Every few months, a client contacts Lovell for advice on how to manage reporter inquiries into their organization’s Form 990. The mandated, annual reports to the Internal Revenue Service are the agency’s primary tool for gathering information about tax-exempt organizations.
The forms are tightly structured, somewhat cryptic, and well … pretty boring. Until they’re not.
To get a sense of just how interesting your organization’s 990s might be, take a look at reporters’ favorite starting points: Part VII and Schedule L.
Part VII is likely the most read — and most dreaded — area of the Form 990. It’s the first section of the form that details compensation to “officers, directors, trustees, key employees, highest compensated employees, and independent contractors.”
Reporters, unions and watchdogs know they will find information on CEO and executive compensation in Part VII, but they may also find out how much a hospital pays its ER contractor or lobbying firm. This is also where they’ll see if board members receive any payment from the hospital — though they will not see the reason for the payment.
Hence a call we received when a journalist reviewing a client’s Schedule L discovered what they considered suspicious payment to a member of the hospital’s board. It’s unusual for hospitals to pay board members, so it stuck out that the physician trustee had received approximately $20,000 in the prior year, though the physician was not employed by the hospital or its medical group. To complicate matters, in the tiny space in which the IRS requires organizations to indicate how many hours per week a person works, the hospital appropriately indicated “1.”
Given those details it’s not surprising the reporter had questions. It took considerable internal digging to realize the compensation represented fair market reimbursement to the physician/trustee for rent, supplies and access to clinical equipment for a medical intern recruited and employed by the hospital’s medical group. Included in the $20,000 was nominal payment to the trustee/physician for mentoring the intern for (you guessed it) approximately one hour per week.
The payment was entirely compliant and the filing was correct. But untangling the details and clearing things up for the reporter required time, research and input from four different departments at the hospital.
Hospital compliance programs require employees and board members to annually disclose any conflicts of interest, and the Form 990 neatly lays them out in black and white. “Transactions with Interested Parties” sound pretty interesting, right? Not necessarily.
A reporter working on a COVID stimulus story was reviewing 990s and questioned one of our clients when they noticed a board member of the hospital was related to a member of the nursing staff. From the reporter’s question, it appeared they assumed the nursing job had been secured or somehow influenced by the board member. Turns out the nurse worked at the hospital for more than 20 years before her in-law took a two-year seat on the board.
We see similar confusion when a hospital uses a local construction company (the CEO of which is married to someone in the hospital’s HR department) or purchases a vehicle from a local car dealership (owned by the brother of the hospital CFO).
Because the 990 is a form used by a wide diversity of not-for-profit entities, it’s concise in format — but broad in requirement — and doesn’t provide much space to provide details and context. In the absence of clarifying information, anyone — reporters, donors, potential partners — can easily assume the worst.
What You Can Do
Please trust us that third parties can and do review your 990s. They’re available to anyone on Guidestar, and organizations like ProPublica and the American Association of Health Care Journalists have made them searchable as well. Scrutiny that has come with CARES Act funding and other stimulus efforts is making the Form 990 even more popular with the media.
The lesson is to always review your 990s with a critical eye, imagining how a regulator, reporter or other “watchdog” might read them. If there’s anything that could be misinterpreted or isn’t adequately explained in the form, gather the information and language necessary to address those questions before the media inquires. The public’s desire for transparency, particularly around health care finances, is only growing.
Additionally, if your organization makes PDFs of your 990s available on your website, consider how your Community Health Needs Assessment, annual report or other documents can help provide context to the numbers and bring your mission to life.
To discuss what your 990 is saying about your health system, contact us at email@example.com.
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