The Nonprofit FAQ

What Must Be in an Annual Report?
Marketing guru Seth Godin spoke to a webinar organized by the Chronicle of Philanthropy in May of 2008. He offered this advice:

Instead of generating a glossy document,"...create a storytelling document that is aimed at the vernacular of the people you need to read it. Turn it into a PDF [for publication online] and a piece that’s easy to share. Test it and make it spread. No need to conflate" a financial report with a document that presents your work effectively.

See http://philanthropy.com/news/prospecting/4751/dont-spend-a-lot-of-money-on-annual-reports

Comments following Godin's remarks offer some further suggestions about how to make the annual report a resource rather than a burden.

Jason Schwartz 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?

Chip M. Watkins 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).

John Hines 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.

The BBB's standards may change as the use of the new Form 990 becomes more widespread after its publication in 2008. See http://www.idealist.org/if/i/en/faq/57-95/62-42 --Ed.

Dalhousie University (in Canada) offers a useful summary of possible elements of an annual report on its Community Leadership website at http://www.communityleadership.net/resources/annualreportsbasic2006.pdf





Posted April 23, 1998; revised 4/12/01; Quote from Godin and other edits 10/24/08 -- PB