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Nonprofit Accountability: At What Price?
Accountably and transparency are all in vogue and woe to the nonprofit
that is not paying attention. Last year California enacted a host of new
laws in this area, New York tried to do the same, and now the U.S. Senate
Finance Committee (starting April 5, 2005) is considering even more stringent
and costly regulations.
New laws being considered include (this is just a sample; there are many
more):
1. Five-year review of a nonprofit's exempt status
2. Expanded 990s (the required tax forms for nonprofits) and requiring
all nonprofits to file (under $25,000 income currently excluded)
3. Limitations on board composition
4. Restrictions on donor advised funds and supporting charities (such
as foundations to support public schools)
5. Greater penalties for noncompliance
6. Required audits (similar to California)
7. Detailed description of annual performance goals and measurements on
the 990s
8. Private right of action for board members against the nonprofit
9. Public may bring a complaint to IRS about a nonprofit
10.
Restricting travel expenses
11. Eliminating, in whole or in part, the charitable contribution deduction
for property (such as, donations of real estate, art, food, books and
household items)
While numbers 1-10 above will cost nonprofits money (administrative costs),
number 11 (eliminating the property deduction) will take a huge amount
of money away from nonprofits!
In a recent article in the SF Chronicle it was reported that after last
year's reductions on the value of car donations, these donations fell
30-40%. That is peanuts compared to what will happen if these new proposals
are enacted. As the National Council of Nonprofit Associations said, "this
legislation may be the most significant overhaul of nonprofit regulation
since 1969."
Why is this happening? The accountability regulations stem from
numerous newspaper articles about fraud and over-compensation of executives
in the nonprofit sector. The perception (which we believe is incorrect
but none the less exists) is that things are out of control. The charitable
world is held to a higher standard than the for-profit world. And not
to sound cynical but there is a big hole in the federal budget and legislators
are looking to fill it. OMB Watch (government watchdog organization) wrote:
"The Joint Committee on Taxation has issued the report suggesting ways
to close the federal budget gap by picking up some of the revenue from
tax-exempt entities. According to the Committee, the section on exempt
organizations could pick up nearly $7 billion over the next ten years."
For
more details click here.
Of course some abuse exists but these proposals are similar to punishing
an entire class of kindergartens forever because one kid did something
wrong. Alleged abuse can be corrected by stronger IRS policing of abusers,
but that would cost the federal government money. The Association of Fundraising
Professionals (AFP) wrote:
"The proposals [eliminating the property deduction] were ostensibly created
in order to reduce valuation misstatements. However, stronger IRS policing
of donor valuations, not draconian measures that strip charitable giving
incentives, is a much less intrusive response to perceived valuation abuses.
The inability of the Internal Revenue Service to address improper donor
behavior should not result in penalties for charities and the communities
and populations which they serve."
There is a catch-22 to more regulation. Many of the proposals may
very well increase transparency (which all nonprofits should be aware
is the direction we are all headed) but at what cost? In the U.S. 64%
of nonprofits operate with budgets under $1/2 million and only 6% have
budgets over $10 million. In California, 77% have budgets under $100,000.
The obvious potential costs for compliance (each new regulation takes
time to implement) will add to the very administrative costs that government,
donors and funders are reluctant to cover (and that is often cited as
a sign that the nonprofit is wasteful and management-heavy). Audits alone
can cost between $3,475 for $1/2 million budgets and $15,795 for $4-9
million organizations (United
Way study see p.24).
What to do? We do not believe the government should be balancing
its budget on the backs of nonprofits especially at a time when the government
is reducing resources and excluding many administrative costs from grants
while the needs of our communities are increasing. While doing nothing
ensures that many of these proposals will be enacted, you can and should
contact your congresspersons, and have your board members do so as well.
ZimNotes believes that the real key to accountability and good governance
is education (which is why we made our long time popular Board
of Director's manual available as an easy download). Let's ask the
Senate Finance Committee to fund education if they really want more accountability.
Tell them to create (and fund) nonprofit support centers, similar to/or
with small business administration offices and not to take away a major
revenue source (property donations).
Please review the following documents for more details on the proposed
regulations. Writing is best, calling is second (and easy), faxing is
third, and while email is less effective it can be quick (please copy
us if you do email at zimnotes@zimmerman-lehman.com)!
Sample
letter from AFP
The National Council of Nonprofit Associations' analysis of proposals.
Independent Sector's Interim report on Proposed Regulations
Senate Finance
Report
Contacting
Congress:
- Congressperson in the U.S.
House of Representatives
- US Senate
website - Or call 202-224-3121
To send your comments to the Independent Sector Nonprofit Panel send
email here or visit
their website.
Copyright
2007 Zimmerman Lehman.
This information
is the property of Zimmerman
Lehman. If you would like to reprint this information,
please see our reprint
and copyright policy.
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