What Must Be in an Annual Report?

Summary:

There is no standard format for the corporation's Annual Report but many states and some watchdog organizations have requirements for annual reporting.

Answer:

Jason Schwartz (Jterrence@AOL.COM) asked in the cyber-accountability mailing list on April 23, 1998:
I know that nonprofit organizations are expected to publish an annual
accounting of activities (e.g. an annual report).

Are there rules concerning what is to be included in an annual report with
regard to financial information? Most annual reports I have seen include the
entire audited financial statement, however I am aware of at least one report
that includes only the Statement of Financial Position and Statement of
Activities from the organization's audited financials.

Is this sufficient, or are there further disclosure requirements (if any)?

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Chip M. Watkins (cwatkins@WC-B.COM) replied with these comments:
No Federal or state statute or regulation of which I am aware requires a
charity to publish an "annual report," apart from its Form 990 (or other
comparable state document). Accordingly, if I am correct, there would be
no rules governing the content of such reports.

Charities that wish to participate in workplace campaigns, such as United
Way, Combined Federal Campaign, etc., may be required to submit an
"annual report" with their application, but I doubt if there are detailed
rules regarding the contents of those reports because, e.g., the CFC also
requires submission of Form 990 and the audited financial statements.

There may be such rules relating to applications for grants or contracts
from Federal, State, or local governments, or from private foundations. These rules would be imposed by the contracting agency or grantor. And, of course, there are annual reporting requirements related to maintaining corporate status and to complying with charitable solicitations regulations; these vary from state to state.

Of course, the most important reason to publish an annual report is for
donors, and then the information to be included in the report will be
shaped by the charity's perception of its audience. Frankly, I can see a
case for an "annual report" that includes both the entire report on the
audited financial statements, Form 990 (with attachments), and a textual
report of the charity's accomplishments and plans. This would be
something like the reports (not the proxy statements) that stockholders
of public companies receive in advance of the annual stockholders'
meeting (but, in recognition of cost constraints, perhaps should not be
quite as glossy).

I recognize that including both the Form 990 and audited financial
statements may be confusing to the reader (because of different
accounting and reporting rules that apply to each document), but most
readers who recognize the different numbers before their eyes glaze over
will also be easily educated by a short, general explanatory note about
the reasons for the differences (such as the preceding parenthetical).

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Office.com published an article in December 2000 on annual reports that quotes (among others) the Internet Nonprofit Center's editor Putnam Barber. See http://www.office.com/global/0,,62-22074,FF.html

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John Hines (jhines@NATCAPRES.COM) added this thought:
I believe that the perception that non profits must produce an annual report
may stem from the requirements of the BBB and other such organizations - the
excerpt below is from the Council of Better Business Bureaus' Philanthropic
Advisory Service. (see http://www.bbb.org/about/charstandard.html)

"-Public Accountability
1. Soliciting organizations shall provide on request an annual report.
The annual report, an annually-updated written account, shall present the
organization's purposes; description of overall programs, activities and
accomplishments; eligibility to receive deductible contributions;
information about the governing body and structure; and information about
financial activities and financial position."

My direct experience is that BBB does not find the 990 to be adequate for
compliance with this standard.

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Posted April 23, 1998; revised 4/12/01 -- PB