Word: nonprofits
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After an exposé by the Washington Post in May 2003 revealed his benefits package and other irregularities, Congress launched an inquiry, and the Conservancy has spent the past two years overhauling its accountability practices. The nonprofit has instituted mandatory ethics training for its staff and voluntarily implemented sections of the strict new governance guidelines in the Sarbanes-Oxley Act, which does not apply to charities. McCormick took a 5% pay cut, discontinued the discretionary fund and immediately paid back the loan. "The management has taken this situation very seriously," says Stephanie Meeks, the Conservancy's chief administrative officer. "We have...
McCormick and the Conservancy learned the hard way that charity is no longer beyond reproach. Corporate America has been penned in by new regulations imposed by the Sarbanes-Oxley Act, but the nonprofit sector faces few rules for disclosing financial health, paying executives or explaining spending. But in the postscandal era, state and federal lawmakers are pushing for stricter standards of governance for nonprofits...
...scrutiny is a response to the exponential growth of the nonprofit sector over the past decade--and to concerns that some institutions are scamming the system by seeking tax-exempt status. The Internal Revenue Service lists more than 1.8 million charities, up from 739,000 charities 25 years ago. The tax-exempt sector includes not just soup kitchens and scholarship funds but also labor unions, hospitals, the NCAA--even Major League Baseball. "Today you see nonprofit holding companies," says Minnesota state attorney general Mike Hatch, who has aggressively pushed for better nonprofit governance. "We're dealing with multibillion-dollar enterprises...
...been working overtime to catch the scammers. Flush with funding to root out nonprofits connected to terrorism and given a new institutional mandate to do a tougher job, its Exempt Organizations Division has added 160 auditors over the past two years. Since August 2004, according to Mark Everson, commissioner of the IRS, the agency has contacted 1,240 organizations with questions about how they pay their executives. So far, 719 returns have come under audit for suspicious accounting. State regulators, who have traditionally policed nonprofits, are pushing for new laws. The House and Senate held hearings this summer on nonprofit...
...challenge is to reform the nonprofit sector without crushing it. Critics say voluntary disclosure doesn't go far enough. "To think that disclosure by itself is going to stop abuse is being naive," says Pablo Eisenberg, founder of the National Committee for Responsive Philanthropy. "There is a need to ask big questions, to say, 'Are pieces of the charitable sector still legitimate?'" But few people, even regulators, are willing to saddle nonprofits with a version of Sarbanes-Oxley. California's Lockyer hopes states can help nonprofits develop better management skills rather than simply throw a raft of new rules...