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Lessons of 9/11: Nonprofit-Information System Fails Donors and Charities

 

Americans are recognized worldwide for their generosity and activism. After September 11, 2001, citizens throughout the country sprang into action. They wanted to get involved—to help those who had suffered—and to support the nonprofit organizations that deliver emergency services in our country.
Many experienced firsthand the frustrations of obtaining information about the nation's charities. Victims did not know where to turn for assistance. Donors could not find the most appropriate agencies and were frustrated to learn that their contributions were not always used as expected. Charitable agencies scrambled to coordinate their efforts.

These problems arose from fractures in the nation's nonprofit-information system. They would have been reduced had there existed a common repository of information on U.S. charitable organizations. As the anniversary of the terrorist attacks approaches, we should use these experiences as impetus for creating a unified national system for collecting, storing, and disseminating information about America's nonprofit organizations. Such a system would do as much to prepare the nation for another terrorist attack as preventive pills, evacuation plans, and gas masks, for it would enable philanthropists and critical nonprofit agencies to respond more quickly and effectively to disasters. And it would enable a far better functioning of our national nonprofit infrastructure in less stressful times.

Currently, the federal government and 40 states collect data from nonprofit organizations. Many digitize the information, creating duplicative but incomplete databases. Resources that could otherwise be applied to detecting and preventing fraud are instead devoted to data collection; the National Association of State Charity Officials (NASCO) estimates that 50 percent of state charity offices' budgets are devoted to information gathering and storage.

These systems are equally burdensome for the charities, which must report the same data to the Internal Revenue Service and every state in which they solicit contributions. The multiple reporting requirements divert financial and human resources from charitable programs.

Compounding this problem, an accurate registry of bona fide charities does not exist. Nonprofits with incomes of $5,000 or less are not required to apply to the IRS for tax exemption, and tax-exempt organizations with incomes of $25,000 or less do not file annual reports (Form 990) with the IRS. Consequently, the IRS Master File lacks entries for smaller charities and includes now-defunct ones.

Difficulty in obtaining accurate nonprofit information led to the creation of GuideStar. Our data proved especially valuable after September 11. We helped several New York City-based groups identify nonprofits to aid in the relief efforts, identified charities located in and near the World Trade Center, and provided information for and promoted the WTC Relief Info Site. We also publicized the existence of new 9/11 charitable organizations that had received expedited IRS recognition as public charities.

The experience reinforced our conviction that America needs a unified source of nonprofit information. Although we are proud of GuideStar's contributions to the recovery efforts—and of having created a national source of nonprofit information where none existed before—we are keenly aware that much more work remains to be done.

GuideStar recommends that the IRS and individual state charity offices work closely together and with NCCS, GuideStar, and other nonprofit leadership organizations to create and maintain a common nonprofit-reporting system. This system should include mandatory electronic filing for secular charities of all sizes; a requirement that small charities currently not required to file Form 990 at least affirm their existence annually; and a common registration and data program that all state charity offices would access. Faith-based organizations, which are not required to attain tax-exempt status or to file Form 990, should be actively encouraged to register as well.

A common nonprofit reporting system would:

  • Eliminate duplicate data-gathering and storage efforts and thus be more cost effective than the current system.
  • Free up resources currently devoted to data collection, enabling charity officials to concentrate more on oversight and enforcement.
  • Lessen nonprofits' reporting burdens, enabling them to devote more resources to their missions and programs.
  • Ensure the accuracy of the list of secular charitable organizations.
  • Make it easier for nonprofits to coordinate relief efforts.
  • Make it easier for the public to obtain information about individual charities, thereby increasing donor confidence.

A unified national nonprofit-reporting system would be a positive legacy of the terrible events of September 11, 2001.

buzz_schmidt1.jpgThe preceding post is by Buzz Schmidt, GuideStar's founder and first president.

Topics: Donors Nonprofits Charities