Washington Notebook

June 23, 2005
Vol. 2, No. 23

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Joe Feuerherd, NCR Washington correspondent


Of God, Mammon, and tax exemptions

By Joe Feuerherd

"Follow the money," Mark Felt allegedly told Bob Woodward. (In fact, the line was Hollywood, not Washington; it was from the movie "All the President's Men," not the book of the same name by Woodward and Bernstein.) But when it comes to one of the nation's largest unregulated big business - religion - it's nearly impossible to do so.

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That might have begun to change if the Panel on the Nonprofit Sector, a group of nonprofit leaders convened at the request of the Senate Finance Committee, had listened to those from whom it solicited comment. In 15 hearings the group held across the country over the past nine months, some common themes emerged, according to the 114-page report the panel issued earlier this week. Among them: Changes in laws governing nonprofits should consider the limited resources available to small organizations, steps to prevent abuses must not be so cumbersome that they undermine the ability of organizations to do their work, the use of independent auditors and accountants is a powerful way to improve operations, and charitable organizations must reject requests and proposals from potential donors or vendors that are illegal or unethical.

And then this: "Religious groups should be held to the same standards of ethical conduct [as other nonprofits.]"

Don't hold your breath on the latter. Among the 120 recommendations the panel made to Congress and the Internal Revenue Service to strengthen the nonprofit sector's "transparency, governance, and accountability" none, zero, speak to what may be the largest component of the nonprofit world - churches and their affiliated enterprises and charities. (In fact, as the report notes, nobody knows how large the faith-based sector of the nonprofit world is because there are virtually no reporting requirements on these tax-exempt organizations.)

The issue was simply too complicated and too politically charged for the panel and for Congress.

Because of church-state separation, the nation's 400,000 churches and most of their affiliated entities don't have to abide by the same public disclosure rules as other nonprofit organizations or public corporations. There are no mandated audits of the kind required of other charitable organizations; no reporting to the state to ensure that fundraising efforts are on the up-and-up; no filing of "Form 990" to the IRS; no entity like the Securities and Exchange Commission (which regulates public corporations) to answer to.

Public corporations must file a "10-K" - an annual report - with the SEC. The law requires that essential financial information about a company be public so that investors can make a judgment about investing in the enterprise.

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Some dioceses provide no such reports to the public. More commonly, however, the annual reports produced by many U.S. dioceses seem designed to obfuscate, to confuse, and not to enlighten. How so? Most (there are exceptions) typically limit the scope of the audit, and the reports that flow from that, to a review of the programs and activities of the "central administrative office," the chancery. (And even here, the reporting can be sketchy.)

In all too many cases, the result is that virtually no solid numbers are provided about the sources and uses of dollars in areas where most of the work of the church is actually carried out, such as parishes, schools, hospitals, and other church-controlled enterprises, such as nursing homes.

The only practical control on a bishop's ability to spend and solicit money as he, and he alone, sees fit, are the canonically-required diocesan finance councils. The members of which, you guessed it, are appointed by the bishop. At the parish level, meanwhile, the financial reports included in the Sunday bulletin are, more often than not, laughably vague.

What are the consequences of the lack of accountability?

On the positive side of the ledger, freedom from government oversight translates into freedom from government meddling into religion. And there's probably too much of that going on anyway.

On the negative side, it leads to situations where, for example, the Archdiocese of Milwaukee could sell valuable real estate donated by Catholic philanthropists who didn't intend their generosity to subsidize clergy sex-related settlements and use the proceeds for exactly that purpose. Because dioceses lack basic controls, routine pilfering and outright theft is more widespread than reported. Just this week the pastor of an affluent Trenton diocese parish was indicted for allegedly stealing more than $2 million from the collection plate over the last several years, while earlier this month two officials at a church-affiliated Head Start program in the Bronx and Manhattan were fired for allegedly embezzling more than $800,000.

Meanwhile, allegations that the Boston archdiocese used approximately $80 million in funds some believed were earmarked for priests' retirement for other purposes has captured the attention of the state's attorney general. The archdiocese disputes the claims, but church representatives told The Boston Globe that they won't release the financial statements documenting how it spent the money until the latter part of 2006.

Paul Nelson, president of the Evangelical Council for Financial Accountability and the sole church-affiliated representative on the Panel on the Nonprofit Sector, says such scandals and practices endanger church exemptions from government oversight. "Many of the recommendations [imply to the religious] community that they need to listen up and fix up your own house or the government will do it for you," Nelson told me. "The whole religious community needs to get serious about accountability and transparency."

Nelson opposes government intervention ("any move to require the churches or those who are exempt would be immediately met with legal action") but acknowledges that the constitution's ban on excessive entanglement between church and state "obscures the issue that bad guys need to be held accountable."

"Self regulation," where church-based nonprofits establish and abide by their own disclosure, reporting, auditing, fundraising, and accounting standards, "is going to be a lot less painful" than the alternative, concluded Nelson.

In the meantime, following the religious money, however wisely or fraudulently solicited and spent, remains no easy task.

The e-mail address for Joe Feuerherd is jfeuerherd@natcath.org

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