19th century charity board in the north aisle of St. Mary (copyright Richard Croft and licensed for reuse under this Creative Commons Licence)National Public Radio reporting confirms what I have believed for years: IRS does not have sufficient resources devoted to policing the nation’s charities. That means the community must keep itself clean.
In NPR’s coverage, I’m focusing on the blog page where the story is posted. Not the four minute story, but the blog post and its shorter audio interview. A former director of the Service’s Tax Exempt/Government Entities team explains nonprofit examinations and audits aren’t a priority because considerably more money can be recovered from taxpayers and businesses.
That makes all of us in the nonprofit community responsible for operating properly. The buzzwords like accountability, transparency and compliance are well known, nearly cliché, and most of us recognize donors increasingly demand clean operations. That in itself should provide sufficient motivation.
Fear also motivates. If you don’t fear an IRS review because you’re resting on favorable odds, recognize that other interests within government are looking over your shoulder. From your state attorney general and secretary of state to the Federal Trade Commission and Congress, there are ample institutions helping to make sure you do the right thing.
Do you honestly not know what’s right? Do you fear the things you don’t know or understand? Your employees probably know the way. (That’s what I’ve seen for 13 years.) Are you listening to them? (In my 13 years, probably not.) If you prefer, there are thousands of consultants, in all stripes, to help your charity find its course.
Ultimately, it’s a matter of conscience–your charity’s conscience. What does it tell you about the right way to conduct business, to keep its reputation, donors, employees and board out of trouble?
That message is stronger than any IRS can put out.
The International Conference of Charity Regulators met for three days in May of this year. Represented were Australia, Canada, New Zealand, Northern Ireland, Republic of Ireland, Scotland, and the U.S. hosts. The festivities were in Washington, D.C.
This seven-page summary has been circulating. I decided to pick out a few highlights for your consideration.
Canada used to have a rule that charities disburse 80% of their contributions, presumably annually. There is still a requirement to spend 3.5% of “investments.” Anyone able to tell us more about this? (page 2)
IRS can now make additional disclosures to states. That intrigues me. What have they been sharing with the states and what’s been added? (page 3)
Australia has no annual filing requirement. Nothing akin to IRS Form 990. You’ve got to be that smart to have country and continent status. (page 4)
“IRS believes that transparency, good governance and tax compliance go hand in hand.” That’s not a new statement. It is the rationale for the expansion of Form 990 two years ago. (page 4)
Processing of applications to IRS for tax-exempt status takes 112 days this year. Their way of discouraging formation of new charities? (page 5) (Aside from this conference, I had seen IRS talking about an online version of Form 1023, the application for tax-exempt status. I don’t know where that initiative stands.)
The Canadian Charities Directorate is the only office with a significant initiative to educate the public. Its counterparts are focused on training charities and their leaders. (page 5)
Internationally, regulators believe government oversight of charities will increase, particularly in transparency, compliance and use of resources. (page 7) Were you looking for a reason to retire early?
The most common problems fall under transparency, accountability and board inactivity. These are among the areas of focus for the IRS and states, as I explained in a post on the corporatization of nonprofits.
The solution is educating board members about what’s required and what their role is in compliance with federal and state standards. The Better Business Bureau will be satisfied. The UJA-Federation of New York has a program that teaches young people the responsibilities of board membership, and there’s at least one similar program in the Jewish community. I hope the students get on boards fast, so these 20- and 30-somethings can teach the 60- and 70-somethings some important lessons.
Attention board members: Compliance issues are critical and you are responsible!
Is there something you’d like to say to a board? Do you know of similar youth training programs?
Courtesy of TW Collins on Flickr.Our country’s nonprofits are swiftly becoming more like their for-profit corporate counterparts.
Recently, Reuters told us nonprofits mimic the language of Wall Street, but for years donors have demanded to be treated as investors, and the institutions have obliged, referring to “returns on investment” and negotiating gift arrangements as contracts. More recently, foundations and individual donors have insisted on outcome metrics, best practices, benchmarking, social impact and performance standards. All of this was unheard of 7 to 10 years ago in nonprofit communities.
Donors and grantors are not alone in creating this change in culture and enterprise organization. Federal and state governments also unite our nonprofit and profit-making corporations. Since Sarbanes-Oxley reforms were levied against the profiteers in 2002, serious talk about identical improvements has trickled down to those with a calling higher than profit. (I’m uncertain what tone to take about this: lamentation; resignation; pride; excitement; exhilaration.)
To my recollection, “board development” didn’t exist 10 years ago. At the least, it wasn’t nearly as much a part of the nonprofit lexicon as today.
Our Internal Revenue Service, through its agents and tax-exempt commissioners, measures, and pronounces about good governance, accountability, financial integrity, transparency and oversight.
State Charity Registration laws, which I study, write and speak about a lot, have been enforced more in the last 18 months than anybody I know can remember. The IRS stepped in here, too, probing more directly in its heavily-revised Form 990, an unusual instance of a federal agency asking about compliance with purely state laws.
Even the legal form of the nonprofit enterprise is becoming indistinguishable from its counterpart. Several states have adopted the Low-profit Limited Liability Company, or L3C. Profit is allowed but must not be the primary objective. (By the way, you should pay attention to Gene Takagi, publisher of the blog at that last link.)
Nonprofits are becoming more like companies.
Part of me longs for the charming days, when do-gooders came together, appointed their parents and friends to boards, raised money, and did their best with heart and head to make a difference in their community. We cannot return to that time, and we shouldn’t. But I partly miss it. It was so much easier.
I’m between resignation and excitement, closer to the latter. Funders and governments demand change and nonprofits are complying, looking more like for-profits, at a pace that is accelerating and will not reverse.
This brings enormous, promising opportunity for smarter, more efficient execution of charitable missions, which should mean better service to those in need throughout the world. (That sentence hits on several subjects debated by bigger thinkers and more august personages than me.) Look at organizations like charity: water and The Center for High Impact Philanthropy to discover the possibilities. (At The Center, I commend Autumn Walden to your attention.)
What examples do you see of the corporatization of nonprofits? Are you excited by what we’re witnessing? Do you miss the old days, or am I alone?
