Acton Commentary

The Virtue of Nonprofits


The cultural assumption of late has been that Sarbanes-Oxley was necessary; the corporate agenda is greed and CEO indulgence. Similar revelations have surfaced among charities such as National Capital Area United Way and “questionable” nonprofits collecting millions for tsunami relief.

So in the naive belief that virtuous decisions can be legislated--and despite the onerous cost of Sarbanes-Oxley--the rush to more charity oversight began. The United States Senate and the Internal Revenue Service (IRS) are at the forefront; the benefit to the uniquely generous and often sacrificial compassion sector remains in question.

Waning public confidence in charities is the battle cry. After extensive interviews questioning enhancement strategies, the IRS Advisory Committee on Tax Exempt and Government Entities report of last June concluded that the IRS plays a “crucial 'clearinghouse' role in helping assure the donating public that organizations granted exempt status are legitimate and worthy of support.”

Assuring legitimate exempt status is a reasonable mission for the IRS. However, nonprofit worthiness placed at the mercy of the Internal Revenue Service should be a cause for concern among even the most casual nonprofit donors.

Accountability in any area, particularly the nonprofit sector that includes charities, should be a fundamental part of the fabric of that sector. And the accountability fabric can have many 'threads.' Of concern, however, is that the loudest voice for increased nonprofit oversight comes from outside the sector.

Just as charities need to take into account the principle of subsidiarity in their work, which states that the level of civil society closest to the issues should have the primary responsibility for addressing problems, so too should the government respect the limits of its legitimate role.

Of course these legislative discussions--including those from six hundred participants invited by Independent Sector, the advisory group to Senator Grassley's Senate Finance Committee--invite important debate regarding appropriate accountability. Some initial proposals in the 435 page report, “Options to Improve Tax Compliance and Reform Tax Expenditures,” have merit. For example, a review of public charities' and private foundations' tax exempt status every five years is reasonable, so long as reporting is not complicated and burdensome.

However, other recommendations seem unwise. Limiting food and clothing donations to $500 per family per year appears to hurt the people that charity tax regulations were supposed to help. For in the midst of all these big numbers and growing accountability details sit the small faith- and community-based charities, so valuable to their needy neighbors, many without the awareness that their lives and their programs could be changed dramatically. It is in recognition of this reality that the government needs to respect the crucial place that such charities inhabit in our society. Only in this way will government policy affirm human dignity and community.

The Urban Institute recognizes the value of such nonprofits, and recommends implementation of electronic filing of IRS 990 forms. Electronic filing will improve the quality, access, and timeliness of data on charities, and it will reduce costs for the IRS, the states, and charities. The National Center for Charitable Statistics (NCCS), a project of the Urban Institute, offers a free 990 Online system for creating, verifying, printing, and e-filing non-profit returns.

While “government oversight” is not without its place in civil society, surely there are additional sources to consider, ones with insightful and value friendly systems, particularly within the nonprofit charity sector.

MinistryWatch collects basic information and lists by name those ministries that did not provide financial statements of any kind to their organization. The Better Business Bureau's Wise Giving Alliance does much the same for “charities.” The Evangelical Council for Financial Accountability by contrast is a membership organization that sets high financial standards and only makes claims they can substantiate for members. Secular organizations such as GuideStar and Charity Navigator are rich financial information resources, but make no program evaluation.

That there is much wisdom to be found in many counselors is not uniquely Proverbial; secular information, public and private, has varied amounts of value, and any donor would be wise to consider several.

The real test of accountability, however, is not in a government form, nor even in the scrupulous eye of a faith-based evaluator. Richard Harwood, in a Foundation Center article about nonprofit sustainability, gets to the long term, most dependable source of nonprofit and charity accountability: It lies within.

A significant piece of accountability must come from within each of us, Harwood asserts. Each of us must ask, “What promises have I made to people? What claims can I make about my work? Does it have integrity? What about my organization? Is it truly and consistently serving the public good--and if not, why not?”

The language of personal accountability is another way of stating the need for personal moral responsibility. The common good does not come about through an abstract commitment to the good of humankind; it is effected by individuals acting virtuously. That is a lesson affirmed by the moral failures among officials at companies and nonprofits alike.

Government oversight--Sarbanes-Oxley or the IRS/Grassley version--is by its nature bureaucratic and at best, problematic. Surely the charity sector, recognized as irreplaceable and worthy of its unique tax exempt status, has not so lost sight of its mission to help the least of these that it's now regulation rather than virtue that motivates it to do good, in a good way.