Cloaking charities' misconduct hurts others

April 11, 2007|By Jay Hancock | Jay Hancock,Sun Columnist

Finally! The Internal Revenue Service seemingly is cracking down on nonprofit organizations that don't properly disclose executive pay or sweetheart deals with insiders.

In a recent dragnet, the agency said it nailed hundreds of nonprofit groups for "significant reporting issues" on pay or "significant reporting errors and omissions" on business transactions with directors and officers.

But wait. Who are the organizations? What penalties will they pay for misleading the public they ask for charitable contributions? When will their CEOs look us in the eye and explain how this happened and how they'll reform?

Probably never.

The government talks a good game about stopping charity misconduct, but it refuses to take the most important step, which is identifying the wrongdoers and exposing them to public opprobrium.

"If I did, I would be subject to penalties and jail time," says Lois G. Lerner, director of the IRS' Exempt Organizations Division. "Congress is very touchy about what is done with tax information."

Since the IRS punted, I did my own dragnet, asking 20 Baltimore nonprofits whether the agency examined them and what problems were found.

The results are below, but the larger issue is that this shouldn't be necessary. As long as Congress hides transgressions to protect the "privacy" of problematic nonprofits (who receive huge public benefits), a cloud will hang over all charities - bad and good.

After the publication of numerous news reports about charity shenanigans, the IRS surveyed 1,826 groups - public charities and private foundations - to see if they were being honest about executive pay on the "Form 990" they file with the agency. Form 990 is critical because it's the only public financial disclosure many nonprofits must make.

Donors are supposed to be able to check a charity's 990 for an accurate snapshot of what the CEO is making, which may suggest how wisely the group will use your dollar. (See 990s on www.guidestar.com.)

The form is also required to disclose business deals in which companies owned by officers or directors might charge the charity exorbitant prices for, say, catering services or consulting.

Not surprisingly, in a day when pay for nonprofit executives has ballooned along with that of for-profit honchos, many organizations are less than candid about what top bosses pocket.

Of the groups the IRS contacted, more than 30 percent had to correct executive-pay disclosure on Form 990.

The agency found two dozen nonprofits with very serious problems: excessive salaries; payments for executive vacation homes and cars that weren't reported as compensation; and executives' companies overcharging the charity for services.

But it identified not a single offender when it announced the results last month. If Enron had been nonprofit, we might still be wondering why its Houston skyscraper became empty and CEO Jeffrey Skilling lost his job.

Most nonprofits nabbed by the IRS had merely to fix their flawed forms to get right with the agency. The most severely penalized groups paid only excise tax on excessive compensation or self-dealing profits.

"The real purpose is to have organizations that are otherwise doing good work go forward and continue with that good work," Lerner said.

Of the 20 metro Baltimore nonprofits I queried, only two said they were included in the survey: the Goldsecker Foundation and LifeBridge Health's Northwest Hospital Center in Randallstown. Both passed.

"We were not required to amend Form 990, nor were we chosen for additional examination, nor were any executives required to amend their personal returns," says Goldsecker CEO Timothy D. Armbruster.

A third Baltimore nonprofit, the Chimes, is the subject of an IRS examination that began after The Sun reported in 2003 that it failed to disclose hundreds of thousands of dollars in executive pay on its 990s. Chimes says it invited the IRS to initiate the inquiry.

"That examination is not yet complete. It would be inappropriate to comment on the review until a close-out letter is issued," Chimes spokesman Levi Rabinowitz said.

How many Maryland charities flunked the IRS survey?

We can only guess. I contacted only a fraction, but a 30 percent national failure rate is terrible.

When government reports their faults only in a general way, all charities become suspect. And that is certainly not something you want to see in Baltimore, home of numerous nationally prominent nonprofits.

Nonprofits themselves should tell Congress that the job isn't done until the bad apples get labeled.

jay.hancock@baltsun.com

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