A Sharpened Eye on Charity Pay

The Internal Revenue Service is scrutinizing many of the nation’s wealthiest organizations, and has undertaken wide-ranging efforts to make sure charity leaders and their boards serve as good stewards of tax-subsidized dollars.

In Congress, lawmakers continue to seek ways to ensure that nonprofit groups justify their tax-exempt status.

Scandals from 2009 — most notably the Bernard Madoff investment debacle that left nonprofit and other investors out some $5.1-billion — could lead to new scrutiny of trustees and managers. And public and government outcry over high pay and bonuses in the financial world will probably continue to provoke anger in many quarters.

“Currently, nonprofits — from private schools to hospitals to nursing homes — can pay huge executive compensation and spend millions on new buildings with essentially no repercussion other than outsiders raising their eyebrows,” a November editorial in the Des Moines Register said. “Congress needs to ensure the public is getting its money’s worth” from the tax subsidies charities enjoy.

BEHIND THE TREND:

Examining compensation. The tax agency is soon expected to release the early results of an investigation of how much colleges pay their top officials, and already the IRS has started auditing some institutions to learn more about that issue as well as how they manage endowments and relations with outside groups.

The IRS also has signaled it is looking into whether the federal rules that govern how all charities establish compensation levels are adequate — or whether they lead to a gradual escalation of pay that goes against the federal government’s desire to make sure nobody gets an undue financial benefit by working at a charity.

States too have expressed growing interest in regulating pay. Massachusetts in September announced plans to tighten its oversight of compensation practices at nonprofit health-care groups.

Justifying subsidies. Congress continues to look for ways to ensure that nonprofit groups provide sufficient public benefits to justify their tax subsidies. In particular, versions of the health-care legislation lawmakers are considering would add new requirements that nonprofit hospitals conduct a “community health needs assessment” at least once every three years.