merican foundations and nonprofit organizations are responsible to the public for the quality and efficiency of their work. This year, the Independent Sector's Panel on the Nonprofit Sector clarified the terms of that responsibility in its June 2005 report to Congress and the nonprofit sector,
Strengthening Transparency, Governance, and Accountability of Charitable Organizations. Representing more than a year's painstaking work by dozens of nonprofit leaders, the report recommends more than 120 actions to be taken by charitable organizations, Congress, and the Internal Revenue Service to strengthen the nonprofit sector.
(1) This agenda calls for significant improvement in self-regulation along with a modest increase in governmental oversight—a delicate balance needed to prevent abuses in the sector while preserving the independence that is the heart of its strength.
In its deliberations, the Panel paid particular attention to problems enumerated in the June 2004 Senate Finance Committee Discussion Draft on nonprofit issues and in subsequent hearings and roundtable meetings. Among those problems was the sense that the annual tax returns filed by nonprofits do not provide sufficient information about the effectiveness of organizations' programs, and that there are no commonly accepted procedures for ensuring that nonprofits are evaluating the effectiveness of their programs and services. The 2004 Discussion Draft specifically proposed that tax returns for nonprofits be revised to include "a detailed description of the organization's annual performance goals and measurements for meeting those goals."
The report by the Panel recommends against requiring nonprofits to provide more detailed statements on goals and performance measures in their annual tax returns. Instead, it urges that every charitable organization provide detailed information about its programs—including the methods it uses to evaluate outcomes—through annual reports, Web sites, and other means. In making this recommendation, the Panel points to the already abundant information organizations supply on the IRS tax return and argues that "because of the diversity of the sector and the subjective nature of performance measures, requiring more detailed statements of the performance measures would not provide meaningful information for the public or for regulators." The report notes, as well, that annual performance indicators are inappropriate for many institutions and their programs, given the long-term nature of the investments they make in human resources, medical research, and social interventions.
