Acton Commentary

More Government Control of Charities Looms


With rising concerns about financial abuses at charities, lawmakers are looking at significantly stepping up regulation of tax-exempt organizations, including faith-based groups. Last month, a much-anticipated report from the Panel on the Nonprofit Sector, a U.S. Senate advisory group, advocated some 120 measures to increase accountability and financial transparency.

“Full transparency is the key issue,” said Diane Aviv, president of Independent Sector, a coalition of nonprofits, and executive director of the Senate panel. She's right, of course. But achieving full transparency with massive amounts of red tape and oversight from Washington would be like going after a housefly with a sledgehammer. And what about the laws and regulations already on the books?

Gammon & Grange P.C., a Virginia law firm specializing in nonprofit issues, analyzed testimony at Senate Finance Committee hearings in June, along with written submissions. In all, some 94 alleged abuses were cited about a number of charities. Gammon & Grange found that current laws, regulations and reporting requirements already address all but two of the abuses.

Another overkill measure that was under discussion would limit tax-breaks for noncash donations to charities to $500. That would cripple many organizations, including faith-based and church groups that depend on gifts of food, medicine, clothing and other goods to serve the needy. The subsequent outcry from food banks, rescue missions, homeless shelters and other neighborhood programs apparently convinced the Panel on the Nonprofit Sector that no limits should be placed on these donations.

In fact, for faith groups, the prospect of ceding more control and oversight of charity work to centralizing, federal authority would be against the grain of our American tradition. Remarking on the influence of faith in America, de Tocqueville noted in the early 19th century that religion “restricts itself to its own resources, but of these none can deprive it; its circle is limited, but it pervades it and holds it under undisputed control.” Now, it looks as those this circle of faith will have to be shared with IRS investigators.

The Panel on the Nonprofit Sector held hearings in fifteen cities across the country earlier this year in an effort to formulate recommendations to the Senate Finance Committee, chaired by Sen. Charles Grassley (R-Iowa). The evolution of comments made before the committee underscore that charity abuse isn't the only big ticket item on their agenda. Testimony from various officials indicated more than a passing interest in the income potential of increased regulation. These new nonprofit regulations would, of course, require hundreds of million of dollars required to help enforce the proposed legal changes.

Although a concrete plan has yet to be fleshed out, the committee's proposals mainly deal with issues of loans and compensation, noncash donations, and distribution of assets. The panel's meeting in Detroit drew a wide variety of professional nonprofit workers along with the neighborhood faith-based and community groups that have no association with--and therefore never abuse--some of the more sophisticated financial tools available to nonprofits such as donor advised funds. The probability for excessive executive or board compensation for almost three quarters of 501c3 organizations, which are so small that they don't even file 990s, is beyond imagination. For example, a review of Acton Institute's 2004 Samaritan Award twenty semi-finalists revealed that the average executive director receives $35,000 per year and the bulk of program manpower is provided by volunteers.

And what about non-governmental tools for transparency? The Acton Institute's newly launched Samaritan Guide is a unique new information tool, providing both program and financial transparency for privately funded charities. The Guide puts into action Marvin Olasky's principles of effective compassion, based on the recognition of the dignity of human persons created in God's image. Such comprehensive perspectives are proven methods of long-term poverty solution. Twenty categories, detailed information about volunteers, and board activity all provide ample transparency and also indicate the applicant charity's intent to tell the truth and to improve their ability to help their neighbors. And isn't civil society about going beyond just the letter of the law?

Undoubtedly, changes must be made to strengthen the public's trust in charitable organizations. But rather than encouraging increased charitable giving, as Senator Grassley originally claimed, his committee and its advisors have come to focus on a narrow legislative agenda that ignores the significant value of nonprofit organizations to both givers, receivers, and to the communities where they operate. The more common sense approach would look to transparency and accountability measures that are already on the books, rather than fashioning yet more regulation and mandated enforcement from public agencies.

Correction: An earlier version of this article identified The Nature Conservancy as the subject of the Gammon & Grange study. In fact, the study examined a number of charities and nonprofits, including The Nature Conservancy.