Posted on March 2, 2005

Panel Proposes Measures to Strengthen Nonprofit Accountability

The Panel on the Nonprofit Sector, an independent group of twenty-four leaders representing a range of the country's public charities and private foundations, has released a set of interim recommendations in fifteen major areas designed to strengthen charitable organizations and their operations.

In its interim report, the panel, which was convened by Independent Sector at the encouragement of the Senate Finance Committee, called on the nation's 1.3 million charities and foundations to implement a series of measures to improve their governance and financial disclosure, and also suggested enhancing government oversight of charitable organizations through actions by Congress and the Internal Revenue Service.

To ensure that nonprofit organizations follow the highest ethical standards, the panel is recommending that all nonprofits adopt a conflict-of-interest policy, include individuals with financial literacy skills on their boards, and develop specific procedures to encourage and protect whistle-blowers. To help make the operations of charitable organizations more transparent to donors, government regulators, and the general public, the panel supports stronger disclosure rules, including suspension of the tax-exempt status of any organization that fails to file its Form 990 return with the IRS for two or more consecutive years, as well as a requirement that nonprofit CEOs or other high-ranking executives certify that their 990 returns are correct and complete.

In addition, the panel is recommending that charitable organizations with total annual revenues of $2 million or more be required to conduct an independent audit of their finances. The panel also urged Congress to improve enforcement of existing regulations by encouraging states to incorporate federal tax standards for nonprofits into state law as appropriate; by increasing federal funding for IRS oversight of the sector; and by giving state attorneys general and other state charity officials the same access to IRS information that state revenue officers currently have.

"The leaders of the Senate Finance Committee have demonstrated their commitment to a thoughtful and systematic examination of methods for improving accountability within the nonprofit sector," said Paul Brest, co-convener of the panel and president of the William and Flora Hewlett Foundation. "That approach also has guided the panel's work. Our preliminary recommendations strike the right balance between self-regulation and government regulation."

In the next phase of its work, the panel will focus on an even broader range of issues, including standards for executive compensation, revisions to Form 990, valuation of non-cash contributions, and regulation of charitable solicitations.

To download a complete copy of the interim report (37 pages, PDF), visit: http://www.nonprofitpanel.org/interim/PanelReport_spreads.pdf.