Managed Care - August 2008 - (Page 24) ized and imperfect,” adds Isenberg, the former California assemblyman. The first line of defense against private inurement, such as managers or board members enriching themselves, multiple conflict-of-interest transactions, diversion of donated funds for unrelated purposes, poor management practices and high administrative costs is the foundation bylaws. Then comes the foundation’s board of directors, which enforces the bylaws, then the state attorney general and the IRS, which oversee the foundation’s not-for-profit status. Attorney general’s turf In virtually every jurisdiction, the attorney general represents the state and public interest in protecting charitable assets by overseeing not-for-profit corporations, either by statutory provision or common law, according to Ohio State University law professor Garry Jenkins, author of a 2007 research article published in the Georgia Law Review titled “Incorporation: Choice, Uniformity and Reform of Non Profit State Law.” However, in most state attorney offices, there is one or fewer than one fulltime-equivalent lawyer working on not-for-profit oversight. Seventeen states have no such lawyer. That leaves the Internal Revenue Service as the primary regulator of not-for-profit behavior, and Jenkins says the IRS is understaffed and underfunded. “There is virtually no oversight,” says Pablo Eisenberg, a Dorfman colleague who is cofounder of the National Committee for Responsive Philanthropy. The last line of defense is consumer groups. “Consumers Union and Community Catalyst focused primarily on the formation of these foundations,” says LeRoy of Grantmakers In Health. “We don’t have the resources to monitor these foundations actively,” adds Laurie Sobel, JD, Consumers Union’s senior staff lawyer, who has followed conversions for a decade. Sobel says community advisory groups are associated with the foundations. “If a foundation was wildly off course, someone from a community advisory board would alert the attorney general,” she says. “We have not been alerted to any abuses. Health plan foundations are more responsive to the community than many other types of foundations.” Community Catalyst Deputy Director Susan Sherry argues that there is a spotlight on conversion foundations, leaving them little room for malfeasance. “These are highly visible entities and subject to public scrutiny,” she says. Her colleague, Michael Miller, Community Catalyst policy director, says the large foundations get attention while the small ones run under the radar. In essence, communities depend on the integrity of board members to take their duties seriously. The biggest mistakes that foundations make are in the early years of operation, says David, formerly of California Wellness. “Most of the foundations when they are new have pressure to get the money out the door before they have a full staff and before their mission is established, so funding is scattershot. Any time people rush to do the process, they make mistakes.” David recalls committing $60 million over 10 years to take on youth violence as a public health issue at California Wellness. “It was bold, creative, and ambitious, and we tried to do it quickly.” One of several groups that received funding was an amalgam of not-for-profits that banned together to do something about violence in Fresno, a hotbed of gang activity. They were ill equipped. “Despite the best of intentions, they faltered.” When the Community Health Foundation of Western and Central New York was in its infancy, it gave about $45,000 to a small arts organization that wanted to deliver plays in schools on health topics, such as teaching children the importance of hand washing. “We thought they had a closer relationship with schools than they had. They couldn’t create all the plays and couldn’t get into the schools,” says Ann Monroe, Community’s president. Lax monitoring In the past, foundations have been lax in monitoring grantees, a situation that has slowly changed since the Sarbanes-Oxley Act of 2002. “There is a notable lack of systemic analysis of foundations on the effectiveness of their grantmaking practices,” wrote the authors of the 2003 LECG report on Blue Cross conversion health plan foundations. However, for the first time last year, the Missouri Foundation for Health hired a full-time program evaluator. California Endowment gave $3.2 million to Oakland-based Samuels & Associates to 24 MANAGED CARE / AUGUST 2008
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