Finding a path to better charity oversight

Since publishing America’s Worst Charities, we’ve received more than 290 tips (and counting) from readers urging The Center for Investigative Reporting and our partners the Tampa Bay Times to investigate other suspicious charities. One respondent noted:

"Great article – now how do you stop the phone solicitations from these charitable frauds?"

The comment gets to the heart of the discussion that we find ourselves asking after every big investigative story: Can things change? How?

Our series revealed how many nonprofits collect millions of dollars in the name of veterans, cancer patients and missing children but a fraction of the money raised reaches those in need. A majority of the funds from these charities instead fill the pockets of their executives and the fundraising companies that they hire.

As part of our series, CIR reporter Kendall Taggart and Tampa Bay Times reporter Kris Hundley showed how a broken regulatory system is partly to blame.  

There are a number of ways to improve how charities collect and spend donations. We’re going to be presenting a series of discussion points on this subject to encourage more debate on the issues. We’re not advocating a particular position or point of view. But we think an ongoing dialogue is needed. Today, we’re focusing on the regulatory gaps. And there is no shortage of problems.

Consider:

1. The regulatory system is fractured. The IRS grants tax-exempt status to nonprofits and can audit their financial filings, but state regulators handle oversight. The splintered system makes it hard to know who’s in charge. Following our reporting, U.S. Sen. Tom Coburn, R-Okla., sent a letter calling for a government review of the IRS' ability to oversee charitable organizations. Discussion points: Experts say the IRS could do more. Why doesn’t it? Is the IRS, which is focused on tax-generating entities, the right agency to oversee tax-exempt groups?

2. A lack of resources at the state level. Regulators in some of the nation’s largest states say they don’t have enough bodies to seek out and stop bad charities. Some states have done more with less. In Iowa, the state’s attorney general banned 14 operations in the past 10 years. That’s more than many states with far more resources. Discussion points: Would more money help the problem? Or can regulators do more with what they have? Can Iowa’s model be replicated?

3. Violators face meager consequences. The most common penalty for charities caught breaking the rules is $500, a small price for multimillion-dollar organizations. And experts say the IRS has been more reluctant to take on charities for high fundraising costs because such cases are difficult to win. Discussion point: Would a steeper fine or punishment deter bad actors?

4. Regulators are swimming in paperwork. Though more states now require charities and solicitors to file reports electronically, a large portion of regulators’ resources are still spent handling paper files. Discussion points: How could agencies manage these reports more efficiently? What efforts have been made to improve the system? And how could regulators make better use of the data they’ve already collected?

5. State agencies don’t communicate efficiently. Regulators in 38 states told our reporters that they didn’t have a list of disciplinary actions against charities. So we made a database with the available information. Discussion points: How could states more effectively share information on troublesome charities and solicitors with each other and the public?

So now that we know some of the key problems, what can be done to fix them?

In the coming weeks, we'll publish a series of posts that explore answers to some of these questions. Our goal is to report on concrete steps that could be taken to prevent charities from raising and spending donations in misleading ways, and the challenges those measures face. We’ll begin by looking at the larger regulatory framework and discuss potential avenues for clearer, more efficient oversight.

Have a comment or suggestion for any of the questions above? Email Cole Goins at cgoins@cironline.org. You can also follow #badcharities on Twitter and Facebook, or sign up for our newsletter to stay up to date on the latest as we keep pursuing this issue. 

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