In the wake of congressional calls to crack down on charity abuses, a Maryland group is going national with a program that recognizes well-run nonprofits with a "seal of excellence."
The Maryland Association of Nonprofit Organizations launched the Standards for Excellence Institute yesterday to promote self-regulation, an expansion of its local certification initiative.
Groups must measure up against 55 performance standards to earn the seal, though the institute expects to help many others make incremental improvements.
Nonprofit experts say this is the sector's first nationwide accountability program, and they add that it's about time.
As scandals about embezzlement, chief executives' pay and other issues erode public confidence, charities that are following the rules want a way to prove it.
"Nonprofits are desperate to have some sort of validation that they can hold out to the public demonstrating their efficacy and efficiency and most importantly their honesty," said Trent Stamp, executive director of Charity Navigator, a New Jersey watchdog that rates large nonprofits. "This is something that should have been done at the government level a long time ago ... before fraud and abuse led the market to create its own sanctioning body."
Individuals, foundations and corporations donated more than $240 billion to nonprofits last year, he added. "This is not the mom-and-pop sector that it was. ... This is big business."
The Maryland association has certified 46 local nonprofits in the six years since it introduced its standards, which it calls "an ethics and accountability code for the nonprofit sector." It expanded the standards to five other states before deciding to go national.
Peter V. Berns, chief executive of the association and the new institute, said he's trying to raise the bar for nonprofits. Organizations usually need at least a year just to get themselves ready to apply for the seal.
"Charity accountability is not all going to be solved by law enforcement," Berns said. "The nonprofit community needs to take responsibility for its own affairs as well."
More law enforcement - and laws - may be on the way. The Senate Finance Committee has a raft of proposals for reforming nonprofit operations, much as the 2002 Sarbanes-Oxley Act put new requirements on businesses. At a committee hearing last week, the IRS said it would soon increase efforts to audit tax-exempt groups.
"Far too many charities have broken the understood covenant between the taxpayers and nonprofits - that charities are to benefit the public good, not fill the pockets of private individuals," Sen. Charles E. Grassley, the Iowa Republican who chairs the committee, said last Tuesday.
Other sectors have avoided government intervention by self-regulation. The film industry's Hays Production Code - later replaced with movie ratings - is an obvious example.
Berns said the standards aren't meant to be a substitute for government regulation but might convince Congress to "take a balanced approach" and avoid adding laws that burden decent nonprofits. He is excited that the Finance Committee's report included an approving reference to the association's accreditation effort.
The Evangelical Council for Financial Accountability of Winchester, Va. was founded 25 years ago during an earlier round of congressional calls for nonprofit reform, then more specifically aimed at religious groups.
Paul D. Nelson, the council's president and an adviser to the new Maryland-based institute, said peer accountability can work well because peer pressure is powerful.
What donors really want to know is whether charities are operating responsibly, and a good certification program could speak to that, said Stamp, the Charity Navigator official.
He figures the timing couldn't be better with Congress breathing down nonprofits' necks.
"The best you can do is a preemptive strike to say, 'It's OK, we've got this under control, we'll take care of this ourselves, you go back to balancing the budget and handling foreign wars,' " Stamp said.