Acton Institute Powerblog

A ‘Litmus Test’ for Charities?

There are some problems in parts of the charity sector. The problems are with charities that HAVE enough money to scam somebody or shift an inappropriate perk to a board member. There’s not much talk about the charities that never saw that kind of resource and never will. Government officials always think that more regulation is the answer, but it’s scary when the private sector supports that link. Six of America’s major foundations have financed Electronic Data for Nonprofits (EDIN) within the Independent Sector, advocating accurate and timely charity reports. And IRS forms are appropriate financial reporting tools, even for smaller charities. But financial reporting is not the “litmus test” of program information, as the EDIN project advocates. Good charity is more than money.

It’s not the appropriate role of government to even infer legitimate charity donations. The legitimate function of IRS forms is financial transparency of organizations that operate as Exempt Organizations. To think that the IRS is “needed” for anything beyond that role demeans donors. Private financial sources such as Charity Navigator and GuideStar already give donors significant financial information beyond IRS forms. Donors are asking good questions through groups like Grantmakers for Effective Organizations and Center for Effective Philanthropy. They might be fooled by bad charities–big or small–for a time. But charity donors using market principles that made their money will fare better than the charity donors that abdicate to more government regulation.