On March 1, Independent Sector's (IS) Panel on the Nonprofit Sector presented its Interim Report on nonprofit accountability, calling for voluntary action by nonprofits, increased enforcement by the Internal Revenue Service (IRS) and action by Congress, to Sen. Charles Grassley (R-IA), chair of the Senate Finance Committee. A hearing on proposals for legislative action is expected this spring. The Panel is expected to publish a final report before summer.

Grassley said the report will "weigh on the thinking of the Finance Committee," and that he plans to add accountability provisions to the Charity Aid, Recovery, and Empowerment (CARE) Act, a measure IS strongly supports. The panel specifically encouraged nonprofits to take voluntary action for better governance, including:

• Adopt a conflict of interest policy
• Have policies and procedures to protect employees who come forward with alleged illegal or unethical behavior in an organization
• Have someone with financial literacy on the board of directors, or get expert advice on financial management.

Recommendations to make nonprofits more transparent include:

• Suspension, but not revocation, of tax-exempt status of any group that fails to file the annual Form 990 with the IRS for two years or more
• Require the chief executive officer or other high ranking official to certify the accuracy and completeness of Form 990
• Phase in mandatory electronic filing of Form 990
• Require an audit for groups with annual revenues of $2 million or more
• Require charities that are not required to file Form 990 (with revenues under $25,000) to file an annual report with basic information to the IRS.

The panel urged caution before enacting new legislation, noting that Congress can improve enforcement of existing laws and regulations by increasing resources for the IRS, encouraging states to adopt federal standards in their charity regulation and allowing more information sharing between the IRS and state charity officials. The Panel did recommend Congress take action to define the term "donor advised" fund and take steps to prevent personal benefit to donors.

In its next phase of work the Panel will consider:

• Standards for compensation and travel policies for board and staff
• Revisions to the Form 990 series
• Uniform accounting standards
• Valuation of non-cash contributions
• Regulation of charitable solicitations.