New Charity Review Panel --- cont'd

Earlier in this blog, I tried to suggest organizations that could be counted on to accomplish the task of reviewing the plans and projections for new charity start-ups as a way to help them get off to a more solid start. But I want to once more center down on this topic to see just exactly what kind of issues are in here.

Could a government agency really do this work, and could they do it well, consistently, over a long period of time? I suspect that this probably can not happen. We read in the Chronicle of Philanthropy today that the IRS "plans to scrutinize charities’ donor-advised funds, business practices, and political activities in 2008. The agency will also investigate the tax-exempt status of colleges and universities and release new information about the 990 informational return charities must file every year and other tax forms." The article goes on to say that the IRS is concerned about cars and vehicles, about charities' business venture and about donor-advised funds. So now they're going to look at 100 community foundations. They're looking in the wrong place, quite frankly.

And the problem with the IRS doing this is they're just looking for the cheats; they're not looking at all the new charities applying for 501-c-3 status to see if they're structured well, have adequate strategic plans and effectives policies in place, and have good governance. It's a nice police action, but it's not enough of the right scrutiny to keep the constant flow of new charities from getting into fundraising trouble down the road.

There is a vast difference, as I see it, between "regulating" charities vs. truly helping charities, in the strategic sense. I don't think we need to take a stance here of regulation. But I think it is a service to the charities, the donors, the society, to impose on new charity start-ups a review process that ensures each new nonprofit gets off to a good start.

Initially, we need to consider the question of "which agency?" We have our choice. Internal Revenue Service? Their main issue is taxation. But the only interface charities have here has to do with the tax deduction and the reporting function.

Yet we know that most donors, while not necessarily ignoring their tax deductions, are not primarily motivated to give to charity because of the deduction. And the reporting function with the Form 990 is designed only to prevent theft, fraud and abuse of the tax-exempt privilege for personal gain.

However, the more sensitive issues of governance and fundraising infrastructure involve much more than a "tax view" as a basis for reviewing any plans and projections of new charities. That may be why the IRS decided to get out of the business of seeing to it that charities were properly set up before issuing their 501-c-3 designations.

Department of Interior? But that has to do with land and its use and regulation. Department of Justice? But getting new charities off to a good start doesn't mean we're involved in helping them avoid breaking the law. We just want to make sure that a charity, as a public trust, has someone, some agency, looking over its shoulder enough to get the group off to a good start.

So who is going to do this work? Should it be a government function? Should it be government funded?

I suggest the work of a new charity review panel should be funded by public tax dollars for two reasons. First, because a charity is a public trust, and it will serve the public better if it gets off to a good start and doesn't flounder around. We serve the public interest much more with effective program supported by effective fundraising and governance. When we lack that, we tend to waste the public's money.

Second, the new charity review panel should be funded by public tax dollars for the reason that the work charities do for our society is essential to the strength and survival of our nation, our form of government and our way of life. Charities do what government agencies cannot or will not do. Our standard for their performance should, therefore, be something reminiscent of Lawrence Lindsey's "$1 in, get $6 of service out" formula.

Next, we want our charitable institutions to do the work competently, effectively and efficiently. That's why we have, as a people and as a nation, such a great stake in reviewing new charity start-up plans in the first place. Therefore, it seems to me that a new charity start-up review process would most effectively and appropriately be carried out by a nonprofit, and done by people who are selected for their expertise and experience in managing nonprofit programs, fundraising and governance. Only this type of person would have at heart ensuring the strength and success of a nonprofit organization. But it should be funded by government – which represents "all of us."

That brings up the issue of the kind of relationship that must be forged between the government funding and the nonprofit review process. Let's say that we're either going to set up a nonprofit organization just for the purpose of doing new charity start-up review, or we're going to retro-fit an existing organization, such as Independent Sector or Association of Fundraising Professionals, or The Giving Institute (formerly the American Association of Fund Raising Counsel) to carry out this function.

Should that charity be required to annually submit grant applications to the federal government for grants? Or should that money be part of a continuing and unbroken disbursement from the Treasury Department just as any other government department?

See you on Monday for further discussion of this matter.