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Hearts & MindsSM - Information for ChangeSM
Regaining Trust in the Nonprofit Sector
10 essential reforms we need
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Dear (your elected representatives):
Public distrust, heightened by too many bad actors in
the nonprofit field, cries out for regulatory reforms and increased donor
diligence.
Only 11% of the public think that charities do a very good job of spending
money wisely and only 19% feel that charities do a very good job of running
their programs and services, according to a recent Brookings Institution
study. The study found that confidence in charity is 10-15% lower today than
it was in the summer before 9/11.
The Senate Finance Committee is currently working on
new legislation to improve the the nonprofit field's accountability, governance and regulation. The American Institute of Philanthropy recommends that
Congress enact the following vital new measures to help nonprofits regain
public trust:
1. Regulate the expense of fundraising
Require that most charities raising money for a
highly popular cause, e.g. firefighters, police, veterans, disaster relief,
hungry or ill children, cancer, etc…, maintain reasonable annual fundraising
costs of 35% or less. Exceptions would be made for groups that have been in
existence for less than 3 years or with gross revenues of $500,000 or less.
Controversial or unpopular causes, e.g. legalization of marijuana, abortion,
gay rights, should be allowed to have fundraising costs exceeding 35% per
year due to the smaller number of people willing to support these causes.
Past attempts to regulate fundraising costs have failed in the courts due to
free speech concerns. The First Amendment should continue to guarantee that
we have the right to raise money for unpopular causes even if it is very
expensive to do so. An exception can be made for unpopular causes. However,
opportunistic fundraisers, who purposely pick causes
that the public is most likely to support, should not be allowed to hide
behind the First Amendment to spend excessive amounts of money.
2. Transparency for religious charities
Require that religious organizations soliciting the
public uphold the same level of regulation and accountability as secular
groups. Dishonest or inefficient fundraisers can choose to form a
“religious” charity to avoid being transparent and facing scrutiny from the
IRS and many state regulators. AIP believes that this will strengthen the
integrity of religious organizations.
3. Audit successful charities
Require that all charities raising $250,000 or more
from the public have an audited financial statement. The chief executive
officer should sign a written statement under penalties of perjury that the
charity’s audit, as well as its tax form, is complete and reasonably
portrays the charity’s finances. Nonprofits need to have an outside
accountant audit their books and see to it that adequate internal controls
are being followed. The three most recent audits should be made available to
the public.
4. Require disclosure of audits and tax filings
Require charities to disclose complete audits and
tax filings of its taxable business activities and for-profit subsidiaries.
There is too much temptation for charities to bury questionable practices in
its minimally accountable for-profit subsidiaries.
5. Make this information publicly available
Require charities to make available to the public
its audits and tax forms within one year their fiscal year ends. The
failure to do so would incur the risk of losing their ability to offer tax
deductions on contributions during the time that the reports are more than one
year late. Donors need more timely financials in order to evaluate a
charity’s current level of efficiency.
6. Publicize charities' governing documents
Require that a charity’s basic governing documents,
including current articles of incorporation and bylaws, be made
available to the public.
7. Conflict of interest policy
Require all charities to provide, upon request,
copies of their conflict of interest policies and board-approved written
documentation that they have been followed. The policy should call for public
disclosure of why it is in the charity’s best interests that business be
conducted with board members, officers or others with substantial influence
over the organization, or with their respective family members. This should
include records of multiple competitive bids by vendors or lenders who are
not related to insiders at the charity. The IRS should levy heavy fines on
charities and their executives that condone abusive self-dealing.
8. Publish descriptions of accomplishments
Require charities to provide, upon request,
descriptions of their recent activities and accomplishments in relation to
the expense categories used in their financial statements. So that donors
understand what a charity is raising money for, a board-approved budget
should also be made available upon request.
9. Protect whistleblowers
Require charities to provide whistleblower
protections, including procedures for complaints to be made to a rotating
committee of independent board members. Mandated employee confidentiality
agreements that silence whistleblowers should be outlawed.
10. Create federal agency to regulate charities
Create a federal regulatory agency for charities:
a Securities and Exchange Commission of the nonprofit world. Most regulation
of charities takes place at the state level, yet charities operate and
solicit money in multiple states. Charities are burdened with different
filing requirements in about 40 states. Charities and the public would
benefit from having one super-reporting form that would be provided to a
federal agency and any interested donor. If state regulators could free up
time and resources spent collecting and filing duplicative forms, they
could do more to crack down on charity abuses.
Ultimately, any new rules will only be effective if
the directors of nonprofits take them seriously and charity regulators have
the resources to enforce them. Being that too many charity directors are
asleep at the wheel and government resources are inadequate to regulate more
than
1.6 million nonprofits, much of the responsibility to improve the sector
lies with the donor. AIP will continue striving to serve as your charity
watchdog and resource for informed giving. Hopefully, Congress will soon
provide us with some important new tools to help us elevate the
effectiveness of charitable giving.
Please let me know the specific ways that you support
these and other solutions.
Thank you.
Sincerely,
(your name)
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based on an article by Daniel Borochoff,
President, American Institute of Philanthropy (AIP), a nationally prominent charity watchdog service
that helps donors make informed giving decisions.
©
Copyright: 2004 by
AIP, originally published in the December 2004 issue of
its
Charity Rating Guide & Watchdog Report
This web page and entire website © Copyright: 1997 - 2007 by Hearts and Minds Network,
Inc.
http://www.heartsandminds.org/charity/reforms.htm - online November 3,
2005, latest
text changes April 25, 2006 |