Wednesday, July 20, 2011

Do Nonprofits Need More Regulation?

As Americans, we seem to be going through a healthy, nation-wide purge. We don't want to spend money on anything that is not going to make our life better or give us some return on investment.  Including charities.  Because of a tax system that encourages that support for the arts, education, and social services from the private sector, rather than the government, America has the largest 'third-sector' in the world. 

I often say that I have a job because of the 1% of  organizations that have no business calling themselves 'charities'. Nobody likes 'bad' charities.  Anyone whose ever seen an elderly woman throw $10 she doesn't have at the Patriots for Children and Puppies Foundation knows that unscrupulous people take advantage of our national generosity.  Charity scammers make me angry.  If not for my firm belief that we all eventually get what's coming to us, I would not sleep at night.

In our national effort to root out those who waste our money, or worse, defraud us of it, a few States are looking at imposing more reglulation on charities.  Massachusets and Oregon recently turned down proposed legislation that would have prohibited nonprofits from paying their boards (MA) and allow tax deductions only for contributions to charities that allocate at least 30% of their budget to programs (OR).  These provisions have broad support and it is possible that measures such as these will suceed in the future and that other states will seek to more-heavily regulate the charitable sector.

But do American charities need more regulation?  The BBB provides voluntary standards and a way for organizations to show the public they meet them. It is against our Standards for more than one board member to be compensated and organizations must spend at least 65% of revenue on programs if they want to be a BBB Charity Seal Holder.

I think that the problem with over-regulating charities is that in a sector stiving to meet the ever-changing demands of  the people it serves, there has to be some wiggle room. Sure a charity might not meet BBB Standards if it takes a rebuilding year and puts the bulk of its fundraised dollars into management training, but that certianly shouldn't be illegal.  Because it might be a smashing success and in future years allow the organization to actually put a dent in fulfilling it's mission.  Less-than-ethical organizations don't put much money toward programs, but that doesn't mean that there aren't reasons for good charities to occassionally do the same.

Haven't we had enough of a few bad apples making things more difficult for the rest of us?  HIPPA? Airport Security? No Child Left Behind, anyone? Regulation makes it difficult to find creative solutions to problems.  And the type of problems our nonprofit sector is charged with solving - homelessness, animal welfare, environmental preservation, literacy -  demand increasingly creative solutions in an atmosphere of dwindling funds. 

So let's arm ourselves with voluntary standards and not regulate the fun out of fundraising. Or governing. Or problem solving.  We can do it!

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