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Chimes, other charities are object of badly needed reform

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

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

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

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

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

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

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

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

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

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

The proposals, subject to comment and amendment before adoption by theCommittee, were also influenced by "related issues in both the corporate andnonprofit 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 thehigh-priced executive director, did not return a phone call.

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

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

Such practices are similar to charity standards recommended in recent yearsby the Better Business Bureau Wise Giving Alliance and the MarylandAssociation of Nonprofit Organizations.

The Committee also said it would generally consider executive pay atJavits-Wagner nonprofits "unreasonable" if it exceeded compensation awarded tothe 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 competentexecutives," Bennett Johnson, chief executive of DePaul Industries, aJavits-Wagner contractor in Portland, Ore., wrote in formal comments to theCommittee. "Executive packages must be competitive with the packages availableto executives of similar organizations in the private sector."

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

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

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

This year the charity also revealed details of its business relationshipswith directors that weren't previously disclosed in the agency's annualreports to the IRS.

Those included $910,123 in equipment leasing in fiscal 2003 from MadisonCapital, whose chief operating officer, Allan Levine, was then Chimes Inc.'schairman, and $988,008 in 2003 transportation services from YellowTransportation/Connex, whose president, Mark L. Joseph, was a ChimesFoundation board member that year.

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

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

Brian J. McAllister, a manager with the Maryland Department ofTransportation and chairman of the state committee that oversees PreferredProvider 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, chiefexecutive of Maryland Works, a nonprofit group that brokers Preferred Providercontracts to Chimes and other nonprofit agencies for the state. "And they're agood idea for Maryland as much as they are at the federal level."

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