Time to clean up foundations

[Editor’s note: In an article in the summer 2007 issue of The Nonprofit Quarterly, Rick Cohen tracks six cases in which the Boston Globe exposed foundations for self-dealing, interlocked directorships, exorbitant trustee fees and other betrayals of public trust. Overall, Cohen finds a lack of imposed consequences and, in some cases, a continuation of business as usual, all pointing to what he sees as a systemic problem in foundation accountability. His conclusion, slightly adapted, follows.]

By Rick Cohen

Much of what the public thinks might be disreputable and repugnant behavior by some foundations’ leaders may be legal.

Scandalous behavior that strikes observers as beyond the pale of decency in the stewardship of tax-exempt resources does not necessarily mean crossing the line of existing laws and regulations.

What is needed is an overhaul of public policy so that some of the truly appalling practices are deemed not only morally objectionable and unacceptable but also illegal.

Within the philanthropic community, some believe foundation money is not in the public domain.

To the contrary, it is, of course. But it is held in trust by groups that are bound to use it in the best interests of the public and those of an organization’s mission.

When this trust is abrogated, consequences should be swift and sure.

In the absence of tougher regulatory standards, however, several factors stand in the way.

First, enforcement varies greatly from one state to another, and from one attorney general’s tenure to the next.

Some of the charity units within those offices are ill funded and do not have staff dedicated to pursuing charity abuses. In some cases, evidence of governmental intervention was generally scarce.

Second, transparency continues to be an issue.

Form 990 and Form 990-PF can be difficult to interpret. And even if the IRS thoroughly read the thousands of 990s it receives, some the size of telephone books, staff would be hard-pressed to find the information it needs to reveal philanthropic perfidy.

Many national efforts have long been under way to revisit and revise the 990.

Simple accuracy and completion would be welcome improvements in the art of the 990 since many of these documents are submitted replete with errors such as missing attachments, schedules and signatures.

The IRS has just issued proposals to revise and update the 990, though notably nothing as of yet addressing the 900-PF filed by private foundations.

The efforts to revise the 990 and 990-PF as solid forensic tools for nonprofits and foundations should be speeded up and implemented, with particular attention to its use as a forensic tool to root out the wrongdoing uncovered more frequently by a few intrepid investigative journalists than government monitors.

Third, the press generally isn’t sufficiently focused on the topic of philanthropic accountability and may not believe that it has the background to interpret what it sees.

It is good but insufficient for foundations to promulgate standards by which they can govern themselves. It will take more than blind faith in the self-correcting DNA of the nonprofit sector to clean up these kinds of abuses.

Government regulators have to get up to speed, the nonprofit sector’s self-regulating advocates have to swing into action, those on the inside of troubled institutions have to blow the whistle, and the press has a crucial role in pursuing accountability in philanthropy.

In due time, unless self-regulatory efforts are bolstered with government regulation and the capital to support oversight and enforcement, there will be more stories about the misdeeds of foundations.

Rick Cohen is national correspondent for the Nonprofit Quarterly.

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