January 21, 2025 - When it comes to establishing best practices for not-for-profit organizations, there are many issues you’ll want to consider and be certain to address. In this first article in our Governance Best Practices for Not-for-Profit Organizations Series, we focus on the importance of having a clear mission statement. Please watch for additional articles in this series, coming soon, which will cover topics like: document retention, executive compensation, the purpose of a governing body, conflicts of interest, and establishing a whistleblower policy.

An organization’s mission explains what it hopes to achieve as a result of carrying out its programs. An organization’s mission, as adopted by the governing body (or lack thereof), is an important element an organization must disclose in its Form 990.

Not only should an organization officially adopt a clear mission, but it should also regularly review its mission to ensure it accurately captures the organization’s current focus areas. A well-articulated mission statement assists the organization in analyzing whether it should undertake new activities as well as the success of existing ones. In considering whether to contribute to an organization, a potential donor may seek assurance that its mission is aligned with its personal values - so clarity is also important.

How can we help

While having a mission statement in place is not required by the IRS to obtain or maintain exempt status, a not-for-profit (NFP) is putting its best foot forward in the eyes of its many stakeholders by crafting one. If you work with an NFP in an oversight capacity, be sure to take some time annually to review implementing procedures such as these or consider updating them as your organization matures.

Also, regularly review your organization’s Form 990 to be sure its disclosures regarding these governance practices are complete and consistent with your understanding of how the practices are carried out. If you have any questions, please reach out to your Citrin Cooperman advisor. Our Not-For-Profit Industry Practice will work with your organization to ensure the best policies are in place to support future growth and success.

An important note on governance issues

Not-for-profit organizations (NFPs) face scrutiny from a multitude of perspectives – the Internal Revenue Service (IRS), the legislature, watchdog organizations, donors, news media, and the states in which they operate. Because the annual information return (Form 990) filed by most NFPs is readily available on the internet, these stakeholders have easy access to data about an organization’s operations which they can use to make judgments about it. The first line of defense is the establishment of good governance practices which are regularly followed.

Although federal tax laws do not require the adoption of any particular policies or procedures, it is essential for an NFP to carefully consider which governance practices are most appropriate to enable the organization to operate in an effective and compliant manner. Additionally, since Form 990 discloses information about a number of governance-related items, not only have they become the de facto best practices for NFPs, but there will also be many data points from which readers of the form can draw conclusions about the organization.

Therefore, it is not only crucial for an NFP to establish good governance practices, but it must also prepare its Form 990 with a view to disclosing these practices effectively. This guide explores the key governance areas disclosed in the Form 990 and highlights important considerations for not-for-profit organizations.