Chimes, other charities are object of badly needed reform

FEDERAL authorities have launched a tax probe of Baltimore-based Chimes Inc. and have proposed sweeping governance standards, including executive salary limits, for Chimes and other nonprofit groups that get $2 billion annually from taxpayers to employ the disabled.

The Internal Revenue Service has been looking over its records, the Chimes said last week. Chimes executives did not elaborate, and it was unclear whether the review is part of a national IRS investigation into executive compensation at charities and other nonprofits.

At the same time, a federal agency that oversees the rapidly growing Javits-Wagner-O'Day program for nonprofit groups hiring the disabled wants to cap executive salaries at $207,000 for Chimes and other vendors. It also wants to require the groups to disclose conflicts of interest and conform to other accountability rules.

The moves follow reports in The Sun that Chimes Chief Executive Officer Terry A. Perl made $714,592 in fiscal 2003 and that his salary and other executive pay was not fully disclosed to the IRS and potential charitable donors for years. The articles also reported that Chimes failed to disclose to the IRS some $2 million in business relationships with board members.

After the articles ran in 2003, Chimes said it invited the IRS to examine its records, but as of early July there had been no contact. Last week Perl confirmed an IRS inquiry is under way. He declined to give details or comment on the proposed governance changes.

"Chimes always endeavors to be in full compliance with regulatory and reporting requirements," Perl wrote in an e-mail to The Sun. "Chimes is deferring comment on the IRS review ... prior to its conclusion."

The IRS, which has announced it is examining executive pay at hundreds of nonprofit groups, refused to comment on the Chimes inquiry.

The salary limit and other governance changes were proposed last month by the Committee for Purchase From People Who Are Blind or Severely Disabled.

The Committee, as it is known, is an independent federal agency that supervises no-bid, set-aside contracts that Chimes and hundreds of other groups receive from the Pentagon, the General Services Administration and other agencies on condition they hire disabled people.

The Committee's proposals were prompted by The Sun's stories on Chimes in the past two years and by articles in Wisconsin's La Crosse Tribune about the chief executive of another Javits-Wagner vendor, who was making $625,000 a year, said agency spokeswoman Annmarie Hart-Bookbinder.

The proposals, subject to comment and amendment before adoption by the Committee, were also influenced by "related issues in both the corporate and nonprofit sectors, such as at Enron, Arthur Andersen and the New York Stock Exchange," Hart-Bookbinder said.

Committee Executive Director Leon A. Wilson Jr. declined to comment. Shirley Holman, chairman of ORC Industries, the La Crosse nonprofit with the high-priced executive director, did not return a phone call.

The Javits-Wagner program, which stems from 1938 legislation to steer government contracts to agencies employing the blind, has doubled in size in five years to spend $2 billion a year on janitorial, assembly, copying and other work performed by people with various disabilities. Chimes is one of the largest Javits-Wagner contractors, getting more than $40 million annually from the program. But until now the Committee had no governance standards for such groups.

The proposed regulations would require Javits-Wagner contractors to appoint audit committees, disclose business relationships with board members, change director membership regularly and publish board minutes.

Such practices are similar to charity standards recommended in recent years by the Better Business Bureau Wise Giving Alliance and the Maryland Association of Nonprofit Organizations.

The Committee also said it would generally consider executive pay at Javits-Wagner nonprofits "unreasonable" if it exceeded compensation awarded to the most senior career federal employees. Currently the amount is about $207,000.

That proposal is already under fire.

"Nonprofits must be able to compete with other sectors for competent executives," Bennett Johnson, chief executive of DePaul Industries, a Javits-Wagner contractor in Portland, Ore., wrote in formal comments to the Committee. "Executive packages must be competitive with the packages available to executives of similar organizations in the private sector."

Johnson made $122,228 in salary and benefits in fiscal 2003, IRS records show.

Chimes is still studying the Committee's proposals, Perl said. The charity, which takes in more than $120 million in total revenue, employs hundreds of disabled people in state and federal janitorial contracts and runs residential and day-care facilities.

After The Sun articles, the Chimes instituted several governance changes, including adopting a new ethics code and disallowing directors who do business with the group from setting executive pay.

This year the charity also revealed details of its business relationships with directors that weren't previously disclosed in the agency's annual reports to the IRS.

Those included $910,123 in equipment leasing in fiscal 2003 from Madison Capital, whose chief operating officer, Allan Levine, was then Chimes Inc.'s chairman, and $988,008 in 2003 transportation services from Yellow Transportation/Connex, whose president, Mark L. Joseph, was a Chimes Foundation board member that year.

Maryland has its own version of Javits-Wagner - the Preferred Provider Program - which promotes employment of the disabled in state contracts.

This year Chimes won a $43.9 million, three-year renewal of a state contract to clean Baltimore-Washington International Airport. Like the Javits-Wagner program, Preferred Provider has no governance standards for the nonprofit agencies getting its business.

Brian J. McAllister, a manager with the Maryland Department of Transportation and chairman of the state committee that oversees Preferred Provider contracts, declined to comment on the proposed federal standards, saying he hadn't seen them.

"On the whole these look like a good idea," said Robert Hoffman, chief executive of Maryland Works, a nonprofit group that brokers Preferred Provider contracts to Chimes and other nonprofit agencies for the state. "And they're a good idea for Maryland as much as they are at the federal level."