Integrity: A Primer

Recently, I've been asked a lot about what organizations, particularly churches can do to avoid being the target of a Senate or IRS investigation.

Actually, the chances of any organization being targeted are pretty slim, especially when they really try to be financially accountability and relatively transparent with their donors and the general public . However, the question is a good one and there are many good business and financial practices that come to mind.

Before we talk about the integrity of financial matters, I want to emphasize the sheer genius (not mine, but many who have preceeded my tenure) of encouraging all organizations to have an independent board of directors that actually takes their role seriously. All too often we hear of strange financial practices and lackluster nonprofit performance and all you really have to do is ask, "Where was the board".

A board should be comprised of not less than five individuals that meet at least twice annually. An overwhelming majority of the board members present at any meeting (a quorum) should not be relatives of the founder/current leader nor employees of the nonprofit.

Regarding, financial matters, rather than reinventing the wheel, one of the nations top CPA firms working with nonprofits. Capin Crouse LLP, happens to be one of ECFA's "Integrity Partners" so I thought I would reference their recent newsletter that speaks to the same subject.

They (and I) suggest churches and organizations should consider the following:

1. Is your financial data up to par? To evaluate accounting and financial reporting practices, accountable nonprofits undertake an independent audit annually. They also maintain effective processes and strong controls over financial reporting to assure its accuracy, completeness, timeliness, and transparency.
   
2. Do you have an audit committee? For many nonprofits, an audit committee is an effective way to carry out board responsibility to oversee financial reporting, internal controls, and auditing processes.
   
3. Is your staff diligent about accountability? In transparent organizations, every staff person and board member does what’s necessary to conduct business transparently and ethically. For example, CFOs file tax forms and public documents on time and provide accurate financial reports, and fund-raisers maintain truthfulness and accurate representations in all communications and reports.
   
4. Are you a good communicator? Nonprofits should have nothing to hide. Donors and the public will be confident that your organization is trustworthy if you share information openly. So post pertinent financial information, descriptions of programs and their outcomes or accomplishments, and other key information about your organization and its operations on your website.
   
5. Organizations promote an open and honest image by regularly providing watchdog groups with information requested. They also respond to inquiries from rating agencies, such as Charity Navigator, GuideStar and the Better Business Bureau, and the media. And they maintain membership in accountability groups such as the Evangelical Council for Financial Accountability (ECFA). see why I like this group!!

With increased attention being given to not-for-profit organizations by the IRS, Congress, and State legislatures and regulators, nonprofits are considering whether they measure up to the expectations, standards, and best practices that are needed to maintain public trust.

Ken Behr on the Grassley Investigation

The Paul Edwards Program,WLQV Detroit AM 1500
Novmber 15, 2007

Paul Edwards, host of “The Paul Edwards Program” on WLQV in Detroit, interviewed the president of the Evangelical Council for Financial Accountability, Ken Behr, about the recent Senate Finance Committee investigation led by Senator Charles Grassley into the ministries of six prominent televangelists in America. The six ministries identified as being under investigation by the committee are led by: Paula White, Joyce Meyer, Creflo Dollar, Eddie Long, Kenneth Copeland and Benny Hinn.

Edwards: What do you make of Senator Grassley and his investigation?

Behr: I am not surprised at all that Senator Grassley continues to pursue, and inquire about, non-profit organizations. Senator Grassley has been having hearings for the last three years on non-profits, and you may remember the hub-bub about the Smithsonian Institute and the compensation that was paid to their president, the American Red Cross has gone through five or six different presidents within the last four or five years and the American University inquiry. So, there have been a number of non-profits that have appeared before the Senate Finance Committee.

What is a little surprising to me is that it is these six ministries that have certain things in common. One of the things that they have in common is that they are all churches. It is a little bit unusual for the government to intentionally focus their attention on churches.

Edwards: Am I correct … that none of these six ministries are members of the Evangelical Council for Financial Accountability (ECFA)?

Behr: Yes, that is one of the other things that they have in common. None of them are members of the ECFA.

Edwards: And if they were what would you be doing today?

Behr: We’ve vigorously defended our members against any attacks. But, fortunately, that doesn’t happen too often. Occasionally, in the blogosphere for example, people can say anything they want about any organization, and occasionally one of our members is mentioned and if it comes to our attention we try to correct that. It doesn’t happen very often; in fact, quite frankly most of the comments and complaints that we receive, most of the e-mail we receive, is about non-members.

Edwards: I am hearing reports of $30,000 conference room tables, $12,000 toilets—just all kinds of wild and wacky things where money is going in these particular six ministries. What is the standard that the Evangelical Council for Financial Accountability puts on ministries? Would those kinds of things, those kinds of expenses, raise the eyebrows of ECFA?

Behr: Well, certainly they would. One of the things that I try to make a distinction on is that neither the ECFA nor the government have much to say about specific tables that are purchased, or what you drive, or actually how much salary you make. It’s really the process that is followed—making sure that those transactions are accountable, truly tax-exempt transactions. Also, that there is a board of government—maybe a board of elders or board of directors—that has oversight responsibility, and that the people that have started these ministries aren’t just receiving a lot of the private benefits themselves.

The benefits of the church are supposed to be for the community. They are out there supposedly doing the great commission and great commandment. They are out there teaching people to love each other and to love Jesus. That used to be the primary activity. If they get too involved in too many other things, they risk their tax-exempt status.

Edwards: What is Senator Grassley exactly after? Senator Grassley, as you pointed out, for the last three years has been doing this. Does he and the Senate Finance Committee risk crossing a church-state line here?

Behr: That is the one thing you have to be really careful of. I am not a real fan of looking to the government to be able to fix this, especially religious issues. You have articulated very well some of the problems that you may see in these ministries. That is a great role for you. That is a great role for apologists within the Kingdom of God. It is not my role.

In my role I am very closely aligned to the regulations, to the policies, the practices that are followed in Washington on non-profits and what non-profits need to do. So, as a result, what Grassley is doing if you take a look at the letters—and the letters are available on the Senate Web site—the letters are five and six pages long. A lot of them have 30, 40, 50 questions on them that have to do with things like not only board government (when did you meet, how often did you meet, send us copies of the board minutes, when did the executive committee meet to discuss the compensation of the executive officer, what was the basis of the comparison that was used), but also when they get into transactions such as sales, purchase of properties and lands, and things like that. The reason Grassley is asking those things is because he is trying to determine if … a person got rich, for example, by being a part of the non-profit in ways that were not appropriate.

Edwards: Is [Sen. Grassley] really dispassionate about the fact that these ministers may be living lavishly—is he really just concerned about protecting the government?

Behr: I think he uses the tax laws to his advantage. I think he very wisely uses the available laws on the books to uncover the actual facts of the transactions and whether or not there were excess benefits transactions.

Edwards: From where you sit at the top of the Evangelical Council for Financial Accountability, how do you feel this is all going to wash out?

Behr: Well, I think it is going to fall pretty orderly. It most likely is going to result in hearings with the Senate Financial Committee where some of these ministers, or all of them, will be called in to answer specific questions, or actually under oath testify that the responses they gave to some of these inquiries are in fact true.

There is a little bit of grandstanding here—you wouldn’t believe that, right? Nobody believes there is grandstanding in Washington. But the cameras will role, and because the cameras will roll there will be a little bit of grandstanding on behalf of the Senators questioning some of the transactions. And they will bring up things like $35,000 conference tables, or Leer jets and things like that. They will do this knowing full well that there is nothing in and of itself illegal about those transactions, but it is embarrassing to the minister.

Paul Edwards is the host of The Paul Edwards Program, a columnist and pastor. His program is heard daily on WLQV in Detroit and on godandculture.com. Contact him at paul@godandculture.com.

The Grassley Six

The headlines are everywhere: "Televangelists Face Intense Federal Probe", "Grassley Probes Televangelists' Finances", "Ministries under Federal Microscope".

On Monday, November 5th, this nation's press and then the general public were made aware of the latest in a number of nonprofit organizations that some large Christian Ministries were the focus of Senator Chuck Grassley's (R-Iowa) inquiries through his position of influence on the Senate Finance Committee.

In the past few years, Senator Grassley has been taking nonprofit organizations to task on what he has characterized the "gold-plated" lifestyles and a lack of accountability and financial transparency. In 2005 and 2006, he held a series of hearings that included testimony from some of the largest and most well known charitable organizations in the country including the Red Cross and the Smithsonian Institute.

Through a number of sessions, public inquiries and testimonies, some very prominent nonprofit organizations were asked some pretty embarrassing questions about the board oversight of the organization (or lack thereof), executive compensation, often in the millions of dollars and unusual perks that were normally considered the type of benefits provided royalty, heads of Fortune 100 companies and professional athletes.

With the attention now on some large Christian groups (the media calls them all televangelists but they are actually organized as churches), this has been a furious news cycle for me personally. The organization that I'm associated with, the ECFA, is an organization that typically has a lot to say about the integrity of Christian ministries and churches and provides accreditation for over 2,000 nonprofit organizations including some of the largest and most well-known evangelical ministries. While I'm not sure if I qualify as a true "expert" under everyone's definition, I'm the closest thing available often for the media.

I try my best to answer the questions about this development and give the seemingly starved media some food for thought but as most can tell you, I don't get much time to adequately answer some questions.

So, I thought I'd try to answer some often asked questions here on my blog where I get to use a backspace key, can delete and rewrite my answers and even use a spellchecker.

Question: Am I surprised at the inquiry?

Yes and no. Yes, it's certainly unusual that six large media ministries would get lengthy letters from one of the ranking members of the Senate Finance committee. No, it's not unusual for Senator Grassley to continue to focus on an area that he believes needs to have more financial transparency and accountability.

Question: What is Grassley after?

I'm glad you asked that (it's typically not one of the questions I get). Senator Grassley is primarily asking the question, "Is the nonprofit acting like a nonprofit?" By their nature, nonprofit organizations are supposed to be operating for the public good. The government prohibits the nonprofit from allowing any of its income to be paid to or property sold (below fair market price) to insiders such as officers, directors, or employees. Setting up a related for-profit organization to funnel income to insiders is also not allowed and may have serious consequences including the loss of tax-exempt status.

Question: What is likely to happen?

This is more difficult to say but if the inquiry follows the path that others have blazed, some or all of the ministries are likely to be called in to provide testimony about specific transactions and occurrences under oath. There will be inquires to determine if any of these three specific types of transactions occurred: 1) Excess Benefit Transaction. Were perks and benefits provided to the heads of the ministries and their families that should have been taxable events? Most likely to be looked at will be trips, travel, personal vehicles, etc. 2) Private Inurement. Private Inurement (private personal benefit) happens when when an insider — an individual who has significant influence over the organization — enters into an arrangement with the nonprofit and receives benefits greater than she or he provides in return. 3) Excessive Compensation. The IRS has a three-point test to determine if the board is not doing its job of approving the compensation of the chief executive in a manner that is reasonable and documented. The key part is surveying or looking at a survey of other organizations and their compensation plans.

Documentation will be key in the proceedings. Typically, if an organization cannot provide the proper documentation of the "tax-exempt" purpose of some financial transactions, they will be determined to be "taxable" and fines and penalties will likely result.

We'll be watching closely. By the way...none of these organizations are members of the ECFA but in many ways, I wish we would have been asked to get involved years ago.