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How much is the public allowed to know about the inner workings and finances of tax-exempt nonprofit organizations, especially those that are publicly funded? The question looms large over local governments that outsource key services to nonprofits.
A case in point: When the Buncombe County Board of Commissioners met this summer to vote on the county’s $368 million annual budget, the most heated and lengthy debate centered around less than 1 percent of the budget — $2.3 million in Community Development Grants.
Those grants will go to about 30 groups and institutions, in sums ranging from $1,500 (to Senior Care Fellowship, an adult day care facility) to $390,076 (to Pack Place Education, Arts & Science Center).
And while it’s a small fraction of the county budget, the funding for nonprofits sparked a big hubbub at the board’s July 8 meeting. See the full list of funded groups in the collection of documents below.
“I’m not happy with the Community Development Grants,” board member Joe Belcher said during the debate. “There’s several hundred thousand [dollars] that we could take and use that for other things that would benefit the community more.” Belcher said that he’d like to see some of the grant funds go to education.
“There’s a lot of things in here that could go,” agreed board member Mike Fryar, who suggested slashing the $250,000 the county budgeted for the Asheville Art Museum.
Others spoke in favor of the grants. “This is not about charity, this is about investment in our community and our citizens and improving the quality of life,” said board member Holly Jones.
Fellow member David King added: “I respect people’s views and that they may not feel that government should fund some of these things, but there’s just as many citizens out there who pay taxes who feel very strongly about funding these things.”
In the end, the budget, including the grants, passed by a vote of five to two. But as local governments shift services to local nonprofits, questions abound about how oversight of public funds will play out. Are nonprofits less accountable than government agencies? And just which records do publicly funded nonprofits have to share with the public?
IRS forms detail nonprofit finances
For the inquisitive citizen, a document most major nonprofits have to file with the Internal Revenue Service opens a window into key financial information.
The document is the Form 990. It and its variants offer a wealth of data on where nonprofits get their money and how they spend it. The forms also identify the groups’ board members and list salaries for the top staffers who are paid more than $100,000 per year, among other details.
The IRS requires relevant nonprofits to file the document annually, within five months after the end of their fiscal year. Nonprofits must provide their last three years of 990s to anyone who asks for them.
Another useful public record is Form 1023 — the application for tax exemption that nonprofits file with the IRS. Those documents can be obtained directly from nonprofits or from the IRS (find out how to request the record from the IRS here).
990s on Buncombe’s top county-funded nonprofits
To see just how 990 disclosures work, Carolina Public Press sought out the most recently filed forms from the 12 top recipients of Buncombe County’s latest round of Community Development Grants.
Here’s a list of those groups, which were all allotted $50,000 or more in public funds, and the amounts they were budgeted:
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|Pack Place Education, Arts & Science Center||$390,076|
|Asheville Art Museum||$250,000|
|Pisgah Legal Services||$225,000|
|Asheville-Buncombe Community Christian Ministry||$140,000|
|Buncombe County Schools||$94,000|
|Mountain Housing Opportunities||$75,000|
|Asheville Area Habitat for Humanity||$60,000|
|Asheville Buncombe Institute of Parity Achievement||$50,000|
|Homeward Bound of WNC||$50,000|
Using Guidestar, we found that, where applicable, these groups’ latest 990s are readily available. We collected them all and have published them below.
However, two of the entities on the top-12 list don’t file 990s and don’t have to.
Asheville-Buncombe Community Christian Ministry, which is slated to receive $140,000 in county funds to support a health clinic in Leicester, is an IRS-recognized nonprofit group. But as a religious entity, it’s not required to file a 990.
At the same time, ABCCM has chosen to be proactively transparent about its finances by posting both its operating budget and full annual audits on its website. (We’ve included those documents in the collection of records below.)
And while Buncombe County Schools, which will receive $94,000 for a career academy at Erwin High School, doesn’t file a 990, it does generate significant amounts of public records on how its funds are spent. As Buncombe County Manager Wanda Greene explained during the budget debate, nonprofits and other institutions that are contracted to use county funds must file monthly performance updates related to their financed project, and those are public records.
2012 state law drives more disclosures from publicly funded groups
In 2012, the North Carolina General Assembly passed a new law that expands the transparency of nonprofits receiving $5,000 or more in government funds — from local, state and/or federal sources — in a given year.
The law says that a nonprofit meeting that criteria “shall provide its latest annual financial statements upon written demand from any member of the public.” In addition, such nonprofits are now required to provide statements “about the amount of public funds received and how those funds were used.”
The law was introduced by then-Rep. Carolyn Justice, after a controversy in which a Wilmington nonprofit refused to give a full accounting of how it was using $50,000 in local government funds.
David Heinen, vice president for public policy and advocacy for the N.C. Center for Nonprofits, a Raleigh-based network and promoter of nonprofits, helped Justice craft the law, he said in a recent interview.
“I think it makes a lot of sense,” he said. “Most nonprofits are going to publicly report that kind of information anyway, so from our perspective, it’s not much of a new burden.”
Justice’s initial bill raised some worries for nonprofit advocates, Heinen said, as it had some provisions that were inconsistent with IRS disclosure rules. “But she was happy to work with us, and all of our concerns were addressed,” he said.
Making the case for nonprofit transparency
According to Heinen, nonprofits gain trust and goodwill among their supporters when they take extra steps to publish information about their finances.
“We recommend that nonprofits go ahead and post their 990s and audits on their website,” he said. “That’s a good benchmark for transparency. If you don’t, you create the impression that you have something to hide.”
Pisgah Legal Services, an Asheville-based nonprofit that received a $225,000 grant from Buncombe County this year, has made an effort to be more transparent than the law requires and earned a special certification from Guidestar for its openness.
Why is the organization so forthcoming?
“We have a public service purpose, so we feel we owe it to the public,” Jim Barrett, PLS’s executive director, said. “Secondly, we survive or die based on what support we get from the public. Third, we get a fair amount of government funding, and we’re a legal organization, so we feel that we’re probably held to a higher standard because we are, after all, lawyers.”
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ABCCM’s executive director, Scott Rogers, said some similar factors led his organization to disclose more financial information than the law requires.
“We’re more transparent for two reasons: One is, our churches, volunteers and donors don’t always understand all components of our work, and we want them to know,” he said. “At the same time, we want our public partners, and folks who are hawkish about public funds, to know exactly how we’ve spent the public’s money appropriately. We want folks to know the impact of their funds.”
When nonprofits resist disclosure
Although the laws regarding public records and nonprofits are relatively straightforward, some nonprofits are resistant to disclosing required information, according to Amanda Martin, general counsel to the North Carolina Press Association.
“I do get phone calls from reporters who can’t get access to basic public records on nonprofits,” she said. “Often it’s regarding some of the less-established, smaller nonprofits, who may not know the law.”
In those cases, Martin advises educating nonprofits about their legal obligations.
In the event a nonprofit stonewalls requests for its public records, “in my experience, there are not that many enforcement mechanisms that work that well,” Martin said.
The state Attorney General’s office can mediate public records disputes but has no enforcement authority, she noted. However, complaints to the IRS and the N.C. Secretary of State’s office might lead government regulators to look into a nonprofit’s compliance with openness rules, putting the nonprofit in potential jeopardy.
“Saying ‘You could lose your tax-exempt status’ can have quite an effect,” she said.
Correction: The initial version of this story overstated the amount of the Community Development Grant awarded to Asheville-Buncombe Community Christian Ministry. The correct amount is $140,000.