After Madoff: Should Charities and Their Officers Become More Wary About Who Signs Their IRS Forms 990? – Installment 88March 12, 2013 – Articles White Collar Defense & Compliance Blog
This blog series has often used Forms 990 and Forms 990-PF filed with the Internal Revenue Service (“IRS”) by public charities and private foundations, respectively, which have been victims in the Ponzi schemes of Bernard L. Madoff (“Madoff”) and others, to highlight areas where improvement in compliance may be undertaken. For example, a previous blog entry pointed out that there is evidence that some charities may be exercising greater caution in their gift acceptance policies as a result of having suffered from involvement with Ponzi schemes.
This posting will address the question of what officer should sign the Form 990 in light of the requirements of the IRS contained in the Form 990 itself and the IRS Instructions for Form 990 (the “IRS Instructions”). The Form 990 Signature Block at the bottom of the first page states the following, which is substantially the same language as is present in income tax returns for individuals and business corporations:
Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and belief, it is true, correct and complete.
The IRS Instructions add the following further requirements as to the Signature Block:
The return must be signed by the current president, vice president, treasurer, assistant treasurer, chief accounting officer, or other corporate officer (such as tax officer) who is authorized to sign as of the date this return is filed [Emphasis supplied] . . . . The definition of "officer" for purposes of Part II is different from the definition of officer (see Glossary) used to determine which officers to report elsewhere on the form and schedules, and from the definition of principal officer for purposes of the Form 990 Heading (see Glossary).
This is a very serious standard and a high bar for the officer executing the Form 990 to achieve. As early as February 2010, this blog series recognized the diverse and somewhat perplexing nature of the individuals who signed Forms 990 on behalf of two charities that were victims of Madoff: Yeshiva University and Hadassah. In the case of Yeshiva University, its Vice President and CFO, who was a compensated full-time employee, executed the Form 990. On the other hand, the National Treasurer of Hadassah, who sign its Form 990 contemporaneously with the Yeshiva filing, appeared to be an uncompensated volunteer and reflected less than 10 hours per week of time for Hadassah.
Query: should a volunteer officer who devotes relatively little time to the charity be undertaking the responsibility to sign for a charity of the international scope of Hadassah? Would not the CFO or other full-time compensated officer of Hadassah be more appropriate for the task? (While the uncompensated National Treasurer of Hadassah again signed its 2011 Form 990, such Form 990 does indicate that she devotes 34.00 hours per week to Hadassah.)
Below are some concepts that charities and their officers should consider in determining who should sign their 2012 Forms 990. Subject to the size and human and financial resources available to a charity, the officer who executes the Form 990 should be one who
1. can demonstrate active input and involvement in the Form 990 and financial statement preparation process;
2. has the skill and experience to evaluate personally the quality of the preparation process for both the financial statements and the governance, management, policies and disclosure portions of the Form 990;
3. holds such a position that his/her input will be meaningfully received by the other internal and external preparers of the Form 990;
4. understands and is comfortable with the seriousness of signing the Form 990 on the basis that it is true, correct and complete and executed under penalty of perjury; and
5. is authorized to sign.
While I believe that item 5 has been rarely done on a formal basis by charities, the formal granting of authority to sign the Form 990 will assist the governing body and the executing officer in comprehending the gravity of the Form 990, its filing with the IRS and universal availability on the Internet.
(Michael J. Kline, the author of this entry and a co-author of this blog, is a partner with Fox Rothschild LLP, based in our Princeton, NJ office, and is a past Chair of the firm's Corporate Department. He concentrates his practice in the areas of corporate, securities, and health law, and frequently writes and speaks on topics such as corporate compliance, governance and business and nonprofit law and ethics.)
[To be continued in Installment 89]