundraising—is a critical part of Form 990. But we’ve seen it done with little to no methodology, which can mislead stakeholders and distort the organization’s financial story.

Examples we’ve encountered include:

• A flat 80/10/10 split applied across all expenses, regardless of actual activity

• Salaries for administrative staff fully allocated to “program services”

• Rent and utilities inconsistently allocated year to year, with no rationale or documentation

These practices:

• Undermine the credibility of financial reporting

• Raise red flags with auditors and funders

• Obscure the true cost of delivering impact

✅ Lesson: Functional allocations should be policy-driven, consistent, and based on actual usage or time studies. Transparency here builds trust and strengthens your financial narrative.

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📣 7. Scant Program Descriptions: A Missed Opportunity

The IRS requires nonprofits to provide detailed descriptions of their three largest program services on Form 990, including the objectives, activities, and outcomes of each. Unfortunately, many filings we’ve reviewed included vague, one-line summaries like:

“Provided community support services.”

“Offered educational programming.”

“Conducted outreach.”

These descriptions fail to communicate the depth, scale, or impact of the organization’s work. They also miss a critical opportunity to:

• Tell your story to donors, funders, and the public

• Demonstrate alignment between mission and spending

• Differentiate your organization from others in the same space

✅ A strong program description should include:

• What the program does

• Who it serves

• How many people were impacted

• Measurable outcomes or milestones

For example:

“Our Financial Literacy Program served 1,200 low-income adults across three counties, providing 10-week workshops on budgeting, credit repair, and savings. Post-program surveys showed a 40% increase in participants’ financial confidence.”

That’s the kind of narrative that builds trust and inspires support.

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✅ What This Teaches Us

Form 990 is more than a tax form—it’s a public narrative of your organization’s mission, governance, and financial stewardship. It deserves the same level of care and collaboration as your strategic plan or annual report.

At TruDBooks, we’re committed to helping nonprofits:

• Ensure accuracy and transparency

• Engage leadership in the reporting process

• Align financials with mission and impact

• Build trust with funders, regulators, and the public

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Let’s raise the bar together.

If your organization is looking to improve its 990 process—or just wants a second set of eyes—we’re here to help.

Have you encountered similar challenges in your 990 journey? I’d love to hear your thoughts or connect directly.

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