AGs and the Charitable Sector: In the News
New York Attorney General Eric T. Schneiderman has charged four Brooklyn residents with intentionally creating fraudulent charities with names similar to legitimate Israeli charities in order to solicit funds that they then used for personal expenses.
New York Attorney General Eric T. Schneiderman has announced passage of the Nonprofit Revitalization Act, which institute a number of wide-reaching reforms in the New York nonprofit sector. The act, which was widely supported by nonprofits, will generally reduce the red-tape that has made non-profit administration difficult while simultaneously strengthening oversight over nonprofit activities.
Ohio Attorney General Mike DeWine has announced a two-and-a-half year prison sentence for a man convicted for falsely telling donors that charitable funds were being used to support veterans.
NY Attorney General Eric Schneiderman has obtained an order from a New York judge directing the fraudulent charity to pay $4.6 million in restitution and other damages.
New York Attorney General Eric Schneiderman has begun to require nonprofits to disclose their donors and their spending if they spend at least $10,000 to influence New York campaigns at any level.
Connecticut Attorney General George Jepsen has authorized a charity that has collected approximately $7.7 million for victims of the Newtown shooting to begin distributing the funds. The charity has been criticized by some parents for the methods by which it was raised and is to be distributed, but Jepsen has determined that nothing impermissible has occurred.
Illinois Attorney General Lisa Madigan has sued ‘Boobies Rock,’ a California-based company, for allegedly selling cancer-awareness merchandise under the guise of giving the money to charity. It is alleged that Boobies Rock sold the merchandise at bars and sporting events after asking ‘Would you like to donate to breast-cancer awareness?” while only turning over a small percentage of the proceeds to breast-cancer charities.
This piece in the Chronicle of Philanthropy argues that innovation in the field of social change depends not on new ideas but on a restructuring of the field itself. It describes some of the ways in which this restructuring is beginning to occur, including new mechanisms of financial support (growth capital, foundation loans, social-impact bonds, and investments that seek both financial and social returns); a convergence of business, government, and nonprofit models and functions; and increasing demand for measurable public benefit as a return on investment. The piece then argues for finding ways to expand new platforms currently garnering capital and management support for social businesses to nonprofit social entrepreneurs as well.
The Massachusetts Senate is considering a state budget amendment that would limit the compensation paid to officers and senior managers of public charities and would wholly prohibit compensation of members of boards of directors. The amendment would apply to charities with gross revenue over $1,000,000 and would limit compensation of executives to no more than $500,000 per year, while prohibiting board compensation. The bill would additionally establish a commission to which charities could apply for exemption. Organizations found to have violated the prohibitions would be subject to loss of their designation as a public charity.
A new study by the Scripps Howard News Service concludes that in states that carefully monitor how charities raise money, such organizations are far more likely to accurately disclose their fundraising costs to the IRS. The study, which examined financial records of 37,987 major nonprofit groups provided by the watchdog group GuideStar, found that a majority of nonprofits in nine states reported to the IRS that they had incurred zero fundraising costs, a claim that charities watchdogs call ridiculous. The states from which the highest percentage of nonprofits reported zero fundraising costs to the IRS—including Indiana, South Dakota, and Idaho—were also the states with the least charitable oversight. By contrast, only 34 percent of nonprofits claimed zero fundraising expenses in states such as Massachusetts, Oregon, and Colorado that review fundraising costs and issue "Do Not Give" lists of charities.
In 2010, the Michigan Veterans of Foreign Wars received only 9.4% of the funds collected on its behalf by commercial fundraisers, a fact that angers donors but which the VFW's director calls a "necessary evil." The VFW employs the services of a Canadian fundraising company called Xentel, Inc., which raised $1,047,563 in 2010 for the VFW but kept all but $20,000 of that sum for its own expenses. While the VFW explored doing the fundraising itself, start-up costs were prohibitive at over $100,000. Xentel submits an accounting of its expenses each year to VFW, which then reviews the report and passes it on to the Michigan state Attorney General's Office. Xentel's accounting reports are not highly detailed but the corporation claims that its net profit is approximately only 5 or 6 percent of funds raised. Meanwhile, the VFW's 990s for 2008, 2009 and 2010 listed zero professional fundraising expenses based on a loophole that allows such an assertion if a nonprofit never holds any of the funds collected and kept by a commercial fundraiser.
New York Governor Andrew Cuomo has released a plan to cap the amount of state funding that may be used by a nonprofit organization to compensate its executive directors in the state at $199,000. The cap applies to organizations receiving more than $500,000 from the state in a given year and for which state money represents more than 30% of total annual funding. Exceptions to the cap would be permitted if an organization can provide outside funding for the amount above the cap that they wish to pay, but only where the executive's pay falls below the top 25 percent in the field. Additionally, the regulations require nonprofits to spend at least 75% of state funding on programming rather than overhead .
Questioning and testimony during the House Ways and Means Oversight Subcommittee hearing on Tax Exempt Organizations largely focused on nonprofit organizations' concerns about recent changes in the form 990, and IRS responsiveness to those concerns. But a short colliquy between Los Angeles Congressman Xavier Becerra (D-Calif.) and Roger Colvineaux, an associate professor of law at the Catholic University of America in Washington, D.C., touched on an existential issue for nonprofits: whether the tax-exempt status of nonprofit organizations should depend on the affirmative public good provided by organizations rather than simply their adherence to proscriptions against particular actions, such as political activity. To follow Colinveaux's suggestion that it was time to consider favoring certain charitable activities over others would amount to a redefinition of what is a "charity." The issue is of critical import to many big charities, universities, hospitals, museums, and foundations, and it remains to be seen whether the Ways and Means Committee will consider it.
In this opinion piece, the Nonprofit Quarterly's Rick Cohen explores arguments for and against increased transparency in the nonprofit and philanthropic realms, particularly as they relate to organizations affecting the political process. Cohen concludes that the American democratic system is sufficiently threatened by anonymous political expenditures that the fear of chilling support for unpopular causes is outweighed by the need for accountability. Cohen proposes a series of reforms to balance increased transparency with the risk that disclosure will be exploited to chill unpopular charitable activity.
Ohio's Attorney General and the U.S. Marshalls Service have announced the arrest of a man alleged to have collected as much as $100 million for a fraudulent Florida-based charity claiming to serve U.S. Navy veterans. The man, who is known only by the false identity Bobby Thompson, has been a fugitive since being indicted in Ohio in 2010 on charges of theft and money laundering. Ohio investigators tracked the man through Arizona, Florida, Indiana, Massachusetts, Rhode Island, Washington and West Virginia, to Portland, Oregon, where he was arrested; U.S. District Judge John Acosta of Portland has ordered Thompson to be returned to Ohio. The man fled after legal counsel for the charity identified irregularities in the group's financial records and took her concerns to the Ohio and Florida attorneys general.
Minnesota Attorney General Lori Swanson has issued a report criticizing nonprofit Fairview Health Services for employing a company, Accretive Health Inc., that used what the AG called overly aggressive tactics in attempting to get patients to pay their bills. Among the report's allegations are that Accretive demanded payment before and during treatment, and that Accretive employees were improperly given full access to Fairview patients' medical records. Fairview CEO Mark Eustis maintained that the organization had not done anything to impair the individual care of any patient, but acknowledges patients' feelings to the contrary, and said that Fairview would not renew its contract with Accretive.
Ohio Attorney General Mike DeWine has settled with telemarketer InfoCision over allegations that the company failed to make required disclosures to consumers when it made solicitation calls on behalf of its nonprofit clients. Among the disclosures that InfoCision callers failed to make were that InfoCision is a paid solicitor and how much of the funds raised would go to charity. In addition, the company failed to file timely financial reports of its activities with the state. InfoCision has agreed to pay $75,000 in fines, change its calling practices, and send advance copies of scripts it will use for its calls to the Attorney General for review.
The Arizona Attorney General's Office, Charitable Trusts and Organization Section, has sued an Arizona charity for soliciting donations from Pennsylvanians without registering in that state. The charity, known as the Ironwood Pig Sanctuary, signed a consent agreement with Pennsylvania in 2010 requiring the organization to pay a fine for unregistered charitable solicitation in the state and to register before undertaking any further solicitation. Ironwood paid the fine but failed to register and then continued to solicit funds from Pennsylvania residents after a cease and desist order from the Pennsylvania Secretary of State. The lawsuit seeks an account of all funds raised while the Sanctuary was not registered, fines for solicitations that violated the Charities Act, costs and restitution.
This article explores the question of whether charities should be exempt from "clawback" provisions that allow victims of financial fraud, such as Ponzi schemes, to access funds that were transferred to third parties by the perpetrator of the fraud. In a Ponzi scheme, the fraud is maintained by using the principal investments of later investors to generate artificial “false profits” for early investors. The use of clawback provisions to recover donations to charities and religious organizations by fraudulent actors can have devastating effects on those organizations, and some are now arguing for leniency in such circumstances by shortening the statute of limitations under which a defrauded investor can access funds given to a charitable organization. The article sets out the basic structure of Ponzi schemes, federal and state clawback provisions, and arguments for and against limiting their application to charities.
New Jersey Attorney General Jeffrey S. Chiesa and the New Jersey Division of Consumer Affairs have filed suit against a telemarketing company that is alleged to have solicited New Jersey residents on behalf of charities that are not registered in New Jersey. The company also allegedly failed to keep financial records that are required to ensure that solicited donations are provided to charities as promised, and used for charitable causes. The company used teenage telemarketers to solicit consumers both inside and outside the state, according to the complaint. Telemarketers claimed that they represented charities with missions to help cancer patients, missing children, American veterans, or police officers. The state’s lawsuit seeks full restitution to consumers who made donations based on the company's solicitations, as well as civil monetary penalties.
The Texas State Highway Museum has voted to relinquish more than $1.2 million in assets, including the museum's building in downtown San Antonio, as the result of a lawsuit brought by Texas Attorney General Greg Abbot. AG Abbot alleges that the charity squandered donations, with employees hiding questionable expenses from the Museum's board, including vacations, vehicle leases, visits to amusement parks and six-figure salaries. The board, which is composed of current and former Department of Public Safety officials, voted in a recent meeting to relinquish the assets, which will be transferred temporarily to a court-appointed receiver and then to a yet-to-be-named nonprofit organization. A court filing by the Attorney General says the board was not informed of the questionable expenditures and asked few questions, despite its responsibility to oversee the organization's finances.
The Central Asia Institute (CAI), a charity run and directed by Three Cups of Tea author Greg Mortenson, has been approved by the U.S. Combined Federal Campaign to be a recipient of the money raised through the campaign's workplace fundraising. The approval was made despite a report issued by the Montana department of Justice detailing Mortenson's and CAI's misuse of charitable assets, and a settlement with the Montana AG in which Mortenson agreed to repay $1 million to the charity he founded. The U.S. Combined Federal Campaign, which is like a United Way for federal workers, found that CAI met its requirements, while stating that the campaign remained “concerned about the charity’s lack of internal controls, as identified by the Montana Attorney General’s Office.”
New York State’s income tax form features a growing list of optional charitable donations for taxpayers. Line 60 of the state form offers eight causes to which taxpayers may donate via their tax bill, including the Department of Environmental Conservation; research into breast or prostate cancer, as well as Alzheimer's disease; and dedicated funds to help missing or exploited children, recruit firefighters and EMTs, or build and maintain the 9/11 memorial. The list has grown by legislation since the DEC was the first to be included in 1983, with the Volunteer Firefighting & EMS Recruitment & Retention Fund added only last year. The total raised via the tax form for each organization ranged from approximately $474,000 for the breast cancer research and education fund, to approximately $34,000 for the U.S. Olympic Training Center in Lake Placid. At least four additions to the list are currently being proposed.
The number of charities and foundations registered with the Internal Revenue Service dropped by 16 percent in 2011, largely as a result of the more than 272,000 organizations that lost tax-exempt status after running afoul of a 2006 law requiring organizations with annual revenue of $25,000 or less to file informational tax forms within three years. According to IRS figures, the number of groups classified under Section 501(c)(3) of the Internal Revenue Code totaled nearly 1.1 million in 2011, down from nearly 1.3 million in 2010. The IRS moved slowly in implementing the 2006 law, in part to give nonprofits time to submit the new information, but announced the organizations that had failed to comply in June of 2011. The latest figures signal a continued slowing in the number of charities created in the United States.
Colorado Attorney General John Suthers has sued a Fort Collins homeless shelter, alleging that its founder, Rev. Richard Thebo, used charitable donations to pay personal expenses, including his mortgage, credit card and veterinary bills, and a speeding ticket. The lawsuit names Thebo, Full Spirit Ministries, and several of its board members, and seeks a court order barring those parties from operating the shelter or any other nonprofit. Thebo responded that the allegations are “ridiculous” and says he has no plans to shut down the shelter. The complaint alleges that Full Spirit Ministries and its principals have misused at least $31,000 in charitable assets.
Idaho Attorney General Lawrence Wasden has sent a letter to St. Luke's Health System informing them of an investigation into recent st. Luke’s acquisitions by the AG’s Office and the Federal Trade Commission under federal antitrust law and under Idaho's Competition Act. The letter requests that St. Luke’s halt its current acquisition of Saltzer Medical Group and any other acquisitions, in order to avoid additional expense and complications. A St. Luke’s representative stated that the health group would cooperate fully with the investigation. St. Luke's is Idaho's largest health care system, with six hospitals and more than 100 outpatient centers and clinics throughout the state.
This article proposes a solution to the debate over political campaign participation by religious organizations. Under this solution, section 501(c)(3) organizations would be allowed to increase political campaign activity in exchange for paying a “self-directed tax.” Organizations would then be able to direct government how to allocate the proceeds from the tax, by selecting from a preset group of spending choices. This approach represents a philosophical compromise, in which 501(c)(3) organizations receive the right to participate in political campaign activity in exchange for subjecting themselves to taxation, while maintaining a partial right not to provide a portion of their proceeds to government to do with as it pleases.
The New Jersey Division of Consumer Affairs has released its most recent report on the spending of the state’s “10 Most Inquired About Charities.” The report allows consumers and donors to examine the annual expenditure reports of the charities that have generated the most calls from consumers to the Division's Charities Registration hotline during the most recent two-month period. The Better Business Bureau standards for Charitable Accountability state that a charity should allocate at least 65% of its expenses toward program expenses. Half of the charities in the most recent report failed to meet this standard.
A dispute at the libertarian think tank the Cato Institute involving the Koch Brothers, billionaire supporters of conservative causes, is bringing attention to that organization’s unusual and questionable governance structure. The institute was founded as a nonprofit in 1977 under a structure in which four “owners” each controlled 4 shares of stock worth $1 apiece. The Koch brothers now control half the stock and are arguing that the widow of a recently deceased shareholder must sell or give her shares to the remaining owners, which would give the Koch family a controlling stake. Former IRS Exempt Divison head Marc Owens calls the institute’s ownership structure “completely at odds with the requirements for [a nonprofit]” and says that the institute is at “risk of retroactive revocation of its tax-exempt status back to 1977.” Cato’s tax lawyer acknowledges that while the structure may not be preferred by the IRS, the shares are a “strange breed of stock that doesn’t have any economic advantage to it.” He said that despite the use of the ownership nomenclature, the structure “is more of a control mechanism and in practice it’s not much different than a membership.”
A new movement, called Locavesting, seeks to make it easier for individuals to invest in local businesses, using mechanisms from credit unions to crowdfunding. Crowdfunding is currently restricted by securities laws that limit the types of projects and entities which may offer equity to their financial supporters. A new law in Congress that would relax the securities restrictions, the Entrepreneur Access to Capital Act (HR 2930), has passed the House of Representatives, has the support of President Obama and is now before the Senate. Until that bill passes, however, advocates are promoting “social investing,” which allows “investors” to provide “loans” to businesses in exchange for perks such as free products or services. These ventures are continuing to blur the increasingly hazy line between nonprofits and for-profits by combining entrepreneurial and charitable instincts and models in a variety of new ways.
Securities and Exchange Commission Commissioner Luis Aguila is advocating for mandatory disclosure of corporate political expenditures on the grounds that without disclosure, investors are deprived of crucial information regarding the activities of the companies they own. The argument against disclosure, that investors might withdraw funds from organizations engaging in political spending, is the same that major nonprofit leadership organizations have made in response to calls for corporate disclosure of charitable donations. Cohen calls for disclosure of both corporate philanthropic spending and political spending, which in fact overlap. “After all,” he notes, “the primary instruments for undisclosed corporate campaign financing are 501(c)(4) ‘social welfare organizations’ which fund super PACs or themselves spend on behalf of their secret donors.”
A number of large nonprofit medical institutions pay their fundraisers salaries over $500,000 per year, with one fundraiser earning $1.4 million in 2010 for Sloan-Kettering Memorial Center, a year in which Sloan-Kettering raised a total of $244.6 million. The institutions employing these fundraisers raised between $107.4 million and $698 million in 2010. An official at Morris & Berger, a firm that fills top jobs at nonprofit firms, stated that few fundraisers make more than $600,000 and that the majority make between $200,000 and $300,000.
In this piece, Cohen summarizes his conversation with Andrews Schultz, COF Vice President for Legal and Government Relations at the Council on Foundations, on how government can promote philanthropy, in particular through tax policy. Schultz also discussed the future of the foundation community as it approaches its centennial, the council's intentions to shift its legislative approach, streamlining the process of Program Related Investments (PRI), and the upcoming "Foundations on the Hill" day planned for late March.
The Mobile Giving Foundation - which connects charities to mobile carriers—and the BBB Wise Giving Alliance—a nonprofit connected with the Council of Better Business Bureaus - have developed a cooperative effort to allow small charities to solicit and receive donations by text. Under the deal, the two organizations will monitor participating charities to ensure they are meeting a set of 20 standards, in order to reassure mobile carriers who process the donations for free. Mobile Giving Alliance previously enabled mobile giving only for organizations that raise more than $500,000 per year. The new standards will require charities to demonstrate governance, financial, and fundraising practices and policies; approval may be denied if charities' annual reports lack key information, if they hold too few governing board meetings, or if they don’t share their informational tax return online.
Here, Cohen explores nonprofits' stake in the $25 billion settlement between 49 state attorneys general and five of the nation's largest mortgage servicers over the servicers' improper mortgage foreclosure practices. In general, nonprofits will play a crucial role in monitoring and ensuring enforcement of the settlement's provisions. Nonprofits will also provide housing counseling, legal assistance and other services funded by the $2.5 billion allotted for state-level anti-foreclosure initiatives. In neighborhoods with high foreclosure rates, nonprofits will participate in programs aimed at preventing blight and in redevelopment. Finally, nonprofits' organizing and advocacy will be crucial to continuing the settlement's first step towards cushioning the impact of the housing collapse, assisting mortgage holders, and reinvigorating the market.
Potential legal liabilities for nonprofits are extensive, including employment-related matters, civil rights, fiduciary duty, conflicts of interest, and fund misappropriation. Individual board members may be liable for board actions even if not present when a decision was made, and their finances are accessible if the nonprofit is unable to pay for damages arising out of a lawsuit. At the same time, the financial ability of nonprofits to weather legal problems is limited as compared to for-profit corporations. As a result, more nonprofits and board members are seeking to purchase directors & officers liability insurance, purchasing policies that cover more potential risks, or increasing the amount of coverage.
The public response to the announcement by breast cancer charity Susan B. Komen for the Cure that it was withdrawing funding for breast cancer screening at Planned Parenthood has been swift and dramatic. This piece examines the political overtones of the announcement, the impact it has had on public support for Komen and Planned Parenthood, and the internal response of these organizations.
Former Henderson city councilwoman Kathleen Vermillion is being investigated by the Nevada Attorney General’s office for expenditures of city funds she authorized while on the council. Henderson city council members are permitted to assign up to $15,500 each fiscal year from the city’s general fund to go to programs and services that benefit the community. The investigation was launched after a complaint from the executive director of a homeless services nonprofit for which Vermillion served at the chief operating officer, alleging that Vermillion misappropriated city funds in directing them to the organization. Vermillion maintains that she has committed no wrongdoing and Henderson city officials are not investigating the expenditures, with a city spokesman saying, “The donations she made out of her funds, from what we've seen, she was able to do.”
California Secretary of State Debra Bowen, having received the official summary of a Charity Health Care Initiative from the Attorney General of California, has granted permission to petitioners Nisa L. Walker and Jimi Hardy to start collecting signatures for the measure. The petition would require nonprofit hospitals to provide health care to the needy of at least 5 percent of their net patient revenues, and authorizes penalties for noncompliance. A minimum of 504,760 signatures of registered voters is required to qualify for the ballot. The signatures must to be collected by June 18, 2012.
The Interim Executive Director of the Nevada Partnership for Homeless Youth (NPHY), Arash Ghafoori, has filed a claim with the Nevada Attorney General’s office against Kathleen Vermillion, the organization’s chief operating officer. According to Ghafoori, Vermillion has misappropriated funds, and has been misusing restricted donations to the charity. Since December, seven NPHY board members have resigned while raising concerns about the organization's finances. The attorney general's office would not comment on whether or not an investigation has been launched, but Vermillion has faced criticism for appropriating $10,500 to the Nevada Partnership for Homeless Youth in her role as a member of the Henderson City Council and then transferring hundreds of thousands from NPHY to another organization of which she is COO, Partnership of Homeless Youth.
Virginia Attorney General Ken Cuccinelli has reached a settlement worth over $65,000 with Associated Community Services (ACS), a telephone solicitor which raised money for the United States Navy Veterans Association (USNVA), a fraudulent charity that raised millions but spent little on the veterans it is purported to serve. Bobby Thompson, USNVA founder, disappeared in 2010 and remains at large. ACS did not admit any wrongdoing under the settlement, but has agreed to refund all contributions to Virginians, and pay civil penalties and the state’s attorneys fees. Cuccinelli said that his “office will continue to work to ensure that those responsible are held accountable for what they have done.”
The South Carolina Attorney General has requested financial and governance information from nonprofit mentoring group Strive to Excel, which operated at Hilton Head High School and has recently shuttered operations. The inquiry comes after South Carolina’s Secretary of State issued a letter to the group citing at least three violations of the state's Solicitation of Charitable Funds Act in Strive to Excel’s most recent federal tax return. The group reportedly violated its own bylaws on several occasions over the past few years, in failing to convene its board of directors and increasing the president’s salary by $41,000 in a single year. Strive to Excel must respond file a corrected tax return, or provide proof that the current form is correct within 15 days, or else face $2,000 in fines for each violation. While there is no formal deadline for providing the information requested by the Attorney General’s Office, the AG has said that it will followup within 30 days.
Internal memos provide insight into Pennsylvania State University’s efforts to manage its relationship with University donors in the wake of the sexual abuse scandal involving former Penn State Assistant Football Coach Jerry Sandusky. The University has instructed all officials to express “remorse, humility, and resolve” in responding to the scandal but that donors should be informed that the University will continue its existing policy not to return gifts once they are made. Some donors have cancelled monthly gifts and are holding off on honoring pledges as the scandal plays itself out. This may interfere with Penn State’s current capital campaign to raise $2 billion by June 2014.
Massachusetts Attorney General Martha Coakley has released a report on charitable solicitation in 2010. Among the report’s data were findings that professional solicitors raised over $367 million in Massachusetts, nearly $39 million more than in 2009. Approximately $166 million of the $267 million, or 45 percent of the amount raised, ended up in the charity’s hands. The annual report is designed to assist residents in making decisions about to whom to give. “In this trying economic climate, it is more important than ever to support the Massachusetts charities that benefit residents of the Commonwealth who are in need,” said AG Coakley. “We encourage donors to do some basic research and ask important questions to ensure donated funds are going to a worthy cause.”
Two major charities, American Red Cross and CARE, are investigating gifts given to them from computer hackers using stolen credit-card data. The American Red Cross says that it does not know how much it received in unauthorized donations, but both charities insist they will ensure that any gifts given to them unintentionally will be returned. Hackers associated with the global hacker network Anonymous publicly posted personal information of thousands of clients of the global intelligence firm Strategic Forecasting (Stratfor). Stratfor has issued a statement that it has hired an identity-theft protection and monitoring service to assist affected clients.
Ohio Attorney General Mike DeWine has filed a civil lawsuit against a booster organization formerly associated with Mansfield City Schools, including 15 people who oversaw the organization’s bingo operation. The AG alleges that the defendants used a complex scheme to siphon money from seven charities since 2004. Specifically, the lawsuit claims that booster club trustees compensated themselves using funds drawn from accounts meant to support the organization’s charity bingo operations and its scholarship fund. While a criminal investigation of the defendants is ongoing, the civil suit seeks to freeze the organization’s bank account and recover money intended for charities and schools.
Texas Attorney General Greg Abbot has frozen the assets of three organizations alleged to have misspent more than $400,000 collected under false promises that the money would assist families of slain police officers. The lawsuit – filed against the Texas Highway Patrol Association, two affiliate groups, and their directors – claims the groups collected money under false pretenses, failed to properly secure funds and employ proper accounting practices, and spent donations on video games, movies, tickets to Sea World and Six Flags, airfare to Germany, hotel bills in Napa Valley, and "exorbitant vet bills" for an office cat. Texas seeks damages for deceptive trade, breach of fiduciary duties, violations of the Texas Law Enforcement Solicitation Act, fraud, violation of constructive trust, conspiracy to defraud, negligence and grossly negligent mismanagement.
This article examines and responds to possible arguments against social media use by nonprofits, noting that there are a number of risks to be managed, but the rewards likely make such use worthwhile. First, making use of new technological tools requires an investment of time and energy, which can be wasted if the tools disappear or change significantly, as they do. But social media tools will continue in some form, and organizations can commit to the social model generally without making a long-term or exclusive commitment to a single tool. Second, building a social media presence requires significant attention and dedication of resources that may not immediately pay dividends, but the benefits are likely to flow after the organization’s social network has reached a tipping point. Third, social media opens nonprofits to the possibility of widely disseminated criticism. Such criticism is probably inevitable, but can be used to engage in a conversation with stakeholders; a greater threat would be not to participate in this conversation at all. Fourth, an organization should be attentive to the types and extent to which their potential supporters are using social media. Instead of trying to lure supporters to a whole new space, the organization should go to them. Finally, organizations should clearly articulate their goals in using social media and closely monitor and evaluate the results.
Former board members and staff of The Second Mile, a charity founded by retired Penn State Assistant Coach Jerry Sandusky, say that the organization’s CEO, Jack Raykovitz, never informed them Sandusky was under investigation for allegedly sexually assaulting children he met through the organization. Board members assert that Reykovitz, a close friend of Sandusky’s, was legally required to provide them with all information that could have affected the charity, regardless of whether he suspected it was true or false. They also state that had the board been informed, they would have vigorously pursued the matter in order to protect the organization and the children it serves. Sandusky is now charged with 52 counts related to sexual abuse of 10 minors and The Second Mile has been named in two civil complaints. Individual board members can face lawsuits for failure to properly execute their oversight duties, and The Second Mile insures its board members against such claims.
As holiday charitable giving reaches its peak, the Oregon Attorney General’s Office has posted its annual list of the 20 worst charities registered in the state. State law requires charities to make regular financial filings disclosing their fundraising and expenditures. At the top of the list for the second consecutive year was Shiloh International Ministries, based in California, which expends an average of $846,340 over the past three years to provide medical and moral support to the needy, but spent only $27,000 on its charitable purpose. Second on the list is American Medical Research Organization of Sarasota, Fla. The list includes charities from around the country, including two Washington State organizations, and one from Oregon. In a news release, AG Kroger urged Oregonians to be selective in making contributions, noting that some charities “are little more than scams that do little to help the people they claim to support.”
This piece from examines the ways in which “stakeholder resistance” can shape the governance of nonprofits. Stakeholders are defined as those who are linked to an organization in some way other than a formal contract, such as donors, members or volunteers. Examples of stakeholder resistance include a scuttled merger between Smile Train and Operation Smile – two organizations that repair cleft palates in children – that occurred due to the opposition of Smile Train donors, and an effort by two girl scouts to reduce the amount and source of palm oil used in Girl Scout Cookies. Underlying most acts of stakeholder resistance is displeasure with the organization’s responsiveness to its stakeholders, often through a lack of structural modes by which stakeholders may voice their feelings on the organization’s governance. In other words, it is not merely the failure to enact the stakeholders’ preferred policy that motivates stakeholder resistance but the sense that their views are not being adequately considered. One of the reasons that stakeholder resistance has increased is the ubiquity of social media, which provide a direct, efficient, and low cost venue for communication between the organization and stakeholders, but also between stakeholders seeking to influence organizational decisions or policies. Resistance has occurred because organizations have tended to use social media as a megaphone, rather than as a venue for collecting input.
Ohio Attorney General Mike DeWine has awarded a $6,000 grant to a veterans’ charity, the Missing in America Project, a national organization that works to locate, identify, and inter the unclaimed cremated remains of American veterans. The grant was funded by proceeds recovered in the investigation of fraudulent charity U.S. Navy Veterans Association. The Ohio AG has made a total of nine grants to Ohio veterans’ charities, under a court order directing distribution to such charities of the more than $76,000 in assets seized from U.S. Navy Veterans Association. The fraudulent charity’s treasurer, Blanca Contreras, has been sentenced to five years in prison for theft, money laundering, tampering with records, and engaging in a pattern of corrupt activity. The organization’s director, known by the alias Bobby Thompson, is still at large.
The California Attorney General’s Office has released a report finding that charitable organizations hiring for-profit fundraisers received an average of 44 percent of the money raised. Thirteen of the organizations examined hired for-profit fundraisers that raised more than $1 million, of which 10 percent or less went to the charity. Several large organizations, including Amnesty International and Save the Children, ended up with large negative balances, although representatives from those charities note that in the long run they expect to end up ahead, as new donors acquired by their for-profit fundraisers continue to give for years. Additionally, new donors represent a base that can engage in advocacy on behalf of the charity or its causes. The charities insist that if hiring for-profit fundraisers were not in the organizations’ interest, they would not use them. Senior Assistant Attorney General Belinda Johns, of the California AG’s Charitable Trusts Division, agrees that nonprofits can legitimately spend money on fundraising campaigns that yield little up front, and that the Office cannot dictate what percentage a nonprofit must receive of money raised. The AG can and does sue fundraisers that mislead donors as to the amount given to charity. The Office strongly urges donors to be aware of the percentage of their donation that goes to the charity and to determine whether they feel money is being wasted.
Ohio Attorney General Mike DeWine has introduced a new web resource that will allow the public to determine whether an organization is a registered charity in good standing with the state. The introduction of the Online Charitable Registration Search comes soon after a update of the state’s registration system for charitable organizations, from a paper to an online system. As organizations file online next year, the public will be able to view charities’ financial reports and the percentage of their donations going to charity work. AG DeWine notes that funds misspent by charities – whether well-meaning or fraudulent – are very difficult to recover. He therefore urges donors to exercise caution and diligence before they give.
The Charities Bureau of the New York State Attorney General’s Office is launching an initiative in cooperation with the New York State Bar Association to connect volunteer attorneys with nonprofit organizations in need of assistance. The program is designed to help nonprofits meet their legal duties – in areas such as governance, fiduciary responsibilities and tax/accounting – so that they may continue to provide needed services as government services are cut back. The AG’s Office will train and guide the volunteer attorneys, and the program will be administered by the State Bar Association. Charity Corps will run a pilot program in its first year, serving up to 50 nonprofits, and will prioritize organizations serving the indigent.
In this opinion piece, the Chronicle of Philanthropy offers lessons that nonprofits can take from the sex-abuse scandal involving former Penn State football Assistant Coach Jerry Sandusky, who is accused of sexually abusing children he met through the charity he founded, The Second Mile. First, all members of an organization, including founders and board members, must be subject to the same standards and scrutiny. Second, a charity’s response to scandal must be guided by service to its mission rather than by pure public relations goals. Third, organizations should consider hiring independent parties to assist or conduct internal investigations. Fourth, organizations should treat their IRS Form 990 as a public relations document that reflects their values, offering information on organizational policies – on whistleblowers, for example – beyond what is strictly required. Fifth, it is important to develop governance practices that address the organization’s specific mission, such as how it will prepare for and learn from difficulties faced by similar organizations. Seventh, organizations must develop a cohesive internal communications system and convey a unified public message. Eighth, payments to insiders will receive scrutiny in any scandal, and should be reviewed in order to ensure that they are reasonable. Finally, board members must be fully involved in developing and executing the organization’s response to scandal.
As Charitable Foundations increasingly use program-related investments to further their missions, some nonprofit officials are expressing concern that this approach is blurring the line between charities and for-profit organizations. A program-related investment is an investment in a for-profit business that does work related to the investor Foundation’s mission; the investment can be counted toward federal requirements that foundations pay out 5 percent of their assets each year. For example, in furtherance of its global health program, the Bill & Melinda Gates Foundation invested $10 million to acquire a stake in Liquidia Technologies, a biotechnology company developing new methods of vaccine delivery. The Gates Foundation notes that while the same goal might be accomplished the funding of a nonprofit, it would be significantly more difficult. At a time of decreasing government financial support for nonprofits, nonprofit leaders fear that charitable organizations that have spent years building up a legacy of trust will be forsaken as foundations look to increase their capital by investing in less-established, riskier – if well-intentioned and potentially impactful – profit-making ventures.
In this idea piece, Heerad Sabeti notes a blurring in traditional boundaries between for-profit and nonprofit models and promotes the development, already occurring, of a Fourth Sector made up of “for-benefit” corporations that combine a commitment to social purpose and a reliance on earned income, as well as an ecosystem to support such organizations. The piece describes the key characteristics of for-benefit organizations and identifies a set of crucial decision points that such organizations face, including the distribution of stakeholder value, methods of capitalization, ownership and governance models, legal form and tax treatment, and performance measurement and reporting. Sabeti additionally identifies the essential support services required by and available to for-benefit organizations. He concludes that while for-benefits cannot replace for-profits, governments or nonprofits, they can and will fill significant gaps resulting from the failure of the current three-sector model to adequately balance increases in prosperity with social and environmental costs.
The charity founded by former Penn State Assistant Coach Jerry Sandusky, who is charged with abusing numerous children he met through the organization, may close its doors by year’s end. According to new CEO David Woodle, the organization – The Second Mile – is considering three possibilities: closing the charity’s program for at-risk youth, continuing to run scaled-down versions of its programs, or transferring the programs to other nonprofit groups. The decision will depend in part on discussions with Second Mile’s donors aimed at determining whether they will continue to support the organization. Second Mile’s annual revenue is approximately $2.9 million and it employs 20 staff in three offices; Sandusky was the group’s primary fundraiser until his resignation in September 2010. The organization’s Board of Directors has hired former Philadelphia Aistrict Attorney Lynne Abraham and the law firm Archer & Greiner to conduct an independent investigation of Sandusky’s contact with children through the charity.
The Salvation Army, whose bell ringing solicitors have long been a staple in shopping areas during the winter holiday season, is shifting into mobile fundraising with the adoption this year of Square, a mobile payments start-up that enables mobile devices to process credit card payments. The Salvation Army, with annual revenue of $2 billion, is testing the new technology in 10 locations in each of the following cities: Dallas, San Francisco, Chicago and New York. Square charges a 2.75% fee on each transaction, most of which goes to the credit car company, uses the same security measures as financial institutions, and additionally requires that the donor/payer must be present in order to engage in the transaction. A spokesman for the Salvation Army noted that “[a] lot of people just don’t carry cash any more,” and that the charity is seeking to connect with supporters via the technologies that they are using.
Three Roman Catholic dioceses have dropped their lawsuit against the state’s decision not to renew foster care and adoption contracts with Catholic charities due to the charities refusal to consider same-sex couples as candidates for adoption, in violation of state anti-discrimination law. The decision came on the same day that the American Catholic bishops announced a new national religious liberty committee, condemning government mandates that require the church to violate church teachings. The Illinois Attorney General argued that the state new civil union bill, Religious Freedom Protection and Civil Unions Act, exempts only clergy who do not want to officiate at civil union ceremonies, and not religious foster care or adoption service providers. As a result of the state’s decision, and the Catholic charities’ acquiescence, a transition plan for more than 2,000 children in foster care is scheduled to begin on November 30.
In the wake of allegations that Penn State Football Assistant Coach Jerry Sandusky sexually abused children he met through The Second Mile, his charity for at-risk youth, president of Penn State University, Graham Spanier, head coach of the Penn State football team, Joe Paterno, and of course Sandusky, have lost their jobs. In this piece, Rick Cohen examines the culpability of Sandusky's charity in the matter. Sources allege that Second Mile officials were aware of at least three allegations of abuse against Sandusky going back to 1998, although the charity denies such awareness before 2008, when Sandusky himself told the organization that he was being investigated. Lists of the members of The Second Mile's official and honorary boards (including a number of celebrities) have been removed from the organization's website. Cohen criticizes the organization for either failing take the allegations seriously or for failing to pay sufficient attention to be aware of them in the first place, and faults prosecutors for failing to sufficiently investigate the organization that served as conduit for Sandusky to secure his alleged victims.
County Assessor in Illinois Moves to Tax Hospital Property (Nov. 15, 2011)
An assessor in Cook County Illinois is making efforts to put Prentice, a 328-bed women’s hospital, onto the county’s property tax rolls two months after the Illinois Department of Revenue denied tax-exempt status to the hospital. The Department of Revenue’s decision is being appealed by Northwestern Memorial HealthCare, who runs Prentice, and Governor Pat Quinn has placed a moratorium on further tax-exemption rulings by the Department until policymakers can clarify exactly how much “community benefit” a hospital must provide in order to qualify for tax-exempt status. While hospitals argue that “community benefit” should include factors other than just charity care, consumer advocates take the position that charity care must be the primary basis for exemption from property taxes. Northwestern spent just 1.85% of its net patient revenue on charity care in 2007; property tax would be assessed beginning in 2008 and would amount to $66 million over the past four years.
The federal Internal Revenue Service (IRS) is facing criticism and inquiry over delays in its efforts to regulate the charitable sector. For example, the IRS is failing to collect data on the amount of charitable care and other so-called community benefits that nonprofit hospitals are providing, although this care is ostensibly the basis for the hospitals’ tax-exempt status. Due to complaints from the American Hospital Association and complications arising from the new health care reform law, the IRS has delayed a requirement that hospitals provide this information. A number of lawyers, accountants, state regulators and consumer advocates have long expressed frustration with what they see as the IRS’s failure to police nonprofits, and Congress is beginning to ask questions as well. The IRS argues that the delays are the result of ambiguous Congressional mandates and foot-dragging from other agencies.
The Oregon Attorney General has announced an agreement with a veterans charity and its for-profit telemarketer, resolving allegations that the two organizations violated Oregon’s no-call law and misled donors about how their contributions would be spent. Specifically, the Attorney General alleged that Veterans of Oregon & Members of the Community (VOMC) told donors that contributions would be spent on assisting veterans but instead paid almost 80% of donations to Associated Community Services, Inc. (ACS) and spent most of the rest on the travel expenses of VOMC’s directors. In May, ACS resolved claims that it had misled donors about how money would be spent and called numbers on the Federal and Oregon do-not-call list. ACS agreed to pay $40,000, refrain from soliciting on behalf of any Oregon charity until December, 2013 and after that date, to file documents with the AG assuring that it will comply with applicable law. VOMC has agreed to restrict any telemarketer from using the organization’s donor list for commercial purposes, to submit all solicitations scripts to its full board to ensure they include a detailed description of how funds will be used, and to obtain bids from three firms before hiring any telemarketer.
Nonprofit hospitals have total revenue, property and investment portfolios worth billions but are exempt from most state and federal taxes. In return for tax exemption, federal law requires that nonprofit hospitals provide charity care and other community benefits. These hospitals typically dedicate only a small percentage of their revenues – between 1.7 percent to 2.6 percent of total operating revenue for St. Louis’s largest providers – to care for the needy, and cite other community benefits ranging from medical research to free prostate examinations. Although state and federal regulators set no uniform standards for the amount of charity care or community benefits that must be delivered to qualify for tax-exempt status, hospitals are facing increasing scrutiny for their status and practices. Supporters of tax-exempt status point out that numbers can be deceiving – for example, a small percentage of revenue can represent a large portion of a hospital’s operating margin – and that nonprofit hospitals must put earnings back into the hospital’s operation, rather than distributing them to shareholders. Nevertheless, the IRS has begun requesting more detailed information on nonprofit hospitals’ community benefits, states such as Illinois have recently suspended hospitals’ nonprofit status for providing insufficient charity care, and states are increasingly requesting payments in lieu of property taxes or considering the propriety of such exemptions at all.
The New York Attorney General’s Office has announced a probe into for-profit campaigns that claim to benefit breast cancer charities. The AG’s office has requested information from 130 business and 40 charities on their “cause marketing” efforts, including data on advertising, promised donations, campaign duration and donation limits. According to AG Schneiderman, the investigation is meant to ensure that cause-related marketing campaigns – on which breast cancer charities rely heavily for fundraising – provide the benefit claimed by charities and their for-profit partners, and expected by consumers. The AG’s announcement adds to a series of moves by the Office focusing on charitable activity around breast cancer. In June, for example, Schneiderman shut down what he alleged was a fraudulent Long Island charity, Coalition Against Breast Cancer, that raised more than $9 million over five years and spent the vast majority of those funds on itself.
New Jersey Attorney General Paula Dow’s Office has announced the filing of charges against a New Jersey couple and their business partner for allegedly soliciting funds that they claimed would be used to buy, and then resell, luxury cars to raise money for children with cancer, when in fact they were keeping the money for personal use. Using false identities and documentation, the three allegedly made millions purchasing luxury cars and then exporting them to countries, including Canada, Finland, and Russia. The organization purchased as many as 61 luxury and other motor vehicles - for a total of more than $2.3 million and without paying sales tax -in 2009 and 2010 alone. While claiming to donate 100 percent of donations to the Memorial Sloan-Kettering Cancer Center, the organization never had a relationship with the Center or provided it with funding. The state’s lawsuit seeks restitution for the affected consumers, and civil penalties for violations of the Consumer Fraud Act and other regulations.
More than a dozen states and two Indian tribes have adopted legislation permitting a new organizational form combining a social benefit mission with a profit-making model. California is the latest state to legalize so-called “flexible-purpose” corporations, and other states including New York and Massachusetts are considering legalizing the forms, also known as benefit or low profit liability corporations. Unlike traditional nonprofits, the organizations can utilize conventional capital markets, and unlike a traditional corporation, the organizations can access philanthropic giving and can prioritize a social purpose over, or along with, profit-making. Some nonprofit executives are expressing concern over the potential competition for charitable donations, while corporate lawyers and regulators worry that serving dual missions creates an inherent conflict of interest and lowers standards of fiduciary duty. Critics also ask why these new forms are necessary when foundations can already invest in standard forms of business, and businesses may incorporate social missions into their bylaws. Many of the organizations adopting these hybrid forms provide services, such as database software or food services, to traditional nonprofit groups.
Colorado State Attorney General Reviewing Proposed Nonprofit Hospital Expansion (Oct. 12, 2011)
The Colorado Attorney General’s Office is reviewing plans by Denver’s third-largest hospital system, Catholic Sisters of Charity of Leavenworth Health System, to add two more hospitals, Exempla Lutheran Medical Center and Exempla Good Samaritan Medical Center to its system, although a similar proposal was rejected by a court-appointed arbitrator in 2009. Owner of the Exempla hospitals, Community First Foundation, would stand to gain $280 million on the deal. The two hospitals are nonsectarian and provide emergency contraception and other reproductive services that would end under Catholic Sisters of Charity.
Two New Jersey lawmakers are seeking to introduce legislation that would strengthen the state attorney General’s oversight of nonprofit hospital transfers. The current law requires the AG to review all aspects of the sale of a non-profit hospital, including determining whether the sale is for fair market value, ensuring disclosure of potential conflicts of interest conflicts, and certifying that the bidding process is fair. The move is a response to a potential deal that would transfer city-run Hoboken University Medical Center to the ownership group of Bayonne Medical Center without independent review by the AG. Attorneys for Hoboken claim that the Hospital, being city-run, is not a nonprofit and therefore not subject to review when it is transferred. State Sen. Loretta Weinberg (D-Bergen), chair of the Senate Health and Senior Services Committee and State Sen. Joe Vitale (D-Middlesex), vice-chair of the committee, claim that Hoboken Hospital is attempting to exploit a loophole to avoid scrutiny, and a former attorney for the Hospital, Donald Scarinci, claims that the city has sought to force the Hospital into bankruptcy so that it may be sold to the ownership group. Weinberg has asked the U.S. Attorney’s Office and the state Attorney General’s Office to investigate the former attorney allegations before the state approves a transfer of the hospital’s license.
The California Attorney General has denied the sale of Victor Valley Community Hospital to nonprofit foundation Prime Healthcare Services’ as not in the public interest. Prime-owned hospitals have been accused of ordering unnecessary tests, admitting rising numbers of Medicare patients and then exaggerating their medical conditions in order to obtain higher Medicare premiums, and cancelling contracts with health insurers – thereby limiting access to the hospital for those insurers’ policy holders. The foundation criticized the AG’s decision, arguing that the denial “could have an immediate and dire impact on the needs of an already-underserved” community, and that Prime would improve efficiency and increase charity care at the hospital if the sale were approved. A bankruptcy judge had already approved the sale.
The California state senate has approved legislation designed to allow nonprofits to manage some of the 70 state parks that will be closed due to the state’s budget shortfall. The bill’s sponsor, Jared Huffman, hopes that operating agreements with nonprofits will allow the state to save a dozen or more parks from closing. Volunteers for the nonprofits that may be operating the parks have express uncertainty as to how their roles will change. The legislation, which reportedly has widespread report from both Republicans and Democrats, must now face a final vote in the state Assembly and must then be approved by California Governor Jerry Brown.
Massachusetts Attorney General Martha Coakley has hired Boston lawyer Mary Beckman to serve as head of the AG’s nonprofit and public charities division, which oversees much of the state’s health care industry. AG Coakley has said that Beckman will focus on antitrust, access and affordability issues as a wave of consolidation occurs among both hospitals and insurers. The nonprofit and public charities division was quite active in the area of health care under its previous head, David Spackman, reviewing the proposed conversion of nonprofit hospitals to for-profits, investigating board oversight of hospital and insurance chief executives, and examining board fees at nonprofit organizations. Beckman has stated that she looks forward to working with Coakley on a number of issues, including creating more transparency around board and executive compensation. Prior to taking the new post, Beckman worked in the general counsel’s office of Children’s Hospital in Boston and served as the state’s assistant secretary for health policy from 1999 to 2002, advising on hospital closings and nursing home receiverships.
Connecticut Attorney General George Jepsen along with that state’s commissioners in charge of consumer protection and veterans’ affairs have issued a warning to retail stores to inspect charitable organizations’ registrations before allowing them to solicit donations from customers outside their stores. “Registration helps to promote public confidence that the money being given is going to the purpose intended,” said Jepsen. “Unregistered charities fly beneath the State’s radar and can more easily misuse the charitable funds they collect.”
Hawaii Attorney General David Louie i investigating Stay Strong Nation, a Maui-based veterans charity. Stay Strong is attempting to raise funds in order to build a post-traumatic stress disorder/traumatic brain injury treatment facility in Maui for service members. Attorney General Louie previously had to ask Stay Strong to cease all fund-raising activity until it registered with the state as a charity. Although the organization subsequently registered, Daniel Borochoff, president of charity watchdog group the American Institute of Philanthropy, has raised concerns about Stay Strong, asserting that the organization’s president and vice president lacked professional expertise in PTSD, and referring to Stay Strong as “highly questionable.” Stay Strong’s president has stated that, once Louie concludes the investigation, the organization will resume its operations.
Missouri Attorney General Chris Koster is suing Steven Blood, operator of Cowboy Bill's Radio, for violating the Merchandising Practices Act. Blood sold t-shirts and claimed he would use the proceeds to set up a benefits concert for victims of the Joplin tornado. Instead, Blood allegedly used the almost $5,000 he collected to pay for his personal expenses. Blood told the Associated Press that he was using the money to cover his operating costs, and that he did not say the money was "going to anybody." Attorney General Koster is seeking an injunction, full restitution to donors, and civil penalties of $1,000 per violation.
Kentucky Attorney General Jack Conway has announced that Passport Health Plan improperly paid four of its member organizations $26.4 million as part of a settlement, and that the money must be repaid. Attorney General Conway alleges member organizations, including Jewish and St. Mary’s Inc., Norton Hospital, University Physicians Associates, and University Medical Center, received $30.5 million in disbursements in 2008 and 2009. Passport, a nonprofit care organization that provides health care to the indigent, made these disbursements illegally, as nonprofit corporations cannot pay dividends to its members. Portions of the disbursement that were used to serve Medicaid patients will not be repaid to Passport. If the money is not repaid to Passport in a timely fashion, Conway can triple the amount the members owe.
Oklahoma state officials are working with charities to ensure their compliance after a law reforming Oklahoma's nonprofit registration system went into effect July 1. The law requires nonprofits, as well as professional fundraisers and solicitors, to register with Oklahoma's secretary of state. Nonprofits are additionally required to keep certain documentation for at least five years. According to Tom Bates, chief of the Oklahoma Attorney General's Public Protection Unit, the requirements will assist both the public and law enforcement in distinguishing upstanding nonprofits from potentially unreliable ones. Marine Taylor, executive director of the Oklahoma Center for Nonprofits, says that leaders in her sector are supportive of the new plan but are still working to fully understand it. To that end, the law's author, Susan Paddack D-Ada, and other state officials have spoken to more than 350 nonprofits around the state.
The New York City Opera’s unions have filed a complaint with New York Attorney General Eric Schneiderman, asserting that City Opera’s proposed move from Lincoln Center violates the terms of a gift from Lila and DeWitt Wallace that serves as the bulk of City Opera’s endowment. During 2008-2009, the Attorney General’s office gave City Opera permission to use $23.5 million from the Wallace endowment. The withdrawal, unusual for a nonprofit, helped pay City Opera’s debts and finance its operations, and was likely approved because City Opera was in financial straits. The unions assert that City Opera misrepresented its plans when it sought release of the funds, because City Opera acknowledged that the purpose of the Wallace fund was to support “a constituent part of the Lincoln Center campus.” The certificate of incorporation for the Fund also states that it was established “exclusively for the benefit of the constituent companies of Lincoln Center.” If City Opera leaves Lincoln Center, it is uncertain that it should be able to use its remaining balance.
Connecticut Attorney General George Jepsen has concluded an investigation into the Connecticut Humane Society’s alleged financial mismanagement, and will take no further action against the organization. The investigation, which was launched by former Attorney General Richard Blumenthal and spanned two administrations, was initiated following charges of mishandling donations, inadequate animal care, and anti-union activity. The Humane Society has since improved oversight of animal behavior concerns, and no evidence was found that the organization entered into financial transactions that were unrelated to the accomplishment of its charitable purpose.
New York Attorney General Eric Schneiderman filed a lawsuit Tuesday against the Long Island-based Coalition Against Breast Cancer, alleging that the charity solicited $9.1 million over the past five years but spent virtually no money on the breast cancer programs it claimed to support, instead using the funds to pay for exorbitant fundraiser fees, benefits packages, unjustified salaries and other personal goods like cell phones, TV, internet services and home phones. Other allegations against the organization include advertising a bogus relationship with Memorial Sloan-Kettering Cancer Center, falsely telling donors that their money would be used to fund breast cancer research, mammogram screenings, support seminars and forums for survivors and their families, and spending less than one-half of 1 percent of donations raised for any purpose related to breast cancer prevention or detection. Schneiderman is seeking to shut down CABC and hold the defendants financially accountable for the alleged waste and misappropriation of CABC's charitable assets.
In light of the IRS’s recent announcement that 275,000 organizations have lost their tax-exempt status, Ohio Attorney General Mike DeWine has reminded Ohioan charitable donors to verify whether a nonprofit has lost its tax-exempt status prior to making donations. The organizations had their tax-exempt status revoked because they failed to file annual reports for three consecutive years, as required by the federal Pension Protection Act, passed in 2006. Donations to these organizations are no longer deductible, and taxpayers who mistakenly claim deductions could face penalties.
Massachusetts Attorney General Martha Coakley has supported a proposed law that would require nonprofits to seek permission from the Attorney General in order to continue compensating their board members. The state Senate recently approved a budget amendment that would bar all charitable organizations from paying directors without state approval. While some organizations and executives agree that high pay is unnecessary to attract nonprofit board members, others assert that the practice is a fair and appropriate reward for the time, expertise, and service of the board members. The state Senate-approved budget amendment must be reconciled with a House version in coming weeks.
In the wake of the passage of a new law allowing same-sex unions in Illinois, Catholic charities in the state have filed suit seeking an injunction and opinion allowing them to refuse state-funded adoption and foster care to unmarried couples, including those in same-sex civil unions. Instead, they wish to be permitted to continue their current practice of referring such couples to other agencies. The charities’ suit was motivated by a request from Illinois Attorney General Lisa Madigan for documents relating to the charities’ licensing practices and alleged discrimination on the basis of on race, marital status and sexual orientation. Although both sides expressed a willingness to meet and negotiate a settlement, antiabortion not-for-profit law center the Thomas More Society filed suit on behalf of three Catholic charities before any meeting could occur. Anthony Riordan, chief operating officer of Catholic Charities of the Diocese of Peoria, predicted upheaval in the state’s adoption and foster care services if the courts side with the state.
As Massachusetts lawmakers move towards passage of legislation that would require Attorney General prior approval of nonprofit groups’ payment of salaries to board members, charities and foundations are scrambling to determine how they will be affected. Although grantmakers originally thought they were exempt from the law, a close reading of the bill reveals they may not be. Foundations are concerned that the restriction may prevent them from attracting trustees from the nonprofit sector, including grass-roots groups, and immigrant communities and low-income communities. Organizations would be able to apply for an exemption from the law, subject to the requirement that any payment must not be “in excess of that reasonably necessary to accomplish the purposes for which compensation is approved and paid.” Some Foundations argue that paying salaries to board members is worth the expense. For example, Nicholas H. Donahue, chief executive of The Nellie Mae Ed Foundation, which paid its 15 directors a total of $327,047 in 2009, argues: “We are an education foundation trying to make big change.” “We think we get a benefit from some modest payments to people to keep them engaged and get their expertise.”
According to an investigation by the Iowa Gazette, Iowa charities using telemarketers from outside the state receive an average of 22 cents for every $1 raised. Telemarketers for out-of-state charities took an even greater percentage, as much as 99 cents out of every dollar raised. The Iowa Attorney general’s office requires telemarketers to register with its Consumer Protection Division, which provided financial disclosures, contracts and other records to the paper. Most charities defended the deals, noting that telemarketers do all the work, that the costs to telemarketers are significant, and that they are open with donors regarding the percentage of donations going to each party. The Attorney General’s Office requires disclosure by telemarketers of any prior disciplinary or legal action against them, and relies on other state agencies, self-disclosure and the Internet to identify telemarketing violations, such as the use of “deceptive” language in solicitations.
Alabama Attorney General Luther Strange has issued a memorandum to law enforcement and district attorneys in the state clarifying his office’s position on gambling, including “charity bingo.” The memorandum reaffirmed the State’s strict prohibition on gambling and noted that in counties with local constitutional amendments allowing it, charity bingo must satisfy the six-factor test for “traditional bingo” as set out by the Alabama Supreme Court. Bingo, whether electronic or paper, must be operated on behalf of a charity in strict adherence to the county’s local constitutional amendment. According to Strange, his memorandum represents a significant change in policy from the previous attorney general, whose advisory opinion on the issue took a more lenient approach.
As a result of an advisory opinion issued by Virginia Attorney General Ken Cuccinelli, the State of Virginia is performing a months-long constitutional review to determine which state charities may continue to receive funds from the state. The Virginia constitution prohibits grants to nonprofit organizations unless the nonprofit is “owned or controlled by the Commonwealth.” State lawmakers have nonetheless regularly appropriated funds to such organizations. Organizations may receive funds through a contractual relationship with the state to provide a particular service, rather than through direct grants. Under this rule, the Virginia Health Department has restructured its relationships with 25 of the 26 charitable groups it has previously funded such that the organizations a now again receiving funding.
In response to historic budget shortfalls, many cities are asking tax-exempt organizations to make voluntary payments in lieu of property taxes, and seeking to institute formal standards for such payments. In cities such as Boston, Providence, Chicago and Princeton, New Jersey, city officials are arguing that all entities, including tax-exempt organizations, must sacrifice in order to solve deepening financial crises. While many large tax-exempt entities, such as universities and hospitals, have been and continue to make voluntary payments, others argue that tax-exempt organizations provide vital services, the cost of which cities would otherwise be forced to absorb, and that they are tax-exempt for this very reason. Given that nonprofits currently also face great financial strain, they argue that making voluntary payments will merely harm their organizations and reduce the quantity and quality of services they are able to provide to the community. In addition to services, many large tax-exempt organizations benefit communities by supplying jobs, attracting visitors and revitalizing downtowns. However, they also own large swaths of valuable land – more than fifty percent of all the property in Boston, for example – in cities that depend heavily on property taxes.
More than a year after a landmark Illinois Supreme Court case that upheld the State Department of Revenue’s decision to strip a hospital’s tax-exempt status, state officials have not taken action on a single hospital applications for tax-exempt status. The state’s inaction comes amid a wave of consolidations by local hospitals. Representatives of Attorney General Lisa Madigan and the Department of Revenue have participated in talks with the Illinois Hospital Association, which has requested a moratorium on tax status determinations until the state clarifies how to define charity care and how much a hospital must provide to qualify for property- and sales-tax exemptions. The hospitals take the position that their tax-exempt status is justified by more than the charity care they provide, while state officials believe that nonprofit hospitals must dedicate a greater percentage of their revenues to charity care than the 6.4% they do currently. The state says that the delay in making tax status determinations is the result of hospitals’ failure to provide additional information requested by the state in the wake of the Illinois Supreme Court’s decision.
After a review by the state attorney general's office, the Vatican and Lackawanna County Judge Carmen Minora, the sale of three Pennsylvania hospitals was finalized on May 3. The formerly nonprofit Mercy Hospital in Scranton, Tyler Memorial Hospital in Tunkhannock and Special Care Hospital in Nanticoke now belong to Community Health Systems, Inc., a for-profit company. Under the sales agreement, the hospitals will implement charity care policies comparable to those in place when the facilities were owned by Mercy Health Partners and will participate in Medicare and Medicaid programs, officials said.
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