Misreporting on 990s Is Poor Form for CPAs.

• Author: CASE, GALE L.
• Position: Brief Article

Recent studies by the Chronicle of Philanthropy, the National Center for Charitable Statistics at The Urban Institute and others have found widespread misreporting of fund-raising costs by nonprofit organizations. According to the Chronicle's May 18, 2000 issue, more than a quarter of the 4,889 nonprofit organizations receiving $500,000 or more in gifts from private sources claimed to have spent nothing on fund raising. These organizations accounted for 90 percent of the total donations to charities of all sizes reporting to the IRS on Form 990 for 1996.

In reality, many of these organizations spent hundreds of thousands, and in some cases, millions of dollars on fund raising--a fact that their audited financial statements accurately reported. Yet their government information returns, Form 990s, claimed that they spent zero on fund raising. Other studies have found the percentage of nonprofits claiming zero fund raising to be as high as 35 percent and include many prominent organizations.

Some organizations appear to have legitimate explanations for their Form 990 reporting, for example an affiliated entity might report consolidated fund raising. Many others, according to the Chronicle's investigation, merely choose not to follow IRS rules. One explanation for such underreporting is a fear that potential donors will think the nonprofit organization spends too much on its fund raising and may decide not to contribute.

WHY SHOULD WE CARE?

CPAs prepare more than 80 percent of all Form 990s. And a number of the nonprofit organizations reporting zero fund-raising expense told the Chronicle that they did so based on advice from their CPAs.

In addition to the fund-raising problem, estimates of Form 990s being filed with incomplete or inaccurate information range as high as 50 percent or more. It is tempting to think that such problems are found primarily in the 20 percent of returns that CPAs do not prepare, or that it must be only a few bad-apple CPAs stinking up the barrel. However, a number of IRS and state charity officials with whom I have spoken are convinced that the problem of substandard reporting is widespread--and that CPAs are deeply complicit in the problem. Two recent presidents of the National Association of State Charity Officials have told me of their frustration in trying to make regulatory sense of incomplete and inaccurate Form 990 data. Marc Owens, former director of the IRS' Exempt Organizations Division, also has confirmed...