Federal Government Scrutinizing Finances of Nonprofits

Overhauls of various financial reporting and financial responsibilities for charities and foundations continues as a topic of interest at the Federal level. The Senate Finance Committee held hearings in April on misconduct attributed to nonprofit organizations. This is a continuation of the adoption of Sarbannes-Oxley a few years ago. The Legislation originally paid attention to financial practices in the business world, but has increasingly turned attention to the nonprofit community. Last month I was sent copies of articles relating to these hearings that occurred during that time. The first was an op-ed piece from The Wall Street Journal, “Death by Bureaucracy,” written by, Heather R. Higgins, the co- founder of the Alliance for Charitable Reform (www.ACreform.com). The author called attention to the destructive nature of the potential actions that might come from the Senate Finance Committee hearings. She argued that the the responses would be overkill, raising the costs of operation for all nonprofits when only a few are guilty of misconduct. The writer suggests that a more appropriate action would be for the committee to study the real extent of abuse instead of relying on abuses discovered while reviewing a handful of organizations. She challenges whether the appropriate agencies charged with reviewing all the proposed new filings would be staffed appropriately. Part of the federal proposal also includes some method of accrediting charities. If you check out the website of the Alliance for Charitable Reform, you will find their suggestions for legislation and self-policing
of nonprofits.

The second article I received was a report on the Senate Finance Committee hearing as reported in the Washington Post. This article refers to nonprofit as “a hotbed of tax evasion and abuse.” IRS Commissioner Mark W. Everson “said that the IRS is finding problems in virtually every type of tax-exempt organization.” The article continues, ”Non profits include not only charities, but colleges and universities, many hospitals, pension plans, trade associations and think tanks,…..now totals roughly 3 million entities controlling $8 trillion in assets.

Hmm. My first response as a person who asks for money for local nonprofits – with $8 trillion floating around – I think some one is getting more than their share and it isn’t anyone I know! My second response is that there are risks to folks who receive charitable services as well as to donors, if they are ill informed. In fact, Mr. Everson, in the Post article does lament that those who might suffer most would be the people and groups who receive help from foundations and charities. His other concern is defining a mechanism to penalize offenders He points out that when an entity that pays taxes is found to have acted illegally, that entity can usually expect to pay a penalty, usually double the tax owed. He then points out that inappropriate actions by non-profits need another type of punishment. If you don’t pay any tax, doubling the amount
owed is meaningless.

Because I am not familiar with the Alliance as quoted above, I went to the website of NC Center for Nonprofits (www.ncnonprofits.org) for a second opinion. The Center’s “Public Policy Alert” of April 19, 2005 also reports on the Senate hearing. The Center website details a national panel of nonprofits’ report submitted to help the Senate Finance Committee work toward solutions for nonprofit tax issues. They also support some regulation and some self-policing.

All this is to tell you that giving money or other assets to a charity or foundation, is becoming a lot more complicated for the donor and more challenging to the nonprofit recipients. Charities will have more responsibilities to monitor donors especially gifts other than cash. The IRS suspects donors overvalue donated assets. Charities, even our local agencies, will be required to develop methods to monitor donations. Nonprofits need to be aware of the laws. They should all have appropriate policies in place to ensure correct financial management and board members in place who understand the responsibility of acting as the law requires.

There is a bright side to all this. Although the IRS is telling Congress that tax abuse is rampant in Nonprofits, they are also trying to help. On June 28, 29 or 30 they are offering an 8 hour workshop for small and mid-sized exempt organizations in Charlotte. The cost is $30. In fact,
check out www.irs.gov/charities. There is a lot of information there. If you are a treasurer for a local nonprofit, this is a website for you. The work shop has to be a personal decision. Eight hours or so with the IRS could be a challenge. – look what it got Al Capone.

May, 2005
May 2005 Fed Government and Nonprofits

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