Starting and Managing a Nonprofit Organization: A Legal Guide

By Bruce R. Hopkins | Go to book overview

CHAPTER TWENTY-ONE
Watchdogs on the Prowl

For public charities and certain other nonprofit organizations, worrying about federal, state, and local law is not enough. They have to fret about the machinations of the several watchdog agencies. These groups are themselves nonprofit, tax-exempt, charitable organizations, established to tell other nonprofit, tax-exempt (usually), charitable entities how to operate and punish them if they do not adhere to the watchdogs’ dictates (which are often inconsistent).

These organizations have been around for years, albeit in a variety of incarnations. Recently, it seemed that the influence of these organizations was waning, largely because information about charitable organizations is widely available to the public. Disclosure rules, for example, have made documents such as the application for recognition of exemption and the annual information return easily publicly accessible (see Chapter 10). This information and much more is available on the Internet; some organizations post their key documents on their websites or find that they are published elsewhere, such as on the Guidestar site (www.guidestar.org).

But, counterintuitively, the Internet has fostered a proliferation of these watchdog agencies. Regulation by these groups is on the rise, fueled in part by the contemporary surge in interest in governance of charitable organizations and the increase in the number of watchdog organizations.


WATCHDOG GROUPS: AN OVERVIEW

These watchdog groups are self-appointed bodies that call themselves voluntary agencies. This term is used to differentiate themselves from government regulatory bodies, but it is misleading. In fact, they are the antithesis of voluntarism; a charitable or other organization that dares spurn one of these agencies soon becomes publicly pilloried and financially damaged. Consequently, most organizations are forced to comply with these agencies’ standards and demands. This is far from voluntary behavior.

At its most benign, the typical watchdog group serves as a source of information about nonprofit organizations, principally those that engage in fundraising, for the media, researchers, legislators, government regulators, and the public. They promulgate and apply standards, prepare and disseminate reports on nonprofit organizations, and distribute lists identifying the entities that do and do not meet the standards. The public, including donors and grantors and the media typically gives these ratings and reports considerable credibility; donors act (give or not give) accordingly. This lack of challenge and fawning acceptance of watchdog agencies’ determinations gives these groups a substantial degree of clout and leverage. The public

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