Protecting charity
SHOE BOXES filled with unaudited tax returns. Lavish salaries for self-dealing trustees while philanthropic missions languish. Blindingly obvious conflicts of interest. This is the dark side of the genteel world of private charities uncovered by The Boston Globe's Spotlight Team in recent weeks. Ripping off the bequests of wealthy deceased individuals may seem like a victimless crime to some. But every taxpayer subsidizes the foundations' tax-exempt status, and public officials should do more to track how the money is spent. The vast majority of the roughly 62,000 private trusts established in the United States operate honestly, and many pay no salary at all to trustees. But the abuses the Spotlight Team did find are shocking: Some trusts pay more in perks and fees to directors than they distribute to charity. Paul C. Cabot, Jr., scion of the Boston banking family, paid himself $1.4 million from the Paul and Virginia Cabot Charitable Trust one year and blithely acknowledged that he dipped into it to finance his daughter's $200,000 wedding.
Other directors use charitable funds to buy private jets or pay chauffeurs, or they divert money from the charity's stated mission to other favored causes. The money involved is substantial: Private charitable foundations currently hold more than $420 billion in tax-free assets.
Federal laws and regulations do exist to oversee the distribution of charitable funds. Private foundations must spend at least 5 percent of their assets on philanthropy each year, for example, and salaries must be "fair and reasonable." But watchdog agencies, even the mighty Internal Revenue Service, are woefully inadequate to their task. The Spotlight Team used a computer database that allowed it to flag high costs relative to a charity's assets -- a seemingly obvious check on spending abuses. But the reporters found that the database hadn't been used this way by either the IRS or state attorneys general. And since thousands of pages of charitable filings are still written by hand, it is little surprise that fewer than 1 percent of private charities are audited each year.
Human greed is not a quality that can be legislated away. Still, a few high-profile prosecutions could go far toward correcting the behavior of self-dealing trustees. In the late 1980s, stepped-up enforcement of child support payments in Massachusetts -- coupled with embarrassing publicity for named "deadbeat dads" -- increased payments by 30 percent. It is a tactic an ambitious attorney general might emulate.
As government spending on social services decreases, private charities become even more important to the less fortunate. Every dollar plundered from a charitable foundation is one less dollar for the sick, the environment, or struggling artists. Unfortunately, public action is required to reestablish the meaning of the term "family trust."
