There is a compact in charitable giving: Donors expect their money will help the cause they intended. But as the Tampa-based charity U.S. Navy Veterans Association has shown, donors can be largely on their own when it comes to separating legitimate charities from scams. The federal government devotes almost nothing toward ensuring that charities are aboveboard and spend donors' money responsibly. Charities need to be better policed if the public is to have the confidence to continue giving.
The St. Petersburg Times' Jeff Testerman and John Martin exposed the Navy Veterans sham after unearthing a string of suspicious business dealings that should have caught the attention of federal and state regulators earlier. The group's founder, Bobby Thompson, ran the operation from a run-down Ybor City duplex. He reported raising tens of millions of dollars and having 66,000 members over an eight-year period ending in 2010. Almost the entire operation was made up — to the surprise of veterans, donors and the government. No one questioned Thompson until the Times sought him out in 2009 over a contribution he made in a local election.
The man called Lt. Cmdr. Bobby Thompson stole the name and title. The ease with which he raised money and circulated through the highest political circles is a wakeup call to strengthen the oversight of charities. In his application for tax-exempt status, Thompson used a rented mailbox and his cell phone number. He made up phony officers and credentials. The IRS approved the group's tax-exempt status in 33 days, and over the next eight years, the group reported more than $100 million in income on tax returns.
Thompson had little reason to fear. A Stanford University study last year found that the IRS was so lax in vetting applicants for tax-exempt status that the review process bordered on "nonexistent." Of 56,190 applications for tax exemption filed in 2008, almost 98 percent were approved. The number of nonprofits certified by the IRS has more than doubled since 1995, but the government devotes few resources to policing them. Less than one-third of 1 percent of the agency's criminal cases in recent years involved tax-exempt groups — even as such groups are raising huge sums: $4.2 trillion nationwide last year, and $140 billion in Florida.
Several states ordered the Navy Veterans group to shut down. An Ohio grand jury indicted Thompson and an aide, and Thompson is a fugitive. Yet the IRS still lists the group as a legitimate charity.
The government needs to vastly improve oversight. Experts recommend shifting regulatory responsibility from the government to a public-private agency. That agency could work more closely with the states and be free of the IRS's privacy rules, which would expose more charity business to public scrutiny. Experts also say professional fundraisers should be more accountable for the charitable groups for which they solicit. Currently, a fundraiser who keeps much of the money raised has little incentive to blow the whistle.
Nonprofits are filling more of the void in America as the recession forces government at every level to curtail spending. Charities serve a vital public purpose, but they should have to earn the benefit of tax-exempt status. That certainly isn't happening now. Congress needs to reform how the nation polices charities.