The NonProfit Times - February 1, 2009 - (Page 8) RESPONSIBILITIES Continued from page 7 by the public and state regulators,”he said. “There’s information required on this form in a format that has not been required before and you really need to have a conversation within the organization to be able to provide the right information and tell a good story, because this form really allows the exempt organizations to tell the story of what they do to the public and the IRS and they should take advantage of it,” said Lerner, who recommended different departments should review the 990 together. While the Form 990 goes into more detail, state charity officials are losing some filers during the three-year, phase-in period. The thresholds for Form 990 filing will begin at more than $1 million gross receipts or more than $2.5 million in assets beginning in tax year 2008, a significant jump from the 2007 Form 990 threshold of $100,00 gross receipts and/or $250,000 in total assets.The threshold will decrease to more than $500,000 in gross receipts and/or $1.25 million in assets in tax year 2009 and then $200,000 in gross receipts and/or $500,000 in assets for tax year 2010 and beyond. “This is problematic for state charity regulators because we have so many charities that are under the new IRS filing threshold we would be losing a great deal of valuable information if we raised our filing thresholds as well,” said Knowles. “So we as state regulators, through NASCO, are trying to work together to come up with an alternative for those charities who have to file with the states but not necessarily with the federal government. We don’t want to overburden charities with additional filing requirements but this information is vital for what we do as regulators in our own states.” Some regulators are hoping electronic reporting will speed up the process and make information on charities easier to handle. California recently implemented the electronic Registry of Charitable Trusts, an improvement compared to paper-based filing.“Honestly, when you have a limited staff and 94,000 charities in your state, without an automated registry, it sometimes feels like we’ve just have a few fingers in the dike,” said Belinda Johns, senior assistant attorney general in the Charitable Trusts Section of the California Attorney General’s office. Johns said that 460 complaints were logged for the Fiscal Year 2007 to 2008, with 206 logged so far for FY 2008 to 2009 -- and that electronic reporting helps her department weed out offending charities more efficiently. Cash said that while smaller organizations wouldn’t need to post their Form 990, state regulators ideally still want to hear from everyone. “We would like to just know if a charity is in existence and taking donations, if nothing else,” he said, while one of the options NASCO is exploring is creating a uniform reporting form across the states for nonprofits. Reporting information will be key since several state regulators said they expect an increase in embezzlement and financial diversion allegations in response to the struggling national economy. Ac- cording to a study by Association of Certified Fraud Examiners, nonprofits had the smallest percentage of fraud, 14 percent, compared to privately owned companies (nearly 40 percent), public companies (28 percent), and government agencies (18 The Elie Wiesel Foundation for Humanity was just one of the many nonprofits scorched by the Madoff Ponzi scheme. Fiduciary Responsibilities: A Closer Look After one of the largest Ponzi schemes in American history toppled several unsuspecting charities, state and federal regulators will take a finer look at nonprofit fiduciary responsibilities, including investment diversification. The estimated $30 billion to $50 billion Ponzi scheme allegedly perpetrated by Bernard Madoff unraveled in December and dozens of charities were affected, some even forced to shut down, after investing directly or indirectly with Madoff Investment Securities LLC. Some organizations invested a majority of their assets with Madoff. Yeshiva University reportedly lost its initial investment of $14 million of its approximately $1.4 billion endowment in the scheme, while Madoff managed $15.2 million for The Elie Wiesel Foundation for Humanity, virtually all of the foundation’s assets. “There’s been some thinking that ‘Were charities negligent in their investment strategy? Were they fulfilling their judiciary duties as directors to be all in Madoff funds without diversifying?’ But we think that boards and regulators alike are going to want to look harder at identifying and promoting some sound nonprofit investment policies,” said Chris Cash, president of the National Association of State Charity Officials and charities program manager of the Colorado Department of State. “If California nonprofits were invested with Madoff, the question for us that arises is whether any California charities were invested with him and, if they were negatively impacted, whether those charities were following what we call the prudent investor rule under the California Nonprofit Corporation Law. Charities are required to have a diversified investment strategy so that is certainly an issue that arises,” said Belinda Johns, senior assistant attorney general in the Charitable Trusts Section of the California Attorney General’s office. Regulators expect some issues, like mergers, dissolutions and cy pres petitions, to increase if the economy continues to sputter. Terry Knowles, of the New Hampshire Department of Justice Charitable Trusts Division, said her office was seeing around two charities a week go under through bankruptcy or dissolution. “It really is tragic in some cases. So we are encouraging nonprofit boards and staff to think about creating partnerships in the short term -- and these relationships can go all the way from creating a buying collaborative to the end where you may have two organizations merging,” said Knowles. “We hope that by encouraging charities to work together scarce resources can be better utilized through economies of scale.” – Michele Donohue percent), based on 959 cases of occupational fraud investigated between January 2006 and February 2008. In the study, nonprofit fraud was unearthed mostly by tips, more than 48 percent, a huge majority compared to internal controls (24.8 percent), external audit (14.9 percent), internal audit (13.2 percent), accidental instances (10.7 percent), and police notification (1.7 percent). Cash said that if nonprofits increased internal scrutiny slightly, like sending bank statements to another address or clear separation of employee financial duties, it may have a dramatic positive effect in the fraud controls. “We (state regulators) were very struck by the ease in which fraud is perpetrated against a charity and how much there is,” he said.“We are also stuck by how easily it can be prevented and I think what we are going to try to do is start really stressing this to charities during any educational outreach we do.” Knowles, who has worked in charity regulation for 28 years, said she’s seen an upswing in embezzlement allegations during down markets and is currently investigating four to six allegations. She explained that in New Hampshire it’s the youth sports organizations that seem to have the most trouble handling the nonprofit reins. “Day-after-day, you see newspaper articles nationwide reporting embezzlements from charities, and especially from youth sports organizations. In my opinion, the reason for the thefts from youth sports organizations is primarily because the motivation for those particular board members to serve is different than the motivations of board members who serve other sorts of charities,”said Knowles.“Well-meaning parents certainly want to do the right thing, but they often don’t understand that along with choosing the coach and insuring their child will play on the team there are other fiduciary responsibilities inherent in being a board member.” The Pennsylvania Bureau of Charitable Organizations received 373 complaints in 2008. Of those complaints, 30 were referred to the prosecuting attorney for action with 14 final actions executed, while the others are in different stages of prosecutorial action. McCurdy agreed that smaller organizations, like youth sports, volunteer firefighter organizations or parent-teacher organizations, are more vulnerable to embezzlement. “The nature and structure of that kind of organization is one where there’s typically a high level of trust among the people because of their relationships,” she said. “They don’t necessarily look over the shoulder of somebody who may be handling the money.” Regulators said while they are taking a harder look at organizational transparency and asking tough questions, charities should not be afraid to ask questions or for help. NPT F o r a l i s t o f r e g u l a t o r s i n y o u r a r e a , g o t o w w w. n p t i m e s . c o m / r e g u l a t o r s 8 FEBRUARY 1, 2009 THE NONPROFIT TIMES www.nptimes.com http://www.nptimes.com/regulators http://www.nptimes.com
Table of Contents Feed for the Digital Edition of The NonProfit Times - February 1, 2009 The NonProfit Times - February 1, 2009 Attorneys General Focusing On Fiduciary Responsibilities The Urge To Merge Taking Cancer To Court Contents Indefensible Calendar Special Report The Holidays Are Over Health Care Guide NPT Jobs Advertiser Index Resource Directory The NonProfit Times - February 1, 2009 The NonProfit Times - February 1, 2009 - Taking Cancer To Court (Page 1) The NonProfit Times - February 1, 2009 - Taking Cancer To Court (Page 2) The NonProfit Times - February 1, 2009 - Contents (Page 3) The NonProfit Times - February 1, 2009 - Contents (Page 4) The NonProfit Times - February 1, 2009 - Contents (Page 5) The NonProfit Times - February 1, 2009 - Contents (Page 6) The NonProfit Times - February 1, 2009 - Contents (Page 7) The NonProfit Times - February 1, 2009 - Contents (Page 8) The NonProfit Times - February 1, 2009 - Contents (Page 9) The NonProfit Times - February 1, 2009 - Calendar (Page 10) The NonProfit Times - February 1, 2009 - Special Report (Page 11) The NonProfit Times - February 1, 2009 - Special Report (Page 12) The NonProfit Times - February 1, 2009 - Special Report (Page 13) The NonProfit Times - February 1, 2009 - Special Report (Page 14) The NonProfit Times - February 1, 2009 - Special Report (Page 15) The NonProfit Times - February 1, 2009 - Special Report (Page 16) The NonProfit Times - February 1, 2009 - The Holidays Are Over (Page 17) The NonProfit Times - February 1, 2009 - The Holidays Are Over (Page 18) The NonProfit Times - February 1, 2009 - NPT Jobs (Page 19) The NonProfit Times - February 1, 2009 - Resource Directory (Page 20) The NonProfit Times - February 1, 2009 - Resource Directory (Page 21) The NonProfit Times - February 1, 2009 - Resource Directory (Page 22) The NonProfit Times - February 1, 2009 - Resource Directory (Page 23) The NonProfit Times - February 1, 2009 - Resource Directory (Page 24)
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