Accountability and Oversight

Oral Testimony of Diana Aviv, President and CEO, INDEPENDENT SECTOR Before the Senate Finance Committee

June 22, 2004

Chairman Grassley, Senator Baucus, and distinguished Members of the Committee, thank you for your invitation to talk about how we might work together to strengthen our nation’s public charities and private foundations. I serve as the CEO of INDEPENDENT SECTOR, a national coalition of nonprofit organizations, foundations, and corporate philanthropy programs that collectively represents tens of thousands of charitable groups.

Senator Grassley, thank you for your dedication to upholding the highest possible standards of good governance for our nonprofit sector while also recognizing the important contributions of the nonprofit community. Through the actions of tens of millions of donors, volunteers, and professionals the nation’s charitable sector has improved the quality of life for generations of people.

Our national voluntary network, now numbering 1.4 million organizations, is facilitated by invaluable tax policy intended to stimulate the impulse to give. It also is built on a solid foundation of laws and regulations designed to ensure that charitable organizations are working exclusively to advance the public good.

That said, the greatest measure of the value of nonprofits is the public trust in our work, our methods, and our high purpose. Today, that trust is being jeopardized by the actions of a very small number of individuals who have used charities and foundations for personal gain or who have engaged in practices that compromise their missions.

There are many factors that have led to the kinds of problems that have been highlighted today, including the following:

• In the last 25 years, the charitable sector has grown considerably and some of its leaders are not familiar with good governance practices;
• The legal framework has not kept pace with the growth and diversity of organizations;
• Public resources are not sufficient to ensure that laws governing the sector are properly enforced; and
• The Forms 990 and 990PF filed annually by charities and foundations too often are inaccurate and inconsistent.

The current challenges do not lend themselves to quick fixes. Changes must be given careful consideration and tested before sector-wide reform is implemented.

As we consider ways to address problems within the charitable sector it may be useful to be guided by the following principles:

1. Preserving the vitality and independence of the sector and its effective, ethical operation must be at the core of policy changes.
2. Preventing, discouraging and eliminating unethical and illegal practice will require a multifaceted approach. No singular action will succeed in fully addressing the issues at hand.
3. It is essential that corrective efforts do not produce outcomes that stifle the great American traditions of giving and volunteering. Reforms should not be so draconian that people of honorable intent are discouraged from serving on boards, working in nonprofit organizations or giving to good causes. Equally important, the legal framework must not be so laissez-faire that people are able to manipulate the system for personal gain.
4. Accommodations should be made for smaller organizations for which the burden of compliance would hurt their work.
5. The range of solutions will depend on the involvement both of government and the voluntary sector, each with different and discrete responsibilities.

Distinguished Members, my written testimony provides a number of specific recommendations. I will highlight a few for your consideration:

1. Revise the tax reporting Forms 990 and 990PF to enhance the quality, consistency and transparency of information. Ensure full adoption of electronic filing of these forms.
2. Eliminate barriers to shared enforcement by federal and state regulators and increase funding for oversight and enforcement.
3. Increase penalties for wrongdoing; and work with the charitable community to explore the best way to clarify rules on a range of issues including appropriate compensation, donor-advised funds, and valuation of gifts of property.
4. Support voluntary sector efforts to expand and coordinate existing successful initiatives to set clear standards and self-regulation programs.
5. Encourage work by the sector to promote ethical, accountable, and transparent practice and create a coordinated system for education and technical assistance. This will require additional resources both from government and the sector.

We in the charitable community are keenly aware of our responsibility to take on these challenges. We appreciate your willingness to work with us to separate the good actors from the bad and, in so doing, preserve all that is valuable in America’s nonprofit sector.

Thank you.

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