July 4, 2018; Seven Days
In an excellent article in Seven Days, an independent Vermont news outlet, Paul Heintz describes the uneven nonprofit regulation and enforcement systems of various states.
Using a few examples in Vermont, Heintz traces the consequences of less well-funded regulatory systems. He starts by describing the frustrations of an attorney who served on the board of an advocacy organization in White River Junction who found it took quite a while for the Vermont attorney general’s office to act on a complaint he filed on the CEO’s unwillingness to open the books to scrutiny by the board. It turned out the executive director had been overpaying herself. “It went on for years without anybody responding to the red flags,” he said, noting the lack of an effective oversight structure.
Cindy Lott, who directs Columbia University’s nonprofit management program, says that for now, monitoring and enforcement has “become a state-level issue on a lot of fronts,” and it is often hard to judge the effectiveness of those systems from one state to another. This comment reflects the reality that the IRS is currently seen as being too underfunded and understaffed to do much beyond monitoring by algorithm.
But Lott makes the point again that at the state level, enforcement almost takes a community policing approach that involves supportive information, advice, and warnings, along with legal measures. “Enforcement is very difficult to measure,” Lott says. That’s because highly publicized lawsuits and trials capture only a sliver of a regulator’s work. “At times, it’s quiet enforcement,” she said. “They’re not trying to kill off the charity.”
When the Vermont attorney general’s office finally did complete the investigation of Emerge Family Advocates, which provides supervision for parental visits in child custody cases with state and federal funding, it showed misdeeds not only on the part of the CEO, but also the board, which “repeatedly failed to provide necessary independent oversight over the organization’s finances.” The attorney general at the time, Bill Sorrell, wrote presciently that such a “failure threatens Emerge’s mission and has put its current funding in serious jeopardy.”
And indeed, the organization’s work was suspended, and eventually it was dissolved altogether. The board member who complained originally said, “If Vermont had a more stringent reporting requirement, maybe the Emerge mismanagement would never have happened.”
New Hampshire, by contrast, has a well-staffed “charitable trusts unit,” which, according to its head Tom Donovan, reviews every report to the state, looking for conflicts of interest, outsized salaries, repeated deficits, and signs of theft or fraud. Once a potential problem is identified, the unit takes action, which can range from offering advice and training to enforcement. But New Hampshire currently has eight staff assigned to nonprofits, while Vermont has one—assistant attorney general Jamie Renner, whose office has only “specific and limited” oversight responsibilities.
“Our primary role is to make sure that nonprofits use their assets in line with their charitable purpose,” he said. Most of what he ends up doing is monitoring the dissolution of nonprofits with assets to distribute. But this is hit-or-miss as well, if one is to judge from the case of the United Way of Bennington County, which closed in 2012 because it was out of funds. Only two board members remained as the last of the money flowed in, to the tune of almost $50,000 that was then granted to two organizations associated with one of the remaining board members. The other board member says she was uncomfortable with the situation, but having allowed it to happen, she and the other woman were prohibited from serving on another nonprofit board.
As corporations, nonprofits may also be prosecuted for federal crimes by the US Attorney’s Office for the District of Vermont. Those cases tend to involve fraud and larger “eds and meds,” but the lack of a cohesive regulatory system leaves Vermont nonprofits, in our opinion, far more vulnerable to mismanagement and abuse.
If readers would be interested in reading more about the shared regulatory responsibilities between the states and the IRS, you can go here.—Ruth McCambridge