New Massachusetts Rules Target Financial Abuses
EDITOR'S NOTE: New Massachusetts Rules Target Financial Abuses
Last week, Massachusetts Attorney General Thomas L. Reilly took steps toward implementing strict new rules for governing charities, including a requirement that board members sign off on financial audits; curbs on executive compensation; and $5,000 fines for violations -- all in an effort to "stamp out" financial abuses.
According to a report in The Boston Globe, if implemented, the proposed legislation would be among the most comprehensive nationally to address financial governance of charities. Reilly's "An Act to Promote the Financial Integrity of Public Charities" legislation, sponsored by Rep. Daniel E. Bosley (D-North Adams) and Sen. Mark C. Montigny (D-New Bedford), would require most board members on charities' audit committees to be independent; would require charities to pay their executives only "reasonable" compensation when measured against other nonprofit executives doing the same work; and would establish whistle-blower protections for employees who flag financial problems, the report said.
"This legislation helps create a culture of sound financial management and accountability that will allow charities to stay true to their missions and continue to do the good work upon which we all have come to rely. ... It will also help to renew confidence in charitable giving and encourage donors to contribute more generously," Reilly said in a statement.
According to reports, in recent years attorneys from Reilly's Public Charities Division have seen an increase in the number of organizations facing serious financial problems. Last year, Reilly reached an agreement to return more than $4 million to a prominent family charitable trust, the Cabot Foundation, after family member Paul Cabot Jr. allegedly used large sums of money "for his own personal purposes." Also last year, Reilly required David J. Cortiella, the former director of two Boston-based charities focused on providing affordable housing and social services, to return more than $170,000 that he had allegedly taken without board authorization.
The news comes as the Senate Finance Committee, led by Sen. Chuck Grassley (R-Iowa), is preparing to foist a new set of federal laws and regulations -- the mother of all legislation governing charities. As experts attest, at a minimum, the majority of nonprofit organizations -- and there are 1.2 million charities, churches and social welfare groups in our country (about 85,000 new ones each year) -- will have to add accounting or legal staff just to handle compliance.
So what does Reilly's proposed legislation signify for nonprofits nationally? Will other states follow suit? How can the smaller, local charities shoulder the burden of these added expenses?
This storm has been looming for some time, and many have warned that if charitable organizations don't start governing themselves, legislators will step in and make it far more arduous and costly to comply. And for those in Massachusetts, it might be too late.
Senior Editor, FundRaising Success
Editor, FS ADVISOR
P.S. Has your organization planned for federal or state legislation addressing financial governance of charities? If so, what steps have you taken to brace for the change? E-mail your comments to email@example.com.
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