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How Much Oversight?

January 7, 2010
Daniel K. Mayers, Chairman of the Board

Author: Daniel K. Mayers, Chairman of the Board

Recently I participated in a colloquium at Harvard University’s Kennedy School of Government, which looked at the pros and cons of increased government controls on our nation’s nonprofits.  Attendees represented the funding community and nonprofit sector, and featured presenters from Harvard’s Law, Business, and Kennedy Schools.  The sessions were thought-provoking, to say the least.

While this topic has been discussed frequently over the past few years, there is some interest on Capitol Hill in pursuing greater scrutiny of nonprofits, ensuring that they are well run and carrying out their stated missions.  Why now?  With tax dollars extremely tight these days, Congress is under pressure to hold nonprofits accountable, given their favorable tax treatment.

Indeed, the numbers are compelling.  For example, attaining tax-exempt, 501(c) 3 status from the IRS appears to be relatively easy, with some 98% of applications approved.  That figure, combined with the sharply escalating number of nonprofit applications, means that the tax benefit of these organizations is costing American taxpayers some $60 billion per year. Given a regular number of high profile cases where nonprofit organizations flagrantly misuse their status, the case builds for ensuring the support of American taxpayers is well earned.

But what about the effect on our nonprofits?  While greater scrutiny may bring greater accountability, certainly there would be a psychological chilling effect akin to the “Big Brother” syndrome.  In addition, it’s fair to say that a sizeable proportion of our nonprofits simply may not have the capacity to meet more, and more stringent, reporting requirements. The fact that the nonprofit world appears in so many sizes and myriad forms makes any overall solution difficult.

When the colloquium was over, I came away with the sense that the cons of greater public scrutiny outweigh the pros.  But with Congress under pressure, and tax dollars in shrinking supply, there’s no question – the debate is certain to continue.

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