There was an interesting 94 page report entitled “Enhancing Accountability For The Religious And Broader Nonprofit Sector” in December 2012 from the Commission on Accountability and Policy for Religious Organizations . While I certainly don’t agree with many of the recommendations I think there is some interesting discussion in the report and here are some excerpts from the report.
“The vast majority of religious and other nonprofit organizations in America operate with a genuine commitment to financial integrity and appropriate accountability. Occasionally, we see a few exceptions. When a religious or other nonprofit organization spends money in a manner that may reasonably be perceived by the public as benefiting its leaders in lavish, extravagant, excessive, or unreasonable ways, several bad things happen. Such conduct damages the organization’s credibility and mission. It impairs the credibility of other similar organizations. And it raises the risk that legislators and regulators will pursue more burdensome legislation or regulation for the entire nonprofit sector in an effort to stop the offensive conduct.
Religious freedom is one of the most sacred freedoms we enjoy in the United States and it must be preserved. Religious and other nonprofit organizations positively impact our society in virtually every aspect of life, and their good work is immeasurable. We cannot allow the behavior of a few outliers in the religious and nonprofit sector to threaten the freedoms of those who are not the problem—those who are doing the good work. The number of organizations that engage in egregious financial misconduct is miniscule in comparison to the sector as a whole.
Given the immeasurable positive impact of America’s religious and other nonprofit organizations on the lives of people all over the world, federal policy should continue to encourage the public to financially support such organizations and it should not burden them with harsh or excessive legislation or regulation. While self-regulation is a key element of addressing concerns about misconduct, critics of self-regulation rightfully point out that noncompliant outliers have little interest in selfregulation. That’s where effective administration of existing law must come in, together with education about the law. For example, if a nonprofit organization provides its leaders with excessive compensation and benefits, federal tax laws already exist that subject the leaders to very substantial penalties and require that they return the excess to the organization. The Internal Revenue Service is responsible for enforcing those laws and educating the public about them. State laws and regulations also address proper conduct by nonprofit organizations and their leaders.
But there is another key element essential to striking the appropriate balance in addressing such concerns—an element largely missing from the current dialogue surrounding self-regulation. That element is donor engagement. Donors have a duty to appropriately engage in the giving process and to make informed giving decisions. When donors engage, the organizations they support tend to have a higher level of interest in self-regulation and accountability.
Religious and Charitable Organizations
1. Regardless of the provisions of the Internal Revenue Code and related Regulations, the governing bodies of nonprofit organizations should ensure that the compensation (including benefits) paid to organizational leaders is clearly reasonable under the circumstances. When a nonprofit organization provides compensation and benefits that are perceived by the public as excessive, the credibility of the organization and its leadership is undermined, as is the credibility of the entire nonprofit sector. Additionally, such instances serve to increase the threat of more burdensome legislation and regulation that would adversely impact the sector as a whole.
2. Nonprofit organizations should adopt appropriately robust policies that provide clear and practical guidance for establishing reasonable compensation for their leaders, that properly address conflicts of interest, and that guide them in avoiding excess benefit transactions. Nonprofit organizations should make their policies for setting the compensation of their top leaders and their conflicts-of-interest policies available to donors upon request as a demonstration of appropriate accountability.
3. When a nonprofit organization engages a compensation consultant to assist it in obtaining appropriate data as to comparability for executive compensation, the members of the body reviewing the study should exercise prudence and diligence
to ensure that the data provided by the consultant is for similarly situated organizations and functionally comparable positions, and to ensure that other appropriate factors relevant to comparability are considered.
4. Nonprofit organizations should, as a best practice, require the total compensation of their top paid leader to be disclosed to or approved by the full governing body of the organization.
5. We recommend that one or more independent organizations conduct adequate confidential and secure compensation surveys of the largest religious organizations exempt from filing Form 990. The resulting compiled information should be made publicly available in order to provide large religious organizations with more and better comparability data.
6. Religious organizations exempt from filing Form 990—particularly the largest of such organizations—should actively participate in appropriately managed salary surveys in order to facilitate the availability of more and better comparability data.
Religious and Charitable Organizations
1. Churches should be appropriately accountable to their members, congregants, and financial supporters. Churches and their leaders should consider public reaction and damage caused by activities, transactions, or arrangements that the public perceives as lavish, extravagant, excessive, or unreasonable. Churches and their leaders should not engage in abusive financial activities, nor should they improperly exploit the exemption from filing Form 990, because doing so undermines the credibility of their organizations and the religious community as a whole. Abuses also result in threats to the important tax exemptions and benefits that are available to religious organizations. Churches should, as a best practice, establish appropriate measures to verifiably demonstrate (through independent accreditation by a bona fide accrediting organization, denominational oversight, or by other appropriate methods) to their members, congregants, and financial supporters that they have adequate and proper oversight regarding financial activities and that they do not engage in or tolerate abusive activities.
Ultimately, the federal government is not, and should not be, the arbiter of appropriate accountability for churches in America. Rather, individual church officials and their organizations are ultimately accountable first and foremost to their God or their faith, and secondarily to their denominations, congregations, members, donors, directors, internal supervisory bodies, or other stakeholders in accordance with their particular religious tenets. In a practical sense, they are also dependent on the financial support and participation of their donors and adherents. Healthy engagement by those who provide financial support provides a powerful incentive toward self-regulation and is arguably one of the most effective methods of addressing the practices of the few religious leaders who otherwise would have little interest in self-regulation.
As mentioned in our recommendations, churches should verifiably demonstrate their commitment to proper oversight and accountability. Freedom of religion requires, however, that they be free to choose oversight and accountability measures that fit their own religious polity and doctrine. Independent accreditation by a bona fide accrediting organization is one option for voluntarily demonstrating such a commitment. Robust and meaningful financial oversight by a denominational organization is another method for churches that are part of a hierarchical structure. Independent religious groups unaffiliated with any larger organization may choose to be governed by independent board members, obtain outside audits or legal reviews, create internal checks and balances such as special committees empowered to review the organization’s affairs or to approve certain decisions, or pursue other options. The methods for achieving and verifiably demonstrating accountability are as varied as the religious communities they are meant to protect. Whatever the method, churches should be able to articulate to their adherents, members, congregants, supporters, and other stakeholders how they demonstrate proper oversight and accountability.”
You can find the full report at:
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Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.