Writing in the Chronicle of Philanthropy, former NPR chief executive Ken Stern worries about the amount of fraud and ineffectiveness in the nonprofit sector and proposes a top-down, government-run solution to his perceived problem—the creation of a new charity regulator akin to the British Charity Commission. I visited the BCC’s website and noted that the agency operates on the following premises:
- Charities are publicly accountable for the funds they receive and privileges they enjoy because of their charitable status.
- Responsibility for administration and management of charities rests with trustees.
- Most trustees are doing a good job in promoting and making effective the work of their charity, and in meeting the needs of their beneficiaries.
- Levels of abuse are relatively low.
These are the same premises under which our existing charity regulators—the Internal Revenue Service and the Attorneys General of our fifty states—also operate. So why is Mr. Stern advocating for yet another layer of regulation? If the existing regulators are under-funded, why add another bureaucracy? Instead, as private foundation leaders have long suggested, Congress should restore the private foundation excise tax revenue to its original purpose—funding the EO division of the IRS so it can provide the appropriate oversight for charitable organizations.
Of greater concern is Mr. Stern’s recommendation that the IRS make it more difficult to start a nonprofit by adding not only increased fees, but also qualitative measures—measures that might also be used to end a nonprofit’s life “when they can no longer keep up, generate new ideas, or prove the effectiveness of their efforts.” Do we really want the IRS (or some national charity commission) to make this call? Does anyone doubt that such an organization would inevitably begin to make values-based decisions about what is and isn’t charity?
Changing the IRS function to give the agency discretion over more than the legal requirements for starting a charitable organization will also threaten the impulse of Americans to develop creative, community-based solutions to problems which they identify and choose to address. Sometimes a community doesn’t even realize it has a problem, or a need or a want until the solution appears in the form of the “new ideas, new blood, new causes, and new hope” which Mr. Stern himself cites as a benefit of the current system.
There is no denying that the charitable sector has its bad actors, some of whom are successful in avoiding exposure. I’ve seen a number of amazing organizations start up on a wing and a prayer. They would never have passed muster with the charity bureaucrats. But there are ways to make the market work, even in the charitable sector—solutions which avoid coercion and a “one-size-fits-all” approach to measuring success and efficiency.
- Enhanced training for those community members who take on the responsibility of serving on nonprofit boards. This is happening more and more in our communities and through programs such as “Directors U,” a program introduced by New York Attorney General, Eric Schneiderman.
- Education directed at producing smart, strategic donors who perform the necessary due diligence and maintain active involvement with the charities they support. Foundations and individual donors can take advantage of resources offered by their community foundations, their regional associations of grantmakers, or local nonprofit centers; by national organizations like The Philanthropy Roundtable and the Council on Foundations; and by accessible web resources including Guidestar, Charity Navigator, and a host of others.
Can we not agree that an enlightened citizenry is the best tool of all to insure a healthy, dynamic civic culture? The government’s focus should remain on enforcing existing codes and laws, leaving the qualitative assessments to donors and the general public. The freedom to engage in individual and collective action to improve our communities and our nation is worth the risk of an occasional bad actor.
Joanne Florino is executive director of the Triad Foundation and will be joining The Philanthropy Roundtable on April 1 as senior vice president for public policy.