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Charities Going Beyond Required Controls to Regain Their Donors' Confidence

Added Lynnwood Campbell Jr., head of United Way's audit committee and an official at the Office of Thrift Supervision: "We're dealing with public money. . . . So why not follow the rules just like companies with stockholders?"

Campbell said he spends about eight hours a week on United Way business, down from as many as 15 hours each week when the charity was in the throes of its first audit since the old managers departed.

Sen. Charles E. Grassley used a mounted springbok as a prop when addressing the Finance Committee. (Robert A. Reeder -- The Washington Post)

_____In Today's Post_____
A Sharper Eye On Nonprofits (The Washington Post, Apr 6, 2005)
Tax Abuse Rampant in Nonprofits, IRS Says (The Washington Post, Apr 5, 2005)

That kind of financial and time commitment may be too much to expect from some nonprofits, which are struggling just to make payroll, experts say.

"The big issue for a lot of us relates to cost," said Diana Aviv, president of Independent Sector, a District-based coalition of nonprofit groups, charitable foundations and corporate donors. "The balance is between the commitment to do the right thing and the resources it takes to do it."

Aviv and other nonprofit officials are moving to outflank and help shape possible federal legislation, releasing last month a report on nonprofit business practices and preparing a second report on the thorny issue of nonprofit executive compensation to be released sometime this spring.

James M. Schroeder, executive director of Friends of the National Zoo, said he is not certain that federal legislation should be imposed on nonprofits, lest it become a costly, paperwork-driven exercise. FONZ, which had revenue of $13.5 million in 2003, already has an audit committee and is working on a whistle-blower response policy. Management practices at the zoo itself have been the subject of expert studies and a series of critical news reports in recent years, but the nonprofit group has not been accused of any wrongdoing.

Schroeder said the nonprofit board already is responding to the changed environment. For instance, he said, two board members recused themselves last year from a decision on which investment adviser the board should use to manage its money because those board members had business ties to local banks.

"There is a sensitivity to doing what is right," Schroeder said.

But it remains unclear whether those voluntary steps will head off congressional efforts.

Senate Finance Committee Chairman Charles E. Grassley (R-Iowa) yesterday said Congress "has not taken a serious look" at tax-exempt organizations since 1969. "My hope is that we will see . . . serious reform proposals quickly," he said.

Tom Dresslar, a spokesman for California Attorney General Bill Lockyer, said regulators have shown ample flexibility in dealing with nonprofit groups. For instance, Lockyer agreed to modify the new state law to require annual audits at charities with yearly revenue of at least $2 million, up from the $500,000 revenue figure he initially proposed.

"One of the main reasons the attorney general sponsored the bill was, given all the scandals in California and across the country, donor confidence was waning," Dresslar said. "We see this as a way to bring increased accountability and transparency."

New York state lawmakers are considering a similar measure, which was proposed in the last legislative session and awaits reintroduction this term, a spokesman for Attorney General Eliot L. Spitzer said.

For United Way, which collects and distributes donations to nonprofit groups serving the homeless, AIDS patients and needy children, the stakes couldn't be higher. Chief executive Anderson said the charity will sublet its building as a way to bring in cash. Already, United Way has slashed its payroll by nearly two-thirds since the scandal broke, he said.

Donations have not come close to rebounding to the $69 million reached in 2001, before the fraud was exposed. In 2003, donations amounted to $39 million, an 8 percent increase from the year before.

"We have to demonstrate every day that we deserve people's support again, and hopefully they'll come to the same conclusion," Anderson said.

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