Change or be changed, nonprofits counseled

WASHINGTON -- Charities and other nonprofit groups must become more market driven, consumer sensitive, and open about their finances if they want to regain public trust, United Way president Brian Gallagher said yesterday.

With Congress exploring legislation to change the way nonprofit groups operate, Gallagher said he agrees with many of the proposed changes, but cautioned against government regulation that would ''micromanage" nonprofits.

''If we in the sector can't make the changes we need to make ourselves without legislation, then we need the legislation," Gallagher said. ''Because changes in nonprofit accountability have to be made in order to restore trust."

Lawmakers last summer began taking a closer look at charities and tax-exempt organizations such as universities and hospitals to assess claims that some groups are using their nonprofit legal status to cover criminal behavior.

Stories of personal enrichment and other fraudulent practices caught the attention of Senator Charles Grassley, Republican of Iowa and chairman of the Senate Finance Committee. Grassley has said he intends to propose legislation to curb charitable abuses.

Gallagher said he agrees with several of the committee's proposals, such as requiring an Internal Revenue Service review every five years to make sure groups continue to meet their tax-exempt status. He also supports increasing disclosure to the IRS of performance goals, activities, and expenses.

But Gallagher said the United Way opposes measures to limit the size of boards of directors and efforts to create government-mandated accreditation for nonprofits.

''United Way needed a wake-up call, and we have taken the necessary steps to restore trust, but the entire nonprofit sector had better wake up on this issue," Gallagher said.

A national panel formed by the Independent Sector -- which represents charitable groups -- plans to make recommendations to Congress on ways to improve the oversight and governance of charitable organizations.

The United Way is still recovering from a series of scandals over the past few years. A former top executive of the United Way of the National Capital Area pleaded guilty in March to stealing nearly $500,000 from the charity and its pension fund and is now serving 27 months in prison.

Last year, a former United Way executive in Michigan was sentenced to four years in prison for stealing more than $2 million to buy expensive show horses in what is believed to be the biggest embezzlement case in the agency's history.