Advisory Committee on Tax Exempt and Government Entities (ACT ...

The Appropriate Role Of The Internal Revenue Service With Respect To Tax-Exempt Organization Good Governance Issuesenormously broad range of tax-exempt organizations and therefore its governancematerials are much more prone to suffer from a “one size fits all” approach. Even withinaccreditation schemes, however, it is noteworthy that there typically is broad deferenceto the role and judgment of a governing board, rather than specific prescriptions.2. Voluntary Standards and Participation in Membership GroupsThere are today innumerable groups that purport to rate charities, have createdvoluntary standards for charitable organizations, and/or that have released suggested“best practices.” As the Panel on the Nonprofit Sector noted in its Principles for GoodGovernance and Ethical Practice, there are many existing systems, dating back to atleast 1918 when a group of nonprofits established the National Charities InformationBureau (“NCIB”) to educate the public about the ethical practices and stewardship ofnonprofit organizations seeking donations. 77 The NCIB and the Philanthropic <strong>Advisory</strong>Service of the Council of Better Business Bureaus’ Foundation merged in 2001, with theStandards for Charity Accountability of the Better Business Bureau (“BBB”) supersedingthe NCIB’s prior standards. 78The BBB has created a voluntary system of charity accreditation based on its Standardsfor Charity Accountability, which are among the most prescriptive of nonprofit standards,including with respect to governance. 79 For example, in the governance area, the boardmust provide adequate oversight of the charity’s operations and staff, including regularlyscheduled appraisals of the CEO’s performance, evidence of disbursement controlssuch as board approval of the budget, fundraising practices, establishment of a conflictof interest policy, and establishment of accounting procedures sufficient to safeguardcharity finances; the governing board must be comprised of at least five votingmembers, a maximum of ten percent of whom (or one member in the case of a smallboard) is permitted to be directly or indirectly compensated (and compensated memberscannot serve as chair or treasurer); the board must meet a minimum of three evenlyspaced meetings per year, at least two of which meetings must be with face-to-faceparticipation; no transaction is permitted in which any board or staff member has amaterial conflicting interest with the charity; and the board must have a policy requiringthat the organization assess, at least every two years, the organization’s performance,effectiveness, and future actions required to meet its mission, and a written report of theassessment must be submitted to the board for its approval.National charities can voluntarily participate in the BBB Wise Giving Alliance’s OnlineCharity Evaluation and Reporting System, pursuant to which the charity providesinformation and the BBB generates an Alliance report available on give.org thatsummarizes basic facts about a charity’s governance, programs, finances, fundraising,and operations and shows whether or not the subject charity meets the comprehensive77Panel Principles, supra note 13, at 3-4.78The Standards for Charity Accountability, http://www.give.org/standards/newcbbbstds.asp.79The key here, of course, is that adoption of such standards is voluntary. They would not be appropriate for many organizations,and certainly should not be imposed.ADVISORY COMMITTEE ON TAX EXEMPT AND GOVERNMENT ENTITIES (ACT) June 11, 2008 24