History of the NGO Sector

Notes: Anheier et al. (2001) notes that international non-governmental organizatsion date back to the ninetheeth century, bu thte term is more recent, being coined during the period of the League of Nations. They furnter note that hte earliest INGO is generlly said to be the antislavery society, formed as the British and Foreign Anti-Slavery Society in 1839, although the movement against slavery was founded much earliert. The International Committee of the Red Cross (ICRC) was founded in 1864 by Henri Dunant. According to Anheier et al. (2001) by 1874 there were 32 registered INGOs and by 1914 there were 1,083. they place the 2000 numbers at around 13,000, with about one quarter of those created after 1990.

United Nations formulized the term....

International non-governmental organizations have a history dating back to at least the mid-nineteenth century.[1] They were important in the anti-slavery movement and the movement for women's suffrage, and reached a peak at the time of the World Disarmament Conference.[2] However, the phrase "non-governmental organization" only came into popular use with the establishment of the United Nations Organization in 1945 with provisions in Article 71 of Chapter 10 of the United Nations Charter for a consultative role for organizations which are neither governments nor member states – see Consultative Status. The definition of "international NGO" (INGO) is first given in resolution 288 (X) of ECOSOC on February 27, 1950: it is defined as "any international organisation that is not founded by an international treaty". The vital role of NGOs and other "major groups" in sustainable development was recognized in Chapter 27 of Agenda 21, leading to intense arrangements for a consultative relationship between the United Nations and non-governmental organizations.

Globalization during the 20th century gave rise to the importance of NGOs. Many problems could not be solved within a nation. International treaties and international organizations such as the World Trade Organization were perceived as being too centred on the interests of capitalist enterprises. In an attempt to counterbalance this trend, NGOs have developed to emphasize humanitarian issues, developmental aid and sustainable development. A prominent example of this is the World Social Forum which is a rival convention to the World Economic Forum held annually in January in Davos, Switzerland. The fifth World Social Forum in Porto Alegre, Brazil, in January 2005 was attended by representatives from more than 1,000 NGOs.

US Nonprofit Sector

"There is scarcely an undertaking so small that Americans do not unite for it… As soon as several of the inhabitants of the United States have conceived a sentiment or an idea that they want to produce in the world, they seek each other out; and when they have found each other, they unite. . . Not only do they have commercial and industrial associations in which all take part, but they also have a thousand other kinds: religious, moral, grave, futile, very general and very particular, immense and very small. . . Everywhere that, at the head of a new undertaking, you see the government in France and a great lord in England, count on it that you will perceive an association in the United States." Alexis de Tocqueville, Democracy in America, 1831

In the 19th Century, French visitor and scholar Alexis de Tocqueville found a distinctive feature of American life, different from Europe at that time: citizens coming together in associations to address needs that were not being met by government and business. Tocqueville noted associations to form schools, distribute books, create prisons, and build hospitals. And this was not a new development in American life, but dated back to the colonial period. Some of these civic initiatives, such as schools, were deemed so essential that they subsequently were taken up and expanded by government to provide even wider benefit to citizens.

Non-governmental associations remain an enduring and integral condition of American life today. Currently, there are approximately 1.3 million known nonprofit charities, foundations and religious congregations in the United States. Many more associations have not been formally incorporated and recognized by the government.

Tax benefits

The U.S. government, in realizing the value of the nonprofit sector in American society, offers special tax incentives aimed at supporting charitable organizations. By providing the opportunity for nonprofits to be exempt from taxes, organizations have more funds available for their missions. And, by allowing individuals to deduct charitable contributions when calculating their individual income taxes, donations to nonprofit organizations are encouraged.

Nonprofit organizations apply for tax-exempt status under section 501(c)(3) of the U.S. Internal Revenue Code. (Religious congregations do not have to apply, but automatically receive 501(c)(3) tax-exempt status.) Tax-exempt organizations are recognized either as “public charities” (those that receive at least one-third of their annual income from the public) or “private foundations” (those that receive their primary financial support from an individual, a family, or a corporation).

Monitoring and regulating charitable organizations falls upon the Internal Revenue Service (IRS) of the federal government. However, state governments also offer special tax benefits to charitable organizations, and are involved in monitoring and regulating nonprofits.

Many Americans sustain nonprofit organizations by contributing money or goods, or through volunteering their time. Nearly half of all adults volunteer each year for nonprofit organizations, collectively providing the equivalent of 9 million full-time staff members. Furthermore, about nine out of 10 households make charitable contributions, totaling more than $207 billion a year.

The total value of private donations in response to Hurricanes Katrina and Rita alone reached $3.12 billion, and Americans donated an estimated $1.78 billion in 2005 to the relief efforts in Asia, dwarfing the contributions of other developed nations. Beyond these individual donations, Bill and Melinda Gates, through their foundation, have given more than a quarter trillion dollars a year to fight AIDS and malaria in Africa, more than have many nations. While some individual donations may be attributed to a desire for a tax deduction, a large percentage of charitable donations are not even itemized on tax forms.

Ethical concerns

While most non-governmental organizations work ethically and responsibly to achieve good for society, the sector has also been plagued with examples of abuse and mismanagement.

In 2004 and 2005, Boy Scout councils in some states were caught inflating their membership numbers with phony rosters and applications, allegedly because higher numbers means more money from donor groups and charities, and even pay raises for key staff. This has been a recurring problem in the Boy Scouts since the 1990s.

Recent newspaper articles have noted exorbitant salaries and special perks given to executive directors of other NGOs, and pointed out that money raised through some fundraising efforts mainly went to salaries and to raise more money. A number of nonprofit organization were accused of using disasters, such as like Hurricanes Katrina and Rita, and the tsunami in southeast Asia, simply to fill their coffers, including “fake” organizations that sprung up overnight to play on the sympathy of well-intentioned donors.

Well-publicized problems such as these have led to calls in 2004 and 2005 for the U.S. government to consider new legislation and have greater oversight of the NGO sector.

New legislation

The federal government moved forward on several fronts. The IRS looked into the problem, identified some key issues, and offered recommendations. In 2004, the U.S. Congress got involved, with the U.S. House Ways and Means Committee beginning an examination of the charitable community, and the staff of the U.S. Joint Committee on Taxation preparing a document titled “Options to Improve Tax Compliance and Reform Tax Expenditures.”

In June and July of 2004, the U.S. Senate Finance Committee conducted a hearing and roundtable discussion on charities and foundations oriented toward oversight and reform. The staff released a discussion draft of possible ways to address abuse and mismanagement, and then conducted additional hearings in April and June of 2005.

The NGO sector also was involved. In late 2004, in response to the request of the leadership of the Senate Finance committee, Independent Sector, a leadership forum for charities, foundations, and corporate giving programs, assembled leaders from the nonprofit sector to consider and recommend actions to strengthen governance, ethical conduct, effectiveness, and accountability within the sector. As a result, the “Panel on the Nonprofit Sector” was created, consisting of 24 leaders of public charities and private foundations, and supported by committees of 150 leaders.

The April 5, 2005 hearing of the Senate Finance Committee, titled “Charities and Charitable Giving: Proposals for Reform,” examined many of the proposals mentioned above: the Senate Finance Committee staff’s discussion draft, the document prepared by the staff of the U.S. Joint Committee on Taxation, and the interim report of the Panel on the Nonprofit Sector.

The results of all of these activities were numerous recommendations for regulating the sector, which are being discussed in the halls of Congress and the offices of the IRS. Among these new recommendations are: • A periodic review system be instituted to verify if a nonprofit continues to meet the qualification for tax-exemption; • A requirement be added that charitable organizations with revenues of $1 million or more conduct an annual audit and attach audited financial statements with their return; • A new requirement that the highest ranking officer sign and certify the annual information return; • An annual reporting requirement for organization with less than $25,000 in annual revenues (which currently do not have to report); • Suspension of tax-exempt status for organizations that fail to correct incomplete or inaccurate returns; • A federal accreditation program for nonprofit organizations administered by the IRS and organizations contracted by the IRS; • Although board compensation is discouraged, a requirement would be added that any such compensation would be disclosed, and the amount and reasons for the compensation revealed; loans to board members would be prohibited; • For those cases where the IRS alleges compensation to officers is excessive, the organization would have to demonstrate that it is reasonable; penalties would be increased for those individuals who receive, and managers who approve, excessive compensation; • To qualify as a public charity (versus a private foundation), at least one-third of the board would have to be independent (i.e., not have received benefits from the organization in the past year, not have compensation determined by other board or staff members, and not related to someone who received such compensation from the organization). There would be a requirement for each organization to disclose which board members are independent.

WANGO Survey

In the fall of 2005, WANGO took upon itself the task of conducting a survey of U.S. nonprofit leaders to access their opinion of three of these issues. WANGO also sought to understand how many of those surveyed had a code of ethics to guide their work.

The survey was conducted over the phone by a Canadian firm. A total of 103 organizations were surveyed, from a list of 848 prepared by GuideStar in the categories of international relief, international cultural exchange, human rights, refugee issues, nonprofit management, professional associations, interfaith issue organizations, and management and technical assistance organizations.

Five year review of tax-exempt status

Among the proposals being examined (including by the U.S. Senate) is a recommendation by the Staff of the Congressional Joint Committee on Taxation that every five years tax-exempt organizations, other than houses of worship, submit sufficient information to determine whether the organizations are still organized and operated exclusively for exempt purposes.

Presently, organizations seek formal recognition of tax-exempt status by submitting an application to the IRS, and the IRS issues a determination letter (ruling) that either recognizes the organization as tax-exempt or denies the recognition. (Churches, and certain church-related organizations are not required to apply in order to be recognized as tax-exempt under section 501(c)(3). Contributions are generally not deductible for income, gift, or estate tax until the determination letter is received. An organization that is recognized as tax-exempt may rely on this determination assuming “there are no substantial changes in the organization’s character, purposes or methods of operation.” There is no periodic review to check on an organizations continuing qualification for exemption. Organizations that are classified as public charities or as private operating foundations may cease to satisfy the conditions for such status based on the annual return filings.

The proposal by the Staff of the Congressional Joint Committee on Taxation is that every five years, each organization (other than churches) be required to file with the IRS information that enables a determination whether the organization continues to be organized and operated exclusively for exempt purposes, and whether the original determination letter should remain in effect, or be modified, or revoked.

WANGO Survey: Are you in favor of the tax-exempt status of nonprofit organizations being reviewed every five years by the IRS? (Yes or No or Not Sure)

No: 29 Yes: 52 Not sure: 22

In the WANGO survey of nonprofits, 50.5% of the respondents were in favor of the tax-exempt status of nonprofit organizations being reviewed every five years by the IRS. A little over one-quarter of the respondents (28.2%) were opposed to this measure, and 21.4% were not sure.

This survey does not accord with the findings of the Panel on the Nonprofit sector. The panel’s recommendation is that Congress should not mandate a periodic review system to verify if a nonprofit continues to meet exempt qualifications, but the IRS should focus on current financial returns. Board of directors is encouraged to do a full review of their organizations every five years.

Annual Information Return

Another proposal being considered by the US Congress is that those tax-exempt organizations that currently are not required to file an annual tax return with the IRS because of low revenues be required to file an annual information return with the IRS.

At present, organizations whose gross receipts in each taxable year normally are $25,000 or less are exempt from filing requirements to the IRS. (Also exempt are other organizations, such as churches, certain mission societies, church-affiliated elementary and high schools, etc.). Under this proposal, even those organizations whose revenue are below a certain specified amount would still need to furnish a notice to the IRS containing various information, such as the legal name of the organization, mailing and internet address, name and address of principal officer, mission statement, total revenues and expenditures for the year, and so forth.

The Panel on the Nonprofit Sector expressed support for this, because of the lack of current contact information for many of these organizations in the IRS database and the need to inform such organizations of new changes, among other reasons.

WANGO Survey: Are you in favor of tax-exempt organizations that are not required to file an annual tax return, because of small revenues, filing an annual information return with the IRS, providing basic information about the organization? (Yes or No or Not Sure)

No: 31 Yes: 53 Not Sure: 19

Approximately, the same percentages were realized, with just over one-half (51.5%) in favor of this proposal, and 30.1% opposed, with 18.4% unsure.

Charity Accreditation Process

The Senate Finance Committee is also examining whether to authorize 10 million dollars to the IRS for a charity accreditation process. This accreditation of nonprofits would be administered by the IRS, as well as by other organizations contracting with the IRS. Preference for federal funding would be given to organizations that are accredited by the IRS-designated entities.

Currently, there is no federal accreditation program; rather, the charitable sector has a long tradition of self-regulation. Some charities and civil society organizations, such as hospitals and institutions of higher education, have systems of accreditation for organizations in their sector, and these standards must be met for certain benefits – such as insurance coverage, recognition of degrees conferred, access to government funding, and so forth. Some associations likewise have mandatory standards for their members, and all members are to meet those standards to retain membership or affiliation. Other associations encourage adherence to standards of conduct, but do not require this for membership. There are also watchdog groups that provide information to the public on organizations and their activities, and other institutions that offer programs to improve ethics and governance through education and training.

WANGO Survey: Do you think the IRS should be designated to establish and administer standards for the nonprofit sector, or should it be done by the sector itself, as it is the case for doctors, lawyers, and universities? (Admin. By IRS or Nonprofits)

IRS: 20 Nonprofits 83

In this case, the nonprofits were 80.6% favor of the sector establishing and administering standards, rather than the IRS (19.4%).

Code of Ethics

WANGO has established a Code of Ethics and Conduct for NGOs. This Code was developed by leaders of nonprofit organizations from throughout the world and is designed to be broadly applicable to the worldwide nonprofit community, regardless of an organization’s size and whether the organization is focused on international agendas or local community affairs. Many NGOs in the United States also follow a code of ethics for their organizations. For those involved in the WANGO survey, another question was asked:

WANGO Survey: Does your organization have a code of ethics or code of conduct to guide its activities and governance? (Yes or No)

Yes: 96 No: 7

Surprisingly, over 93% of those surveyed had a code of ethics for their organization. This may be a function of the fact that the survey was oriented towards internationally oriented, and presumably larger NGOs. The survey did not access how comprehensive the standards of these organizations are, and the standards could range from a simple conflict of interest statement to a detailed code covering all aspects of governance and finance.

Summary

For over three centuries, the nonprofit sector has been a vibrant and integral part of American society. In recent years, government encouragement of the nonprofit sector has proved to be an effective avenue for addressing societal ills. As noted by U.S. Congressman Bobby Jindal, discussing the aftermath of Hurricane Katrina, “by far the most effective relief efforts have come from private charitable aid organizations. FEMA and other state/local government agencies set up bureaucracies and red tape, while private businesses and charities moved in swiftly to alleviate the human suffering on the ground.”

As greater legislation is considered to address the serious, but occasional abuses in the nonprofit sector, it is important that government not immerse the sector in bureaucracy and red tape that will stifle nonprofit organizations’ ability to serve. Rather, any policy changes need to allow this sector to continue to flourish and innovate, and enrich the lives of people both home and abroad.

References

• Anheier, Helmut, Marlies Glasius, and Mary Kaldor. Introducing Global Civil Society. In H. Anheier, M. Glasius, and M. Kaldor (eds.), Centre for Civil Society (London School of Economics and Political Science Governance, London School of Economics), Global Civil Society Yearbook 2001. Oxford: Oxford University Press. Oxford: Oxford University Press. ISBN 0199246440.

http://www.un.org/aboutun/charter/chapt10.htm

http://habitat.igc.org/agenda21/a21-27.htm

http://www.un.org/documents/ecosoc/res/1996/eres1996-31.htm

http://www.globalpolicy.org/ngos/role/conf.htm