Constitute a "New Charity Review Panel"

Having set forth the objectives we need to achieve relative to keeping new charity start-ups from getting into fundraising capacity problems, we now need to consider the method by which this can be accomplished.

Currently we have some 40-50,000 new charity start-ups arriving on the U.S. philanthropy scene every year. What kind of a mechanism could we invent that would screen these new nonprofits in a way that will help them get a better start and be more effective both in mission and in fundraising?

I propose that we set up a New Charity Review Panel to review the strategic and fundraising plans of those who are applying to the Internal Revenue Service for a nonprofit 501-c-3- designation. You may remember that back in the 1970s and 1980s it was hard to get a 501-c-3- designation. The IRS took forever! One group I worked for struggled for nearly three years to get their IRS letter. The reviewers kept asking probing questions, we responded as best we could. It took many hours of Board time planning and making decisions. But, in the end, that charity had many of the right ingredients in place to ensure its fundraising success.

Since that time, it appears that the IRS's stance is to go ahead and let anyone who asks for it have their letter and then wait for them to make a tax-related mistake or be caught advocating in Congress, and then pounce on them and threaten to reo=move their 501-c-3- status. One could see how that would lead to fewer administrative headaches and much less expense, but we have an incredibly huge group of new charities coming on line every year and, at least in our area, many are floundering in the throes of governance and fundraising incapacity by the time they're 5 or 6 years old.

What's with this? Is this way of doing business any real help to the society? Charities perform a vital function in our society: they do the work the government can't or won't do, and they do it much more efficiently. I heard Lawrence Lindsey, governor of the Federal Reserve Board say the "If you give charity a dollar, you're more than likely going to receive back $6 worth of service." Whereas, he said, "if you give the government $6 in taxes, you may get only $1 in service." But what kind of service is it if a whole bunch of your charities end up dead in the water because they couldn't get off on the right foot in their governance or their fundraising and therefore can't be self-sustaining and effective in their mission? It seems to me that it's a strain on the start-up charity and their board, an affont to the donors, and a drain on society having to pick up the pieces when they fail. Why not develop a better system.

The system I have in mind wouldn't use the IRS, at least not directly; I would turn, once again, to the private, charitable sector. We need to have people who know charities and how and why they work do the reviewing and making the judgments about the plans of new charity start-ups. We need to have people who are sensitive to the issues that confront each of the major types of charities, such as health, education, arts, human services, environment, etc. If we're going to review strategic plans, it must be done by people who have done this process successfully in many organizations over time.

There are three organizations that I think could handle the job. Maybe not necessarily the size of the job, but they could do the job if they were so structured and funded. One is the Association of Fundraising Professionals, one is the American Association of Fundraising Council, and one is Independent Sector. Any of these three organizations have the leadership and the staff experience (or know how to find and employ it) to be able to review new charity start-up plans and assist those charities in firming up and plugging the holes in their plans PRIOR to setting up for business. They have the ability to give constructive input and help new charities get started on the right fundraising foot.

So we have the organizations already extant who can do this work of reviewing and approving new charity start-up plans; the only question now is "How do we get them organized around this task and funded annually by Congress?"

That's probably going to be pretty tricky. But it will be cheaper and more effective than having the IRS do the job, because these organizations are already set up to do GOOD in the society. Charities – with the leaders and staff with the long-time experience governing and managing charities – judging whether new charities have it together enough to succeed in their governance, fundraising and management to be able to make it in today's society. That's as it should be.