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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
The Appropriate Role Of The Internal Revenue Service With Respect To Tax-Exempt Organization Good Governance IssuesStandards for Charity Accountability. 80 A charity meeting all of the standards isconsidered a BBB Accredited Charity. 81 In addition, a charity that meets the Standardsfor Charity Accountability has the option of applying for the Better Business Bureau’sCharity Seal Program, pursuant to which it can be designated a BBB Accredited CharitySeal Holder and can display a seal that indicates it meets the standards. The goals ofthe seal program are “to offer a highly visible accountability tool that will help informdonors, assist charities in establishing their commitment to ethical practices, andencourage greater confidence in giving.” 82 In addition to these programs, the BBBprepares evaluative reports about charities upon request from the public and alsoreceives complaints about charities, which may be included in reports. 83 Finally, whilethe BBB focuses on national charities, many local BBBs engage in similar activities withrespect to charities in their regions.Other groups take different approaches. Some organizations, such as CharityNavigator 84 and the American Institute of Philanthropy, 85 as well as publications, suchas Forbes Magazine and Worth Magazine, rate charities, typically based on financialcriteria set forth in their Forms 990. A new website, GreatNonprofits, 86 provides a forumfor the public to rate and review nonprofits.GuideStar performs a number of functions today. It makes Forms 990 and otherinformation about charities readily available to the public for free. For a fee, it alsosearches and packages data, based on public filings already required by law andprivate information provided voluntarily by charities and philanthropic organizations, thatsupport industry best practices for governmental bodies, businesses, grantmakers, andothers. It provides educational information and sector news, and encourages charitiesto provide additional information that is then available to the public.There are national membership organizations such as Independent Sector, the Councilon Foundations, and the Philanthropy Roundtable that are dedicated to assistingcharitable organizations comply with legal and ethical mandates and achieve theirobjectives. There also are state programs that offer standards and, in some cases,certification programs. 87 Earlier in this report we cited a number of organizations thathave released voluntary standards and/or recommended “best practices” for charitable80The Better Business Bureau’s Wise Giving Alliance’s Online Charity Evaluation and Reporting System,http://us.bbb.org/WWWRoot/SitePage.aspx?site=113&id=f822f4e6-dd71-4721-ba5f-46e5056a79f5.81See discussion of a Better Business Bureau Accredited Charity, http://charityreports.bbb.org/public/accreditation.aspx.82See discussion of Better Business Bureau Accredited Charity Seal Holder Program,http://charityreports.bbb.org/public/accreditation.aspx . A license agreement and sliding scale fee are involved in the seal program.83See the Better Business Bureau discussion about evaluative reports and complaints,http://us.bbb.org/WWWRoot/SitePage.aspx?site=113&id=b18e1411-c420-47aa-a086-0a711d9af7e7.84Charity Navigator, http://www.charitynavigator.org.85American Institute of Philanthropy, http://www.charitywatch.org/toprated.html.86GreatNonprofits, http://www.greatnonprofits.org.87See, e.g., Maryland’s Standards for Excellence program, a project of the Maryland Association of Nonprofit Organizations,http://www.standardsforexcellence.org, which provides voluntary standards and a certification program for nonprofit organizations inMaryland. The program has been replicated in nine states. Id.ADVISORY COMMITTEE ON TAX EXEMPT AND GOVERNMENT ENTITIES (ACT) June 11, 2008 25
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