Click Goodbye to Old-Fashioned, Foot-Dragging Accountability

The California Community Foundation has done what no major foundation has done before: posted its Form 990 informational returns on the Internet.

That was one small step in cyberspace for a big foundation, but a giant leap for the rest of philanthropy — which, whether its leaders want to or not, will soon be forced to follow the California Community Foundation’s lead.

Few practices have done more to undermine the good works of charitable organizations than the active resistance of some of America’s most visible non-profit organizations to federal and state laws requiring them to be open about their finances. Just as bad, if not worse, many of the most prestigious organizations do no more than the law demands. Anyone who doubts that should try to call the Metropolitan Museum of Art in New York and ask to be sent a copy of its tax form.

Receiving an exemption from taxation is a privilege, but too many charities and foundations act as if it were an entitlement. It is not. And if Americans are seething about taxes, as many members of Congress contend, then all non-profit groups need to wise up and recognize that the days of playing games about financial disclosure are about to come to an end.

Historically, individual charities pretty much controlled access to the financial reports they submitted to the government. The law said Forms 990 had to be made available, but how is a person supposed to get in touch with a charity that can only be found through a post-office box — and then does not respond to mailed inquiries?

To be sure, donors, researchers, competitors, reporters, and others could get any organization’s Form 990 by going to the Internal Revenue Service or to state attorneys general. But doing that typically involved a wait of six weeks to six months — and in our high-tech world, to delay is to deny.

But technology, and a few determined charities, are about to overthrow the powers of delay and denial. The Digital 990 is about to be born, and when it is, a few clicks of a computer mouse is all it will take to obtain a charity’s tax forms.

Looking at the California Community Foundation site (http://www.calfund.org), it is possible to see what the future will look like. The foundation, which appears to be the first major philanthropy to post its actual 990 Forms — for 1994, 1995, and 1996 — has made it easy to view the data, including attached statements that disclose such basics as how much Jack Shakely, the foundation’s president, was paid.

The California foundation posting is not the first time that 990 data have been made available through the Internet. The Foundation Center (http://fdncenter.org), the AIDS Service Provider Accountability Project in San Francisco (http://www.accountabilityproject.com), and the group Philanthropic Research Inc., through its GuideStar project (http://www.guidestar.org), all have posted abstracts of some 990 financial data on their Web sites. Philanthropic–Research has posted its own 990 electronically, and the Form 990 Web Site Project (http://www.form90.org), run by Cliff Landesman of the Fund for the City of New York, has succeeded in getting some charities to voluntarily submit their tax-return information so it can be put on line.

Laudable as those efforts are, they are minor compared with what will become available in the months ahead. Several non-profit groups, including the Urban Institute and Philanthropic Research, are working on projects that will allow people to go to a Web page, punch in the classification for the type of organization they are interested in, and, in moments, be provided with details that show how organizations that perform similar services handle their money. A few more computer commands will allow a viewer to see how a charity’s total revenue compares with its spending on programs; to compare the organization with dozens, even hundreds, of others; and to analyze both its performance and its stewardship of resources.

That should give donors, regulators, journalists, and others a more nuanced view of the non-profit world than has ever been available. It will be a boon to state and regional associations of non-profit groups, to grant-makers’ forums, to coalitions of charities, and to many others that will be able to easily download information into their own spreadsheets and data bases to get a much more accurate picture of the size, efficiency, and financial performance of non-profit groups. And it will make evaluating non-profit executives’ salaries based on their performance much easier than ever before.

Of course, the quality of that data will depend on how honestly, carefully, and thoughtfully charities prepare their informational returns. Many non-profit groups do such a poor job of filling out the 990s — leaving out information, making sloppy mathematical mistakes, and often deliberately distorting their finances — that some of their tax returns are practically useless as informational tools.

When the Internet makes the tax forms more easily available, many non-profit groups may find themselves under new pressure to improve the quality of their financial reporting. Organizations that try to hide the true state of their finances will be more quickly discovered, as journalists, watchdog groups, and others take advantage of new computer tools to uncover inconsistencies and distortions in 990 data.

Given the rising tide of public cynicism about charities, the availability of better information has to be a plus to those who believe that only a few non-profit groups are abusing the system. And if the number of fraudulent charities is indeed growing, then those who behave ethically can only benefit if the public has ready access to the kinds of information that will make it easier to distinguish between legitimate charities and counterfeits.

David Cay Johnston, a reporter for The New York Times, has a long history of covering non-profit organizations for numerous publications. His e-mail address is davidcayny@aol.com.