The Internal Revenue Service recently released a Governance Check Sheet to be used by Exempt Organizations Examination agents in the examination of exempt organizations' governance practices and related internal controls. In addition to these governance audits, the IRS has stated that the data collected by the check sheets will be used for a long-term study to gain a better understanding of the intersection between governance practices and tax compliance.

The check sheet indicates that agents will be focusing on the following areas of governance:

  • Governing Body and Management, including whether the written mission statement of the organization articulates a 501(c)(3) purpose; composition, duties and qualification of the governing board; availability of organization's articles and bylaws; and frequency of meetings of the board.
  • Compensation, including compensation approval procedure, use of comparability data; and contemporaneous documentation of compensation decisions.
  • Organizational Control, including the existence of family and business relationships among officers, directors, trustees or key employees; and whether effective control of the organization rests with a single or self few individuals
  • Conflict of Interest, including written conflict of interest policy; and disclosure of actual or potential conflicts of interest.
  • Financial Oversight, including whether systems or procedures in place to ensure proper use of assets; provision of written financial reports to board; board review of Form 990 prior to filing; whether the board reviewed an independent accountant's report; and whether the board used and adopted recommendations in a management letter prepared by an independent accountant.

The Governance Check Sheet can be found here: http://www.irs.gov/pub/irs-tege/governance_check_sheet.pdf

The Guide Sheet for Completing the Project Check Sheet can be found here: http://www.irs.gov/pub/irs-tege/governance_guide_sheet.pdf