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GuideStar Blog

From the President's Office, April 2005


Dear Friend:

On Tuesday, April 5, the U.S. Senate Committee on Finance convened another hearing on nonprofit accountability and governance reform issues.

It's a little discomforting, I'll admit, to be the subject of a Senate hearing. But the nonprofit sector is growing so fast and has so many parts to it, it's probably a good time to try to straighten some things out.

Law Enforcement

Testifying before the Finance Committee were IRS commissioner Mark Everson and Minnesota attorney general Mike Hatch. They each made clear that the current state of nonprofit accountability is, in part, a law enforcement problem. And that change is underway. "We can see that tax abuse is increasingly present in the sector, and we intend to address it," Everson warned in a letter to Finance Committee Chairman Charles Grassley. By the end of September, IRS will have increased the number of our personnel who audit tax exempt organizations by over 30 percent from September 2003, Everson added.

I applaud these efforts to improve law enforcement. It's time to put more focus on the improper tax shelters and phony foundations that give the nonprofit sector a bad name. Most of the abuses we read about have nothing to do with the public services that attracted us to work in the nonprofit sector.

To have a chance for success, charity regulators need sufficient resources to do their jobs effectively. Sadly, these agencies—at both the federal and state levels—are struggling to maintain an effective presence given the current limited resources available to them. In adidition, they face the challenge of converting paper-based systems to electronic ones.

Credible enforcement costs money. We need to make sure that the charity regulators have the resources to enforce current laws effectively. At the same time, Congress and state legislatures will work to determine whether new laws are needed to address the problem of nonprofit accountability. Both tracks are important and should be supported by the sector.

Voluntary Enforcement

Also at the Senate hearing was Diane Aviv, president of Independent Sector. Aviv presented the Senate Finance Committee with a list of more than 200 nonprofits that had endorsed the Interim Report of the Panel on the Nonprofit Sector. GuideStar supports the work of the panel.

Some have criticized the panel for not demanding more evidence of the size and scope of the nonprofit accountability problem. Others have criticized it for not going far enough to recommend sweeping reform. At GuideStar, we think the Interim Report is an effective first response. There's still time to do more. I urge other nonprofit leaders to read the Interim Report and endorse its work.

In the end, government regulation only sets the minimum standard for nonprofit accountability. As nonprofits, we can and should do more. We should seek excellence in service to our communities. To address these challenges effectively, a viable system of self-regulation is needed.

We can demonstrate our willingness to regulate ourselves by adopting codes of ethics to guide our work; by evaluating our programs to strengthen and improve our service to our communities; and by disclosing to the public our financial and program accomplishments. Those of use who serve as board members must effectively perform our jobs as guardians of the public's trust.

Legal requirements are a "one size fits all" approach; self-regulation honors the diversity within our sector. Self-regulation reflects our voluntary spirit. Self-regulation fosters a culture of integrity and candor that excellence demands.

GuideStar has a role to play in all of this. We believe on-line transparency concerning a nonprofit's finances and program accomplishments is perhaps the most effective means of demonstrating a nonprofit's support for self-regulation.

From our founding in 1994, we have emphasized nonprofits' missions and programs as the most important part of evaluating their effectiveness. Long before we began posting the 990s, we offered charitable organizations a way to share information about their missions, programs, goals, and achievements with the world. Last year, more than 90,000 nonprofits took advantage of this opportunity by updating their reports on GuideStar.

In the coming weeks, we plan to offer ways for nonprofits to post even more information to our site, documents such as audited financial statements and annual reports. We expect nonprofits to embrace this new opportunity to demonstrate their commitment to transparency and accountability.

A "few bad apples" have highlighted the vulnerability of our sector. Government regulators are responding in more effective ways. But in the end, nonprofit leaders will do what we always have done. We'll take care of business for ourselves. Because being open and accountable is the right thing to do.

Congress will do what it thinks it must do. Nonprofits can lead or we can follow. At GuideStar, we chose to lead.


Bob Ottenhoff
President and CEO, GuideStar