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A warning to charitable donors and a case for tougher disclosure laws on nonprofits


RIIIING. IT'S the National Federation of the Blind of Oregon, calling across that state. They want money "to help the blind of the area," according to a fund-raising script from 2003.

"This year we are working to make more reading materials accessible to the blind and to provide more help to blind seniors and blind children," says the telemarketer. "We were hoping you could help us with a donation of, say, $25 or so?"

Helping blind children. What a great cause. You write the check. ("That would be wonderful!" the telemarketer is supposed to say.) Too bad the script left out several pertinent details, the main one being that most of your $25 would get nowhere near blind children or any other blind people in Oregon.

Beware, philanthropists. Despite progress in recent years, information on where charity donations go is still obscure and often disturbing when it emerges, even when the practices appear completely legal.

An examination of the Baltimore-based National Federation of the Blind and its affiliates offers another case for better disclosure laws and, in their absence, more openness by nonprofits.

Of a $25, phone-solicited gift to the National Federation of the Blind of Oregon, $15 - 60 percent - would be taken off the top by a for-profit fund-raising company called CMS Inc., according to a contract on file with Oregon's Department of Justice, one of the few state regulators to police nonprofits. The contract is dated 2002, but other documents furnished by the regulator indicate that CMS continues to work for NFB Oregon.

The president of CMS for many years has been Ramona Walhof, a longtime director of one nonprofit, American Action Fund for Blind Children and Adults, which shares NFB's Baltimore headquarters and has NFB president Marc Maurer as its top-paid employee, and another, the Jacobus tenBroek Memorial Fund, which owns the NFB headquarters building.

Taking that $15 cut leaves $10. Half of that would be sent to NFB headquarters in a big building in South Baltimore that NFB and affiliates recently expanded at a cost of $19.5 million.

The other $5 would arrive at NFB Oregon, which provides scholarships for blind students, lobbies on issues important to the blind and does other good work. But $5 is only a fifth of the $25 donation.

In January, NFB Oregon agreed with the state Department of Justice to correct alleged violations that included failure to tell donors that some funds were sent to Baltimore and misrepresenting big fund-raising commissions as "community outreach" expenses benefiting the blind. In correcting the deficiencies, NFB Oregon denied "liability of any wrongful acts," according to the settlement.

Back in Baltimore, legal records and NFB documents show, a house owned by Mary Ellen Jernigan, NFB's executive director of operations and the widow of late NFB President Kenneth Jernigan, was bought in 2003 for $490,000 by the Action Fund. . For 2005 the Maryland Department of Assessments and Taxation assessed the house, in Baltimore's Irvington section, at $154,040.

Despite the fact that charity business with insiders often raises questions about whether the nonprofit is getting the best deal with donor money, the house's purchase was not disclosed in IRS filings by either the Action Fund or NFB.

Nor was the fact that Walhof, a director of both the Action Fund and the tenBroek Fund, has been doing big business as a fund-raiser with an NFB state affiliate. NFB of Oregon paid $176,836 to CMS in 2002.

Still glad you wrote the check? NFB says you should be.

NFB of Oregon President Carla McQuillan did not return my phone call.

But in its battle with the Oregon Department of Justice, the nonprofit contended that the phone solicitations were "community outreach" programs worth the 60 percent commission because the script had the telemarketer say, "Do you know anyone who is losing vision or blind and may need our help?" NFB Oregon contended the calls helped it identify frequently isolated blind people.

"There are many number of people going blind who simply don't know about the National Federation of the Blind or the National Federation of the Blind of Oregon," said Andrew Freeman, a Baltimore attorney who represented NFB Oregon in its dealings with regulators. The calls did identify blind people, he said, although he didn't know how many. "From our point of view it is outreach, but it is also fund-raising."

Many calls, however, were directed to people who had a history of giving to NFB Oregon, a 2004 letter from CMS to the nonprofit shows. And according to the American Institute of Certified Public Accountants, fund-raiser compensation hinging on percentages of contributions must be reported by nonprofits as a fund-raising expense, no matter what other service the fund-raiser may perform.

Of the 60 percent commissions, Freeman said that "my understanding is that it's a market rate" and that because community outreach occurred CMS did more than raise money. Regulators' criticism of NFB Oregon for not telling donors that funds went to Baltimore was "nitpicking," he said, because NFB national serves blind people across the country, including those of Oregon.

CMS head Walhof declined to comment. James Gashel, executive director for strategic initiatives for the national NFB, says that he is unfamiliar with the Oregon details but that as a blind person Walhof understands the needs of NFB affiliates, "is doing a credible job" and "is not living a lavish lifestyle."

(Does the National Federation of the Blind of Maryland hire fund-raisers who take similar percentages? President Sharon Maneki says NFB Maryland sometimes uses a professional fund-raiser for a small part of its revenue and like other affiliates shares half of what's raised with national headquarters. She declined to say what percentage the fund-raiser is paid, saying it's proprietary, and there is no Maryland or federal law that says she has to.)

Gashel, who is an Action Fund director in addition to working for NFB, also defended the fund's purchase of the Jernigan house. First, $232,696 of the $490,000 purchase price was for rare, vintage Braille books that came with the property, Gashel said. He showed me the books and supporting appraisal. Second, he said, the house dates to the 19th century, is much bigger and older than neighboring rowhouses and is surely worth $300,000 or so - again producing an appraisal.

He's probably right. It's a dignified old mansion, with wide-plank floors, nine fireplaces and 12-foot ceilings with plaster rosettes.

And the house is historic, Gashel said, because it was lived in for years by Jernigan, a leading figure in the civil rights struggle of the blind by virtue of his longtime NFB presidency. Mrs. Jernigan has moved and the house is used by NFB for meetings, parties and quiet work by executives, Gashel said.

"Dr. Jernigan was in effect our Martin Luther King," added Gashel, who like all top NFB officials is blind. The Irvington home and the expensive NFB headquarters are held in trust for all blind people, and their upscale appeal "tells us that we can be first-class citizens," he added. "Most blind people don't have that."

OK, but how about a little more voluntary disclosure and less of what looks like somersaults to avoid disclosure requirements?

Other than perhaps the NFB Oregon issues, alleged by the state Department of Justice to constitute "fraudulent and dishonest conduct," all of what is described in this column appears to be within the laws governing nonprofits. Because the Jernigan house was bought with Action Fund money and not NFB money, and by waiting until five years after Kenneth Jernigan's 1998 death to make the purchase, the NFB could sidestep requirements to list the purchase on IRS forms asking about insider transactions.

There is little legal limit on what fund-raisers can make; as long as some money trickles into a nonprofit, it's OK. Because Walhof is a director of NFB siblings tenBroek and Action funds and not NFB itself, there appears to be no requirement by NFB to report her work for NFB Oregon as an insider transaction on its IRS forms, says Daniel Kurtz, a New York lawyer specializing in nonprofit law and a former charity regulator.

And in a landmark case in the 1980s that involved the National Federation of the Blind itself, the U.S. Supreme Court ruled that free speech rights prohibit regulators from interfering much with nonprofits' solicitation pitches. Neither the Oregon Department of Justice nor any other regulator can require fund-raisers to disclose fees when they're asking for money.

But is that the best we should expect from a large, nationally respected charity and its affiliates?

NFB does many worthy deeds, furnishing meaning and resources to many of the nation's blind. But the disclosure trigger in any charitable transaction should be: Is this information that a potential donor and the public would want to know? The answer for the items mentioned here, I believe, is yes.

It shouldn't take a snoopy columnist or Oregon regulators, however, to find out. Congress ought to make charities disclose, say, a fraction of the information required from a mutual fund. And charities should try hard to avoid even appearances of conflicts of interest and always err in the direction of letting in too much sunshine rather than too little.

That really would be wonderful. Meanwhile, caveat donor.

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