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Nonprofits outline plans for reform

Leaders of the nation's nonprofits, singed by news reports of self-dealing and extravagant spending, unveiled a sweeping list of reforms yesterday designed to force greater accountability and boost penalties for misuse of funds at 1.3 million private foundations and public charities across the country.

The proposals call on nonprofits to comply with accounting rules much like those imposed on businesses after the Enron scandal: Top officers of nonprofit organizations would be required to sign off on financial filings; conflict-of-interest policies would be established and enforced; and audits of larger nonprofits would be routine.

The proposed changes aim to address concerns of the US Senate Finance Committee, which began aggressively targeting abuses at charities after a Boston Globe Spotlight Team series on self-dealing and perks at numerous private family foundations. The Globe discovered foundations owning private jets and paying top executives millions in compensation, perks, and bonuses out of funds pledged to charitable causes.

Senator Charles E. Grassley, an Iowa Republican who chairs the Finance Committee, said yesterday he plans to consider the recommendations as the committee this spring takes up legislation proposed by President Bush that would create billions of dollars in tax breaks to encourage charitable giving. Any such legislation, Grassley said, ''must be accompanied with serious reforms in both charitable governance and giving."

Diana Aviv, chief executive of Independent Sector, a Washington, D.C., trade group, and executive director of the Panel on the Nonprofit Sector -- which authored the report -- said the need for greater self-policing of the charitable sector is urgent. The sector is prepared to push a ''zero-tolerance policy regarding abusive behavior," Aviv said.

The panel's report focused first on establishing rules for financial accountability, she said. Other proposals will aim to more tightly regulate compensation and other benefits to nonprofit officials and trustees. ''The issues going forward are among the most challenging ones we face," Aviv said.

The recommendations include some procedural changes for nonprofits, including establishing conflict-of-interest policies and requiring board members at charities to demonstrate some financial expertise. The Globe series found many foundations run by officers with no such background and with a record of mismanagement.

The panel also urged some legislative changes, including a boost in the Internal Revenue Service budget for oversight of nonprofits and raising penalties levied against nonprofit executives found guilty of using charitable assets for their own benefit. The report also urged the IRS to more strictly enforce existing rules and require regular audits of organizations with more than $2 million in annual revenue.

A Senate Finance Committee staff member, who spoke on condition of anonymity, said the proposed changes represent a step for the sector but may not go far enough to crack down on abuses. ''This is important, and we give it serious weight," the staff member said, ''but we also have to talk to law enforcement and ask them what's really going to help give them the tools to go after these folks effectively and efficiently."

Jamie W. Katz, chief of the Massachusetts attorney general's Public Charities Division, said he would welcome a call for Congress to permit greater cooperation between the IRS and state regulators. Massachusetts is one of a few states that actively pursue charitable abuses. ''The recommendation is certainly a step that would help us," Katz said.

In December, Katz's office sanctioned Paul C. Cabot Jr. of Needham $4 million, requiring him to repay funds that he had taken from his family's charitable foundation for his own use. Katz launched his investigation after the Globe reported in 2003 Cabot had paid himself more than $1 million a year from the foundation, starting in 2000. Cabot agreed to sell two family houses to repay funds earmarked for charity.

Dorothy S. Ridings, a member of the panel and chief executive of the Council on Foundations in Washington, D.C., said the revelations of wrongdoing had a positive effect, ''not only because of the miscreants . . . but to call attention to people doing things they honestly didn't know were wrong."

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