Who Guards the Guardians? The New Age of Nonprofit Accountability.

• Author: Yarmolinsky, Adam

Outrage may be the most readily available emotion to those who contemplate the public scene today, and the world of philanthropy provides at least its share of occasions, as this report on nonprofit accountability demonstrates.

The occasions range from outright scandal (United Way, Marine Corps Toys for Tots, Covenant House) to exploitation of well-meaning charities by professional fundraisers (the United Cancer Council case, now in federal courts) to consistent failure to make regular public disclosure (how many foundations publish annual reports?). That the majority of the nation's half-million charities operate honestly, openly, and too often with painfully inadequate resources does not appease public indignation, perhaps because more is expected of them than of other institutions. And charities as a group have more fundamental problems, to which this report makes at least passing reference.

The system of federal and state laws governing charitable organizations has been singularly ineffective in anticipating outrage. State attorneys general, who are responsible for the oversight of charities, have not yet begun to exercise that responsibility in many states, or are just beginning to do so. The federal tax authorities can and do penalize foundation officers for abuses of trust, but the only weapon available to the feds against public charities is the blunderbuss of revocation of tax exemption, which hits the recipients of charitable bounty.

The situation may be about to change as a result of a legislative proposal worked out between the Oversight Subcommittee of Ways and Means, the Treasury, and representatives of organized charity. The Internal Revenue Service should be able to rescind unfair transactions (such as sweetheart payments for office rent and salaries above the market for executives) and levy fines against individuals who receive or pay excessive or unfair compensation for goods or services. Charities would be required to send copies of the tax returns that justify their tax exemptions (the famous Form 990) to anyone who asks, instead of making the return available only to someone curious enough to visit their offices. The reporting form itself would be redesigned to make it more user-friendly to the inquiring layman, and the IRS, instead of being required to conceal information about disciplinary actions, as it is now, would be required to publish these actions to all the world, while the reporting form itself would carry...