Governing
Governance
Ask any high school student who’s stud-
ied for the SAT: The best way to ace an
exam is to take a practice test before the
big day. With that advice in mind, the
Internal Revenue Service in December
2009 introduced Form 14114, the so-
called “Governance Check Sheet.”
Because IRS agents use it when they’re
auditing a tax-exempt organization, asso-
ciations and other nonprofits likewise
can use Form 14114 to self-audit their
policies, procedures and protocols in
accordance with IRS standards, accord-
ing to Clifton Gunderson, an account-
ing and consulting firm that specializes
in financial management solutions for
nonprofits. In a whitepaper published
this summer, titled Best Practices for Not-
for-Profit Governance: Insight into IRS Form
14114, Governance Check Sheet, the firm
suggests the following best practices for
strengthening organizational controls in
the six critical areas examined by Form
14114:
• Governing body and management:
Especially in low economic times,
organizations may veer from their initial purpose in an attempt to maintain
volume, membership or funding. It is
critical that nonprofits stay true to the
purposes as stated in their exempt
application. It is under these facts and
circumstances that exempt status was
determined and approved by the IRS.
As a measure to protect exempt status, nonprofits should carefully monitor their programs and operations to
ensure they stay focused on their mission. Significant changes to program
services should be disclosed to the IRS
in conjunction with the annual Form
990 filing.
• Compensation: Nonprofits should be
very diligent in determining compensation for their executives. Many orga-
nizations engage independent firms
to perform compensation studies on
their organization to help ensure that
compensation is truly comparable. As
a cost-saving measure, organizations
should rotate between a full-blown and
a limited-scope compensation study.
• Organization control: The board
should include at least some individu-
als who are not organization members,
management staff or key donors, pref-
erably with knowledge of, or expertise
in, financial and accounting matters.
