Nonprofit Panel Recommends More than 120 Actions to Strengthen Transparency, Governance, and Accountability in the Charitable Community
Release Date: 06-21-2005
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The Panel on the Nonprofit Sector, a collaboration among leaders of America’s charitable organizations, today offered a comprehensive series of recommendations intended to strengthen the ability of the nation’s 1.3 million charities and foundations to serve as responsible stewards of the public’s generosity.
In the report it presented to Senator Charles Grassley (R-IA), chairman of the U.S. Senate Finance Committee, and Ranking Member Max Baucus (D-MT), the Panel recommended more than 120 actions to be taken by charitable organizations, by Congress, and by the Internal Revenue Service, which together would strengthen the sector’s transparency, governance, and accountability. Representing the collective expertise of hundreds of nonprofit leaders, these recommendations, if implemented, would constitute the most sweeping changes to the governance, operations, and regulation of charities and foundations in three decades.
“Charitable organizations make indispensable contributions to every
community,” said M. Cass Wheeler, chief executive officer of the
American Heart Association and Panel co-convener. “To ensure that
we continue to enjoy the trust and support that makes our work
possible, nonprofit leaders and experts from around the country have
come together to offer these wide-ranging solutions.”
The report, which has incorporated input from thousands of people across the charitable community provided through field hearings and national conference calls, proposes a carefully integrated package of actions from charitable organizations, from Congress, and from the Internal Revenue Service. Among its proposals:
- To strengthen governance, the Panel recommends that charitable organizations adopt, implement, and publicize audit procedures and policies on travel expenses, conflicts of interest, and whistleblower protection.
- To make financial information more reliable, the Panel recommends that Congress require audits by charitable organizations with annual revenues of $1 million or greater and an independent accountant’s review for organizations with annual revenues between $250,000 and $1 million. The Panel also calls for Congress to require mandatory electronic filing of charitable organizations’ annual information returns, the Forms 990; the IRS to improve the design of and instructions for Forms 990; and charitable organizations to have their CEOs or CFOs certify the accuracy of their information returns.
- To prevent abuse of charitable entities, the Panel recommends that Congress establish clearer legal guidelines for donor-advised funds, Type III supporting organizations, and participation by tax-exempt entities in potentially abusive tax shelters. It also urges Congress to tighten up rules and strengthen penalties to help prevent transactions that benefit donors, rather than the public.
- To ensure that non-cash contributions support charitable causes, rather than provide improper tax deductions for donors, the Panel recommends that Congress establish clearer rules for valuing donated property and mandate stricter guidelines for appraisals of land and other appreciated property.
- To address instances of excessive executive compensation, the Panel recommends that Congress strengthen the penalties on board members who approve and executives who receive excessive compensation, that the IRS revise the Forms 990 to make the total compensation of executives clearer to the public and regulators, and that charitable organization boards approve executive compensation each year.
“These recommendations are intended to strike a balance between providing the oversight needed to prevent abuses and protecting the independence that is a vital element in the charitable community’s innovation and effectiveness,” said Paul Brest, the Panel’s other co-convener and president of the William and Flora Hewlett Foundation. “They reflect the Panel’s belief that any new regulation should not impose costs that exceed their benefits.”
The recommendations incorporate the Panel’s interim report, released in March. In hearings before the Senate Finance Committee in April, IRS Commissioner Mark Everson called the Panel’s interim report, “an impressive effort to move the tax-exempt community to a better place.”
“These recommendations carefully combine improvement within the sector, more effective oversight, and changes in the law,” said Diana Aviv, executive director of the Panel on theNonprofit Sector and president and CEO of INDEPENDENT SECTOR. “Successful reform must include all three of those approaches, and no single action can achieve the necessary results by itself.”
The Panel on the Nonprofit Sector was convened in October 2004 at the encouragement of the Senate Finance Committee Chairman Grassley and Ranking Member Baucus. Concerned about ethical lapses in governance, fundraising, and other practices, both the Senate Finance Committee and the House Ways and Means Committee have held hearings over the past year about the operations of nonprofit organizations. The IRS is also reviewing the practices of charities and foundations.
The Panel will offer supplemental comments in the fall on issues of
financial reporting and transparency, accreditation and standard
setting, and possible changes in the legal framework, including federal
and state regulation of fundraising activities.
Download a copy of the Final Report (.pdf, 740 kb).