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Nonprofit Watch: The Nature Conservancy

HERE for TNC table of contents

Editorial by Bob Felton

The Senate Finance Committee released yesterday the report of a 2-year investigation into the operation of The Nature Conservancy, finding that the nonprofit operates little differently than many large corporations.

WASHINGTON -- After two years dissecting The Nature Conservancy, the Senate Finance Committee reported Tuesday that large charities may need stricter laws to prevent insider deals, regulate moneymaking ventures and open more activities to public scrutiny.

Committee Chairman Charles Grassley said the panel's report, to be examined in a Wednesday hearing, shows The Nature Conservancy engaged in aggressive planning to maximize tax advantages. It acted no differently than many large corporations, and such planning is probably widespread among large charities, Grassley said.
"Current law has not kept up with the sophistication and complexity of many of today's charities," the Iowa Republican said.
That's raising concerns about some charities and whether they're acting as lawmakers intended to provide the public good that tax benefits were meant to reward, Grassley said. [emphasis mine]

From the Committee's report:

TNC entered into a number of arrangements with ďinsidersĒ or persons who had some sort of affiliation or relationship with TNC. These transactions included arrangements with TNC Board members, affiliates of TNC Board members, trustees or officials of TNC state or local chapters, officers and employees, and in limited cases, persons considered by TNC to be independent contractors.
The Committeeís focus with respect to these arrangements was on the process undertaken by TNC, including any relevant internal policies or procedures, to ensure that the arrangement was fair and reasonable to TNC, and consistent with TNCís status as a tax-exempt public charity.

  1. Lack of transparency. TNC generally did not completely and clearly disclose and report many of these related party or insider transactions. In many cases, it is impossible to determine the nature and material terms of the transaction without looking beyond TNCís descriptions contained in its Forms 990.
  2. Recusals. TNCís descriptions of its insider transactions on the Form 990 suggests that the relevant insider routinely recused himself or herself from participating in or voting on the transaction.
  3. Legal or tax opinions regarding conflicts of interest or tax consequences. TNC did not seek the advice of outside counsel to determine whether such transactions were compatible with tax law or internal conflicts of interest requirements and state nonprofit laws, or to obtain a tax opinion with respect to the consequences of any of such transactions. Staff recognizes that TNC is under no obligation to seek outside guidance on the legal consequences of any transaction, but notes that in the case of highly complex, novel, or insider transactions, this may be advisable.
  4. Fairness to TNC. Except in the case of certain of TNCís land transactions with insiders, it appears that TNC did not confirm that the transactions were done at terms that were fair and reasonable to TNC. TNC apparently did not regularly seek or obtain appraisals or fairness opinions with respect to these transactions.
  5. International Leadership Council. TNCís Conflicts of Interest Policy extends to trustees of state and local chapters of the organization, but does not apply to members of the International Leadership Council.
  6. Morgridge / Cisco. TNCís description of the Morgridge/Cisco transaction was incomplete and vague, and did not describe the role of the Morgridge Foundation in the transaction. TNC did not refer to the Morgridge Foundation in the Form 990 disclosure of the transaction, or provide details regarding the relationship of the foundation to Mr. Morgridge or to Cisco Systems, Inc. in its supplemental response. The Staff did not determine the extent to which the foundation might be using its funds to benefit Cisco Systems, Inc.
  7. GM Emissions Deal. The GM emissions arrangement is an unusual transaction that should have been more thoroughly and accurately disclosed by TNC in its Form 990 reports. Mr. Smithís role in the transaction should have been more accurately described by TNC.

[emphasis mine]

There's nothing innately improper about a nonprofit doing business like a business; I was once associated with a nonprofit that didn't do business anything remotely like an actual business - and the needless and irreplaceable losses of goodwill and money ($-millions) were both terrible and enduring. But the operation of nonprofits should be, literally, an open book - and Congress shouldn't hesitate to demand that of companies that enjoy tax advantages, and shouldn't hesitate to punish severely those who use their tax advantages for personal aggrandizement.

First and foremost, the income tax returns of all nonprofits should be made available on the Internet without charge or restrictions on use, and without intermediaries such as GuideStar, which has just adopted a policy prohibiting publication of 990-Forms downloaded from them on Web sites. It's public information, and it should be in the public domain - and if Congress did that, they'll find out in a hurry that competitors will police each other far more effectively than acres of bureaucrats.
Bob Felton blogs at Civil Commotion.





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