Senator Grassley Proposes New Nonprofit Regs Thanks to Investigation of the Boys and Girls Clubs

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July 24, 2011; Source: Des Moines Register| Remember when Senator Chuck Grassley (R-IA) attached a spate of nonprofit and philanthropic policy changes to the vehicle of the Pension Protection Act of 2006? Although nonprofits and foundations waited on pins and needles for what they thought would be a crippling array of strings and red tape, the bulk of Grassley’s charitable reform focused on “type III supporting organizations,” a category of philanthropy whose reform was long overdue.

Grassley is no longer head of the Senate Finance Committee now that the Democrats control the U.S. Senate, but he still keeps an eye on nonprofit accountability issues. His gaze has long been on the Boys and Girls Clubs, which had been receiving federal grant support to open new club locations. He and his senatorial colleague Tom Coburn (R-OK) discovered that even as the Boys and Girls Club was opening new sites, they were closing others, thereby undoing the intent of the legislation to increase the number of club locations. Grassley became a bit more incensed when word came out that the Boys and Girls Club CEO had a compensation package of more than $900,000 at the same time (as of 2008).

Then he and his colleagues learned, as Grassley’s press release of July 21st put it, “that the Boys and Girls Clubs of America held more than $50 million in off-shore equity and partnerships, including hedge funds and limited partnerships. This included funds held in the Cayman Islands, British Virgin Islands, and Bermuda. When asked why the money was held off-shore, the organization said the answer was to avoid paying unrelated business income tax under the Internal Revenue Code.”

Grassley appears interested in attaching restrictions on Boys and Girls Club UBIT-investment strategies to multiple programs. For a bill that would increase the funding of the Second Chance Act (for prisoner re-entry programs) from $160 million to $650 million–and opening the program to nonprofit providers–Grassley has proposed his nonprofit regulatory agenda, including requiring audits of some program grant recipients, prohibiting grants to nonprofits that hold “money in off-shore accounts for the purpose of avoiding paying unrelated business income tax,” and requiring nonprofits receiving grants to disclose the studies they used to determine executive compensation levels.

Congress hasn’t done much on nonprofit accountability in recent years. Grassley himself recently wrapped up a long investigation of some televangelists living high on the hog using charitable contributions, but rather than regulations and legislation, he called for more study and potentially self-regulation by the religious sector. Will this latest effort go anywhere? Should nonprofits receiving federal funding reveal the salary surveys they use to set CEO’s compensation? Should they be prohibited from dumping their funds in off-shore hedge funds in order to avoid the IRS? —Rick Cohen

  • Jan Buchler

    I am pleased to hear that some leaders within the government are looking closely at large nonprofit entities to make sure that federal dollars are being used for the benefit of vulnerable populations, not to line the pockets of administrators. If only this kind of oversight applied to other CEOs.

  • Karen Bassler

    Misbehavior, or perceived misbehavior, by large, highly visible charities impacts all non-profits’ ability to raise funds and maintain positive community relations. I hope that Senator Grassley’s investigations encourages more transparency and fairness in both executive compensation and in financial management.

  • David Claude

    Why just look at large NPO’s? I look at a lot of Form 990s, including those done by fellow CPAs. The Form 990s seem to be an exercise in hiding where the cash went. Try writing to a CPA on a Form 990 and ask about a specific entry: you will not get a reply. Almost everything, including salaries, rent, and depreciation, are called “programs.” Sometimes 90% of the cash flow goes to overhead, with only the noncash contributions actually reaching the clients. There needs to be some NPO accounting rules. Currently, neither the AICPA nor the IRS are mandating how NPOs account for programs, management, and fundraising. Essentially, if you want a sweet job, start a NPO, then keep the cash donations for yourself but be sure to give all the donated stale bread and second-hand clothes to your needy clients. 😮

  • rick cohen

    Dear David: While I thoroughly disagree with your broad brush condemnation of nonprofit organizations (c’mon David, I hope you see your “sweet job” statement as rhetorical overstatement, no?), I agree with you somewhat that the 990 is an often unedifying informational tool. For me, it’s always the question of what has historically been defined or excluded from “fundraising” or what counts or doesn’t count as lobbying. Given that you seem to be a CPA, would you suggest changes in the 990 itself–even though it has just gone through a bevy of changes in the past couple of years?

  • rick cohen

    Dear Jan: Our society does need better oversight of CEOs in all sectors, not just the nonprofit sector (where the typical CEO is underpaid, not overpaid). But Congress seems to be heading in the opposite direction. In the wake of the budget agreement, I’ve now heard Congressional rumblings about completely overturning Sarbanes-Oxley and Dodd-Frank. My, my, people’s memories are so short!