Among the many things we’ve learned about the two major presidential candidates this election season: The nonprofit entities each helped found are magnets for controversy.
The Donald J. Trump Foundation’s failure to register to raise funds in states that require it has pointed up shortcomings in its operations, as did a three-year-old illegal contribution to a Florida politician’s re-election fund. In October, New York’s attorney general ordered the foundation to stop fundraising in the state.
Meanwhile, the Bill, Hillary & Chelsea Clinton Foundation, which is actually a public charity, has been accused of failing to disclose the names of donors from foreign governments, violating an agreement Hillary Clinton made with the Obama administration in 2009, when she was named secretary of state. The actions of both candidates’ organizations serve as reminders to grant makers and charities to make sure their work complies with federal and state laws and avoid getting entangled with problematic donors.
The Chronicle of Philanthropy asked experts what lessons charities and foundations can take from the candidates’ organizations. They advise nonprofit leaders to do the following.
Register your charities for fundraising
Thirty-nine states and the District of Columbia require public charities to fill out applications and pay fees for the right to raise money within their borders. (Texas also requires groups raising funds by mail or phone to register.)
“If you want to be under compliance, you have to sign up — there’s no wiggle room,” says Marc Lee, president of Affinity Fundraising Registration, a third-party contractor in Denver that registers charities nationwide.
Completing a nationwide registration plan can be costly: Fees from nonprofit consultants and law offices range from $6,000 to $15,000. Subsequent annual reports and renewal fees can also add up to the thousands of dollars.
“But the alternative to paying is to get what I call hate mail from state attorneys general,” Mr. Lee says, adding that his firm has seen an increase in interest in registration from charities following news of the Trump Foundation’s troubles. Roughly a half-dozen states that require charities to register, including California, exempt private foundations.
Know your donors.
Ms. Clinton, who served on her nonprofit’s board until April 2015, when she announced her presidential candidacy, has been questioned about the Clinton Foundation’s acceptance of donations from foreign leaders while she was secretary of state. Gifts from Arab sheikhs, Russian firms with ties to the Kremlin, and King Mohammed VI of Morocco — all of whom have been accused of corruption — have raised questions.
“A nonprofit genuinely has to understand whether the donation they are getting is in line with their mission,” says Philip Hackney, an associate professor of law at Louisiana State University. “The Clinton Foundation has taken money from countries that don’t exactly have the best human-rights records. Organizations need to think very critically about these kinds of donations.”
Adds Marcus Owens, former head of the IRS office that oversees tax-exempt groups and a partner in Loeb & Loeb, a Washington law firm: “It pays to investigate whether the people you’re dealing with are in government. Given the different kinds of organizations out in the world, there might be a fine line between those people who are in government and those who are not.”
Know your grantees.
The Trump Foundation’s 2013 gift of $25,000 to And Justice for All, a political-action committee to aid the re-election campaign of Pam Bondi, Florida’s attorney general, broke federal law. (It also came at a time when Ms. Bondi was trying to determine whether to join a lawsuit that New York State had filed accusing Mr. Trump of tax fraud.) The foundation said that the gift was a mistake and that it meant to make it to a charity with a similar name in another state.
Some experts say that account isn’t far-fetched. Grant makers, especially small ones like the Trump Foundation with few or no full-time staff members, can fail to adequately check whether an organization is a charity in good standing with the IRS.
“Foundations should be mindful of a group’s charitable status and realize that that status is dynamic,” says Adrian Bordone, vice president for strategic partnerships at GuideStar, an organization that compiles and disseminates information about nonprofit groups. There are at least five government sources that provide such information in addition to GuideStar, he says, including the IRS Exempt Organizations Select Check and its regularly updated Internal Revenue Bulletin.
Set up conflict-of-interest policies — and follow them.
The Clinton Foundation misreported foreign donations on its IRS forms. But Ms. Clinton has also been accused of offering favors to donors. Some say this is a direct result of flouting the rules the foundation set to deal with conflicts.
“It wasn’t scrupulous about following its own policies,” says Pamela Mann, chair of the tax-exempt organizations group at Carter, Ledyard & Milburn, a New York law firm. “I see this a lot. If you set up a set of conflict-of-interest policies but don’t fill out the disclosure forms properly, you’re not following through.”
Consider whether a charity or foundation is best for your mission.
If you’re not making grants regularly or in well-defined focus areas, says Ms. Mann, “maybe you should ask yourself whether you should have a foundation. Mr. Trump hasn’t donated to the Donald J. Trump Foundation since 2008, she adds.
Monitor your growth with an eye toward the law.
Experts say that the Clinton Foundation may have grown faster than it anticipated, while the Trump Foundation has yet to dedicate staff members who can separate its functions to better avoid conflicts. Both instances can lead to sloppy management.
“People don’t tend to look hard at nonprofits until there’s a crisis,” says John MacIntosh, a partner at SeaChange Capital Partners, a merchant bank that works with nonprofits. “It’s quite easy for nonprofits to fail to comply with the law. It takes self-discipline and an internal process that keeps a focus on the laws to avoid these problems.”
