NAVREF strongly encourages NPCs to consider the following recommendations regarding completion of IRS Form 990.  Most NPCs are - or will soon be - working with their external auditors and accountants to prepare the audit reports and IRS forms needed to complete the annual report to VA that is due on or before June 1, 2006.  The compilation of these reports is of great interest to internal VA audiences and to Congress so it is extremely important for each NPC to complete their 990 fully and accurately.

NAVREF recognizes that auditors and accountants have some latitude in how they interpret IRS guidance.  However, members of the VA NPC Oversight Board chaired by Under Secretary for Health Jonathan Perlin, MD, have expressed dismay over inconsistencies in NPC reporting.  Please follow the IRS and NAVREF guidance to ensure consistent NPC reporting of “Other” expenses, pass through funds, IPA reimbursements, etc.

After reviewing NPC 990s submitted last year, NAVREF urges NPCs to pay particular attention to the following:

If your NPC has a web site, it must provide the URL.  This is not optional.

Discuss with your accountant how to best report contributions from non-governmental sources.  However, government grants must be reported on Line 1c Government contributions (grants).

Research related and mission related education expenses paid out of the NPC’s administrative overhead revenues should be reported in Column B Program services, not in Column C Management and general.  Column C should contain only amounts related to running the NPC itself.  To separate administrative expenses from research and education costs, use the spread sheet found in the NAVREF guidance.  See section on IRS Form 990 Part II.

This tool aids in accurate reporting of program v. administrative costs and assists in developing a federally negotiated indirect cost rate.  If done properly, many NPCs will be pleasantly surprised to see a significant decline in their Management and general expenses and an increase in their Program services.

Use the functional categories provided!!!  To the best of our knowledge, all NPCs use external accountants to prepare their audits and 990s.  However, out of a random group of twenty NPC 990s, less than half reported any accounting expense at all.  Additionally, all NPCs – even those using payroll firms or professional employer organizations (PEOs) or management service organizations (MSOs) to manage and provide benefits to employees - must break out compensation for officers, directors and key employees on Part II, Line 25 as well Part V.

NPCs using PEOs or MSOs are also encouraged to break out amounts for all employees for Salaries and wages (Line 26), Pension plan contributions (Line 27), Other employee benefits (Line 28) and Payroll taxes (Line 29) and should allocate each appropriately among Column B Program services and Column C Management and general.  If possible, do not report one lump sum on Line 43 Other.

Use Line 39 Travel to report all travel expenses whether for NPC staff or non-staff.  Research related and health care educational travel should be reported in Column B Program services while travel associated with administering the NPC should appear in Column C Management and general.

Use this line to report expenses related to educational meetings sponsored by the NPC and for registration fees for conferences sponsored by other organizations.

If Lines 22-42 are used properly, only a few NPC expense categories should be reported on Line 43 and none of these should include amounts more properly reported in the functional categories provided on Lines 22-42.  However, last year NPCs reported an astonishing 37% of their expenses as “Other” in nearly 40 “Other” categories.

• Accounting and legal fees should be reported on Lines 31 and 32 respectively.  Do not group them with other consulting fees under “Professional Services” and report them on Line 43.

• Use Lines 24-29 to report employee related salaries and benefits.  Do not lump them together and report them on Line 43 as “Salaries and Fringes.”

• Be sure to report executive director compensation on Line 25.

• There is no need to separate out “Research Supplies” as an “Other” category.  These should be reported on Line 33 with amounts for supplies attributable to research provided in Column B and administrative supplies in Column C.

Two years ago NAVREF worked with the VA NPC Program Office to develop eight “Other” categories that should accommodate most NPC expenses that legitimately fall on Line 433, such as insurance, advertising, dues and subscriptions, subject payments, etc.  Please go to the NAVREF guidance for the complete list and work with your accountant to 1) report expenses on Lines 22-42 whenever possible; and 2) to use the recommended categories for a few legitimate “Other” expenses.

If necessary, make changes in your NPC’s chart of accounts to more easily allocate expenditures to the appropriate functional categories next year.

NPCs should provide a short, but compelling statement of their programs and activities.  A sample is provided in the NAVREF guidance.   Potential funders and oversight organizations use this description to evaluate nonprofits so it is important that it be accurate and complete.  Proof it carefully to guard against typos!

Provide a complete list using the NPC mailing address for all.  “Zero,” “0,” “as needed” or “as required” are not appropriate responses for “hours devoted to position.”  Provide a number that accurately demonstrates that directors and key staff are being diligent in fulfilling their responsibilities.

In Column C, accurately report Compensation (not reimbursements) to board members and staff.  Include all compensation paid by the NPC, not just compensation related to board service. Report all benefits in Column D.  In Column E, do not report expense reimbursements that are paid under an IRS accountable plan.

Again, NPCs using PEOs or MSOs to manage and provide benefits to employees must break out amounts paid to officers, directors, and key employees in Part V, as well as Part II Lines 25, 27, 28, and 29.

• Line 76: If your NPC added education to its activities during its last fiscal year, reply “Yes” and provide a description.
• Line 77: If your NPC updated its bylaws during its last fiscal year, submit a copy of the revised version.
• Line 82a: If your NPC’s administrative staff occupies VA space, see guidance posted in the NAVREF guidance about reporting the value of government space used for the NPC office.

Sign the form!!!  Form 990’s submitted to the IRS without a signature are considered incomplete and penalties for incomplete or incorrect 990s start at $20 per day.

Be sure to complete 3a if your NPC provides grants for scholarships, fellowships, etc.  And in 3b check “Yes” only if the NPC has a 403(b) annuity plan for employees.  Do not check “Yes” if you offer a 401(k) plan.

Be sure the box checked matches the basis for the NPC’s federal exemption that is stated in its IRS letter of determination of exempt status.  If the NPC is classified under 170(b)(1)(A)(vi) or 509(a)(2), it must complete the support schedule in Part IV-A.

If the NPC has lobbying expenses, whether paid to a staff member or to an outside lobbying firm, they must be reported here.

Review

If you would like NAVREF to review your NPC’s draft Form 990 and provide informal verbal comments, please email an electronic copy to amurakami@navref.org or fax it to 301-656-5008 as far in advance of the due date as possible.  NAVREF is not qualified to provide legal or accounting advice, and will not be in position to consider the accuracy of the amounts reported.  However, as a service to members staff will conduct an overview and provide feedback.