There are over a million nonprofits in the United States and there may be well over a million interesting stories to tell. Listen to this one: our curious Vice President of Research, Chuck McLean, was roaming through the GuideStar database and discovered there are 2,267 records with an “in care of name” of William Alexander, and an address of “Nonprofit Accounting Services, Las Vegas,NV, 89107”. He noticed that they all had very small incomes, and on a whim, he matched them again the list the IRS published of organizations at-risk of revocation due to failure to file, and found that of the 2267 records, 2029 were on the at-risk list, but are shown on the BMF with a tax year of 2009 and also have a 2009 990-N filing and all with the same Las Vegas address –even though the organizations are located all over the country. Well, as Chuck puts it, “there are probably some benign explanations for this, but if it swims like a fish, and smells like a fish… “ At that point he notified the IRS and we were told they were already aware of this issue.
Now comes a story on Forbes.com that in a breathtaking headline reports about “massive identify theft.” According to Forbes, someone has “hijacked the tax identity of more than 2,300 tiny or defunct nonprofits, apparently taking advantage of a hole in a new electronic IRS filing system.” Forbes reports that the IRS has outsourced the electronic annual reporting requirement of small nonprofits to the Urban Institute and and that it “apparently verifies the given email address but not the name or contact information given.”
So what are the lessons to be learned?
If you’re a donor, you have another reason to be concerned about whether the organization you are supporting is in fact a legitimate charity. Here at GuideStar, we see verifying charitable status as one of the issues of most concern to donors. We rely on the IRS database for much of our work and if the IRS database is incorrect or not updated, it is difficult for the GuideStar database to be fully accurate. The biggest exposure currently is that once the IRS approves a charity, it does very little follow up to check on organizational status. Should the IRS be doing more examinations and enforcement actions to create a credible public enforcement presence? That’s why it is so important for donors to frequently check on the freshest, most up to date data. Status does indeed change and old data is not always correct. Take a look at our recent white paper and our Charity Check product for more information.
For all of us in the nonprofit sector, the impending revocation of over 300,000 charities by the IRS is going to be a big deal – and potentially a very confusing one. Take a look at our recent white paper on this subject laying out some of the issues.
For nonprofits, the lesson is that the public now has another reason to be skeptical of nonprofits in general. We are in an era of trust but verify. Your commitment to transparency and accountability are your best defense against donor skepticism. Be sure to take advantage of our GuideStar Exchange to help give your stakeholders and supporters the confidence they need to be generous and confident givers.
The preceding is a guest post by Bob Ottenhoff, Chief Executive of the Center for Disaster Philanthropy. With an entrepreneurial spirit, strong technology focus, and a quest to make an impact in the world, Bob has the ability to take an organization and lead it into strong performance, sustainability, and industry leadership.