This weekend the excellent "OC Watchdog" series of the Orange County Register focused on a recent report on nonprofit pay released by an organization called "Charity Navigator" which revealed, among other things, that more than a few Orange County and California based nonprofits are paying pretty hefty compensation to corporate insiders, some have questionable management practices favoring corporate "insiders," and that Attorney General Jerry Brown is keeping an eye on the situation.

     For example, Costa Mesa’s Trinity Broadcasting Network is reportedly paying television preacher Paul Crouch as much as $419,500 annually, and it has a lot of relatives working for the nonprofit in various capacities, as does the Irvine-based Ayn Rand Institute, which is raising questions.  A Santa Ana outfit named "Association for Firefighters and Paramedics" is spending 97% of its annual $3 million of funds raised on fundraising and overhead, and $125,375 on its CEO, and has drawn the ire of the Attorney General, who is suing it for deceptive fundraising.

     Persons who can exercise "substantial influence" on the affairs of a charity come under the regulation of not only the state Attorney General, but also a myriad of Internal Revenue Service rules, the most fundamental of which is the rule that a charity must always exclusively serve a "public" interest and not a "private" one.  Thus, when a nonprofit appears to be operating more as a business vehicle to compensate the people who influence it, rather than to serve the public, the IRS can revoke tax-exemption and impose substantial financial penalties (even criminal sanctions) for the abuse directly on the organization’s managers and professionals.

     While the Attorney General’s case against the Association for Firefighters and Paramedics is yet to be proven, officers and directors of charities, and their professionals, must be keen to maintain their "duty of loyalty" to the stated public interests of the organization.  Sticky problems occur when the lines get blurred, such as where a law firm loses their independence by representing both the charity and also the commercial interests working for it, such as its fundraisers.  Such relationships must always be "arm’s length" transactions, especially for high-profile operators such as Paul Crouch and Trinity Broadcasting, which continue to be targets of law enforcers and also aging, aspiring politicians.

This entry was posted on Tuesday, August 11th, 2009 at 12:00 am and is filed under Blog Posts.