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Newsletter Readers' Recommendations for Charity Reform

This may be a big year for the nation's charities. Early next month, an expert panel will deliver a preliminary report on charity reform to the Senate Finance Committee. Convened by Independent Sector at the request of committee chairman Chuck Grassley and ranking Democratic member Max Baucus, the panel's work continues the discussion of charity reform that the two legislators initiated in a hearing last June. The panel will submit its final report in the spring.

With the delivery of the preliminary report so near, we decided to consult our own panel of experts, GuideStar Newsletter readers. January's Question of the Month asked, "If you were advising the Senate Finance Committee on charity reform, what one thing would you recommend be changed?"

Readers made a variety of suggestions:

Financial Accountability 

Financial accountability narrowly edged out oversight as the issue participants mentioned most frequently. Within this topic, reporting expenditures received the most attention. Elizabeth Doyle-Props of Breath of Hope, Inc., recommended, "All charities should be required to file tax forms EVERY year and account for all money."

Stephen F. Hanrahan maintained, "The Charitable Organization should make readily and easily available the amount of revenue that goes to their Mission Statement, intended recipients, and how much goes to salaries, rent, promotions, etc." Thomas L. Cracas wrote, "Both the CEO and the CFO of a nonprofit should be required to certify the material accuracy of their organization's functional expenses as reported in the broad categories of programs, fundraising and general & management."

Brian L. Finale of UPS called for a cap on administrative expenditures: "No charitable organization [should] be allowed to spend in excess of 15% for administrative expenses, including hotels and entertainment, etc." John S. Mudd of the Joyce S. Mudd Foundation agreed: "Set a limit on the amount of money that could be used by the charitable organization for administrative purposes. Require that most of its money be given to those whom it had originally intended to help."

Marty Melvin of Easter Seals Tri-Counties, California, advocated, "Require all charities to make 990's available on line!" Wendy E. Salomon advised looking at "the high salaries of executives."

An anonymous reader called for "a national standardized final reporting system," noting that such a system "would be tremendously helpful to nonprofits and would cut down on administrative expenses. When you're reporting back to 120+ major institutional donors a year and they are all asking different questions it consumes a lot of administrative time and money that the public at large thinks might be better spent on programming."

Several anonymous participants focused on audits. "NPO's should not be permitted to receive pro bono audits," wrote one, explaining, "A pro bono audit generally does not get the attention required." Another anonymous reader advocated "that all non-profits (regardless of how small they are) be audited yearly for how they spend grant monies." A third anonymous respondent suggested that the "Banking Commission establish protocols for auditing—that an audit confirmation for cash could be done by a national search of any bank accounts in a particular EIN/SSN."


Readers addressed several aspects of charity oversight. Ruth Hansen, associate director of Foundation and Government Relations at Saint Xavier University, called for resources to enforce regulations already on the books: "Most of the concerns I've heard aired are already addressed as far as legislation, to my knowledge, but lack the funding to implement. So—let's not reinvent the wheel until we've given it a fair chance to run as designed!"

New Mexico attorney Alexis H. Johnson agreed: "I would advise the Senate Finance Committee that it ought to fund the IRS sufficiently to follow up (human analysis and enforcement as necessary) on the reporting and disclosure duties of charities that inhere in the existing statutes and regulations pertaining to disclosure and Form 990 reporting."

An anonymous participant, however, maintained that a new enforcement body was needed: "Create an oversight committee. Today, the attention comes from Congress only after the media identifies problems. As soon as the problem cools down in the media, Congress loses interest."

Layton Olson of the law firm Howe & Hutton, Ltd. advocated greater coordination and information sharing between federal and state regulators. Marc Lopata of Marine Applied Research & Exploration argued for periodic review of charitable organizations. Tom Harrington urged "weed[ing] out" individuals who use nonprofits for their own benefit. Horace Mann of SCORE proposed "that all charitable organizations must meet the Better Business Bureau wise giving standards." Micki Hempsmyer of the Salvation Army advocated, "Reform government bureaucracy and waste" so that "more of the money actually gets to LOCAL, direct-point-of-contact agencies with a grass-roots mission and a proven record for keeping their own operational costs down."

Although Kitty Wojcik of the Anne Arundel Medical Center Foundation acknowledged, "It is important for the IRS to be vigilant in its oversight of philanthropic foundations," she also sounded a cautionary note: "Any legislation proposed by the Senate Finance Committee should not result in a substantial intrusion by government into the internal workings of private organizations. ... the IRS should not be micromanaging or second-guessing a foundation's internal management policies and procedures."

Other Topics 

Readers raised many other issues as well. Several argued for allowing taxpayers who do not itemize on their federal income tax returns to take charitable deductions. An equal number advocated increasing the minimum payout for private foundations and for removing administrative expenses from that figure.

Some participants called for more scrutiny of and reporting by faith-based organizations. Others suggested redefining which kinds of organizations are designated nonprofits and which nonprofits receive 501(c)(3) status. Still others urged that groups that engage in "domestic terrorism" lose their exemptions.

Catherine Springer of the Women's Resource Collaborative recommended that nonprofit leaders "be required to complete basic management training," leading to "a more business-like approach to running a nonprofit" and less "redundancy and lower competitiveness" among organizations. Vernon Hill of the Shriners advocated that nonprofit members select their officers by majority vote and that officers' tenure be limited to two terms.

Paul Schwarz of Meals-on-Wheels of White Plains, N.Y., focused on transparency: "Make sure that charities clarify where their services will be rendered. ... Two large New York City charities solicit funds by mail here in our town. Their literature implies that people here will be served. In truth they serve only NYC. They siphon off dollars from contributors who are misled."

Cornelia Carey of the Craft Emergency Relief Fund suggested, "Allow artists to get fair market value for donating their artwork to charity events and other fundraising purposes (not just to museum collections)." CPA Doryce Stultz advocated, "Pass legislation to allow taxpayers to donate IRA funds to charities, tax free."

Frank Svet of EMTEC proposed increasing private giving with "a tax code revision that credits a taxpayer with a tax deduction of 2X the donation value of up to $2500, and at a 1X level above $2500." Lew Drummond of the Shelton State Community College Foundation urged, "Revise the IRS rules on donated vehicles to exclude vehicles with market values of $5,000 or less. The January 1, 2005, rules place too heavy a burden on small non-profits and discourage charitable contributions."

An anonymous reader commented, "I would like to have organizations stop sending multiple mailings for membership renewals and special campaigns. Also, stop multiple mailings of solicitations with 'gifts.'" C. Sellars also called for "limits on the number of times an organization can use the non-profit mailing rates, more truth in advertising oversight, restrictions on direct mail to elderly, strict limits on the percentage of budget that non-profits can expend on mail and telemarketing. I hate to put limits on legitimate and ethical charities but I know that my 85-year-old father has been taken advantage of [by] these hard sell approaches."

Raymond DiSalvo of Elder-Tot Centers and Ed Udell of Bridge Ministries International offered suggestions for funding new nonprofits. An anonymous participant recommended that nonprofit employees and possibly volunteers be vetted against government terror lists. Another anonymous reader called for government funding "to educate poverty level recipients receiving any public assistance with mandatory financial counseling and follow-up for one year." Jay Blevins of Mountain Empire Community College maintained, "Education should be free access like"

Finally, John C. McGee of Family Relations Program encouraged the committee to remember that one size does not fit all in the nonprofit sector: "Make sure that any reforms keep in mind that charities come in all different sizes and what might be possible for a larger organization might bankrupt a small or mid-size charity."

Suzanne E. Coffman, February 2005
© 2005, Philanthropic Research, Inc. (GuideStar)

Suzanne Coffman is GuideStar's director of communications and editor of the Newsletter.
Topics: Law and Regulations