When the government tries to play Santa Claus, bad things happen.  The Combined Federal Campaign (CFC) allows certain charitable organizations exclusive access to federal workplaces to solicit contributions from employees.  The contributions can be made by cash or check or deducted from the employees’ paychecks.  In 2005, federal workers gave more than $260 million to more than 20,000 charities.  However, a large sum of that money goes to tax delinquent charities, also known as tax cheats. 

Administered by the Office of Personnel Management (OPM), the CFC has given money to 1,280 organizations who collectively owe $36 million in back taxes, some dating back to 1988.  Some of the charities also receive substantial federal grants; government agencies awarded $1.6 billion in federal grants to at least 170 of the tax delinquent charities in 2005.  

A July 2006 report by the Government Accountability Office (GAO) said, “Rather than fulfill their role as trustees … the directors and senior officers diverted the money for charity-related expenses, including their own salaries, some of which were in excess of $100,000.”  One charity purchased an exclusive boat for their board of directors.  The GAO targed 15 charities for full investigation and found every one to be involved in “abusive and potentially criminal activity.”

Federal law prevents OPM from accessing information required to screen for tax delinquency.  Furthermore, OPM does not independently validate whether the charity is truly a tax-exempt organization.  Gregory Kutz, the GAO’s Managing Director for Forensic Audits and Special Investigations, actually created a fake charity, applied to be eligible to receive money from the CFC, and began to receive checks a few weeks later.

To make matters worse, The Chronicle of Philanthropy reports that the OPM has changed its rules allowing more charities to jump on board for CDC cash.  The organization recently lifted its restriction that applicant charities could use no more than 25 percent of total revenue for administrative and fund-raising expenses.  CFC has faced much criticism for changing the rule from charities themselves.  Don Sodo, president of America’s Charities, said, “They’ve removed the primary means of sorting out the good guys from the bad guys.” 

The Internal Revenue Service (IRS) is investigating the 15 cases referred by the GAO.  Given the number of negligent charities cited in the report, a mere fifteen investigations will not solve the problem.  Since OPM cannot accurately vouch for the legitimacy of these charities, they should not be allowed special fundraising privileges at federal offices.  Congress should bar the OPM from using its funds to administer the CDC program. 

While encouraging federal employees to donate to negligent charities is bad enough, federal grants to such groups are even worse..  Clearly, the nonprofit sector does not need federal grants in order to thrive. 

Furthermore, dependence on federal grants reduces the incentive for negligent charities to make the improvements necessary to attract more private support.  An individual donating his or her own money to a charity will take more interest in the group’s performance than a bureaucrat fulfilling a federal grant request.  Charities compete for donors in the same way that businesses compete for customers.  The pressure to keep private donors happy is the best mechanism to encourage integrity in the nonprofit sector. 

Americans are the most charitable people on Earth, donating $260 billion to charities on a voluntary basis in 2005.  However, by trying to play Santa Claus, the government is actually playing the role of Grinch – taking money from taxpayers and giving it to undeserving charities, thereby corrupting the nonprofit sector, reducing its credibility with the public, and hurting the very people the charities seek to serve.     

  -- Ben Giovine

Sources:

http://www.nbcnews.com/id/15832673/
https://philanthropy.com/article/Federal-Government-Changes/168109