Report on nonprofits

The Panel on the Nonprofit Sector issued its interim report to the Senate Finance Committee, outlining recommendations for strengthening charities and foundations.

The panel was convened by Independent Sector at the urging of the Senate Finance Committee, which is conducting an investigation of the sector in the wake of several high-profile scandals.

The recommendations cover 15 areas, the panels says, and focus on improving governance and oversight of the 1.3 million charities and foundations in the U.S.

Among its recommendations, the panel suggests all tax-exempt groups improve ethical standards by creating conflict-of-interest policies, appointing people with financial skills to boards, and developing policies to encourage and protect whistleblowers.

To improve financial transparency, the panel suggests heads of nonprofits be required to certify IRS filings, and calls for penalties such as revoking tax-exempt status for a period of time in cases of repeated failure to file IRS documents.

The panel also recommends that all nonprofits be required to file their IRS documents electronically, and that groups with annual revenues over $2 million be required to conduct an independent audit of their filings.

Groups with revenues between $500,000 and $2 million should have their financials reviewed by an independent accountant, the report says, while smaller groups should be required to file a notice with the IRS containing basic information such as revenues and expenditures.

“The vast majority of nonprofits operate in a legal and ethical manner,” Diana Aviv, head of the panel and president and CEO of Indepdendent Sector, said statement. “But the abuses of even a few affects us all.  This report represents substantial progress toward a policy of zero tolerance for abuses.”

The panel will make additional recommendations to the Senate Finance Committee in the spring in areas such as compensations policies, revisions to IRS filing documents, accounting standards and valuation of non-cash contributions.

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