January 7, 2009
Nonprofits seem in no big hurry to fix their problems
WASHINGTON
The nonprofit-industrial complex knows it has a problem.
Impropriety and opacity at multiple charities involving millions of dollars
have tarnished the reputation of all nonprofits and probably prompted more
than a few would-be donors to stay their hands.
But as Congress considers reforms, nonprofits don't seem to want to do much
about it. Recommendations delivered yesterday by the cream of nonprofit
leadership would accomplish little to deter abuse, illuminate murk or inspire
confidence.
Nonprofits need "to make sure charitable dollars are not used to line the
pockets" of insiders, Paul Brest, president of the William and Flora Hewlett
Foundation, told journalists and nonprofit staffers gathered at the Dirksen
Senate Office Building.
Great idea. But how does Brest's panel of two dozen charity executives,
formed to give ideas to the Senate Finance Committee, propose to accomplish
that?
One way is to "fully enforce existing financial penalties" against
nonprofits that try to hide self-dealing, inordinate executive pay and other
stinkers by filing false returns with the Internal Revenue Service.
Only three problems. 1) Existing penalties are puny; $50,000 is the
maximum. 2) The Internal Revenue Service doesn't have the resources to enforce
existing penalties. 3) Existing penalties haven't deterred numerous charities
from filing bad returns.
The panel implicitly acknowledges this by proposing extra sanctions for
charities that repeatedly violate filing laws.
But check out the punishment: First, the IRS must notify the charity of a
violation. If the problem isn't fixed a year later, no problem. If the law is
still being broken two years later, then the government moves in - not to
revoke the group's charitable status and maybe shut it down, but to "suspend"
its tax-exempt credentials until it can "correct" its returns.
Double-secret probation might be worse.
The proper response to nonprofit scandals of recent years, which prompted
Finance Committee Chairman Charles E. Grassley, an Iowa Republican, to vow
corrective legislation, is anger.
The charity sector should be outraged that the American Red Cross initially
tried to keep millions that people had donated to the victims of the 2001
terrorist attacks.
It should be furious that the Nature Conservancy engaged in land deals and
financial transactions with insiders and that Baltimore-based Chimes failed to
properly disclose millions in executive pay to the IRS. It should be fuming
that New England blueblood Paul C. Cabot Jr. drained $4 million from his
family's foundation to pay for real estate and a daughter's wedding.
It should be apoplectic that dubious actors cast doubt on hundreds of good
nonprofits doing work that otherwise wouldn't get done, serving people who
otherwise wouldn't be served. But there was no anger on display yesterday.
Complacency and sanctimony, but no passionate, righteous resolve suggesting
that nonprofits are serious about restoring their good name.
With several chances to propose clear boundaries for charity behavior and
tougher consequences for misbehavior, the committee, known as the Panel on the
Nonprofit Sector, abstained.
It urged nonprofits to adopt conflict-of-interest policies for trustees and
executives but wouldn't make them mandatory and hasn't proposed specific
rules, although it plans to.
If insiders looted a nonprofit by paying themselves inappropriate salaries
or selling goods or services at inflated prices, the panel would merely boost
an excise tax on the ill-gotten gain, a tax that is rarely levied.
If the IRS bestirred itself to investigate a nonprofit and found
improprieties, the panel couldn't agree on whether the agency should have to
get the charity's permission to publicly disclose the misdeeds!
The group, which plans to issue a final report this year, had some good
ideas: restore IRS resources to monitor nonprofits; require financial audits
and public availability of the results for all but tiny charities; have
charity CEOs certify IRS filings; and expand access of state regulators to
nonprofit documents.
But it stopped short of meeting its self-described mission "to help the
nonprofit sector meet the highest ethical standards."
"When a husband and wife stretch their budget to write a check to help
someone who is in even greater need, they have a right to have confidence that
the money is going to be spent wisely," Grassley said yesterday.
The senator and his committee are working to restore that confidence. To do
so, it looks like he'll have to give nonprofits a lot more reform than they
want.
Mixx it!
Copyright © 2009, The Baltimore Sun
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