One of his most memorable moments during 23 years immersed in nonprofit data, says Chuck McLean, was wheeling a photocopier into the offices of the Combined Federal Campaign to duplicate Forms 990. Hand collection is how he and colleagues got started building what today is a central repository for nonprofit data.
Mr. McLean, the last original GuideStar employee, retired in late 2017 from his position as senior research fellow. Among other things, he authored 17 GuideStar annual reports on salaries of nonprofit employees, the most recent in September.
When Mr. McLean started with GuideStar in 1994, the work was paid for out of the pocket of the founder, Buzz Schmidt. Later, with the endorsement of Virginia Hodgkinson, founder of the National Center for Charitable Statistics, GuideStar began to attract money from national foundations.
In a recent conversation with The Chronicle, Mr. McLean talked about the advent of electronic filing, the hollowing out of the IRS’s division on tax-exempt organizations, and why he thinks nonprofits should have their own federal agency.
The interview has been edited for brevity and clarity.
How did you become a founding GuideStar staff member?
I was teaching at the time at Old Dominion University, and I knew that I was going to be let go at the end of the year because there were terrible budget cuts. One day, in the Sunday newspaper — that’s back when people looked at classified ads in newspapers — there was an ad for “entrepreneurial researchers wanted.”
I was not really sure if I was an entrepreneurial researcher or not, but I thought, Gosh, I’d like to be one, so I decided I would go ahead and send in a résumé. The person at the other end of that résumé was a guy named Buzz Schmidt, and he was the founder of GuideStar.
His whole founding principle was the fact that there was no market for information about nonprofits at the time. So if you wanted to make good decisions, or even if you wanted to find out what organizations were doing work in a particular area, it was next to impossible.
Did you know anything about nonprofits?
I came into it completely cold. But Buzz had written this really interesting business plan. I bought into it hook, line, and sinker. It just seemed really fascinating to me.
How did the public find high-performing nonprofits, or groups working on specific causes, in the 1990s?
Well, you didn’t.
There was something called the Encyclopedia of Associations and it had some organizations listed in it. It was tiny print, and the profiles were maybe three or four column inches long. You would get mailings from organizations; they would put their best foot forward and tell you what they were doing.
But the idea that you might look at their Forms 990 was completely absurd.
Your inaugural project was to publish evaluative reports on the 400 biggest health charities in the United States. How did the work evolve?
We started out trying to get information from these organizations, cold calling them and saying, “We’d like to get all this information, and please send us your forms 990.” We were met with resounding silence, for the most part.
That was just not something people were used to doing. People didn’t ask for information like that.
I don’t understand exactly how this happened, but at every turn, where we became frustrated, we expanded the scope of the project. So we went from 400 health charities up to about 25,000 of the biggest charities all together. Almost as if, the more outrageous we got the more likely someone was to pay attention to us.
How did you manually collect data on tens of thousands of nonprofits in the 1990s?
We started cobbling together Forms 990 from every source we could find. We would get Forms 990 from the New York State charities bureau. We would get them from other attorneys general offices. We found some at universities that were keeping collections. Buzz talked the Combined Federal Campaign into letting us bring our own copier into their federal offices and copy the Forms 990 that they got from people who applied to be part of the combined federal campaign. So we spent a day up there making copies on our little copier.
In 1996 we produced something called the Directory of American Charities, which was a basic print listing of about the 50,000 largest charities. It had an accompanying CD-ROM where we had digitized a bunch of the financial data about those organizations.
GuideStar launched its website in the fall of 1996, when the IRS was still putting Forms 990 on microfiche cards. How did you get the agency to electronically scan documents?
If you have ever worked with microfiche cards, it is not a very effective way to deal with information. So we said to them, “If you will scan these documents into electronic form, then we will give you some money for scanning machines, and GuideStar will post these images on the internet.”
It served everybody’s needs. They wanted the Forms 990 to be more accessible to the public. They didn’t have the resources at the time to do anything about that. Here they found us perfectly willing and ready to do it.
I don’t think that it could happen today. But at that time, there was a sense of cooperation and willingness to do this for the good of the sector, for the sake of transparency.
Today, Forms 990 are readily available to anyone who wants them. And the IRS has started to make available electronically filed data. How would you characterize the quality of the data?
You have two different levels of Form 990 quality. You have those are filled out by accountants who specialize in Forms 990. Then you have everybody else, and the everybody else group is probably 50 to 60 percent of the returns.
The IRS doesn’t have as much in terms of validation rules for the data that comes in electronically as one would like to see.
So it is possible for an organization to file something that isn’t really correct, but the IRS doesn’t kick it back to them and say, “Hey this is not correct, you need to fix this.”
The IRS, in the oversight of charities, is just horribly underfunded. There is no other way to put it. They don’t have the resources to do an adequate job of oversight.
I feel like if you wanted to defraud somebody, this is probably the golden age.
If you could wave a magic wand and change one thing about the collection and handling of nonprofit data, what would it be?
Let’s start with mandatory electronic filing, which then means that you don’t have organizations like ours, or the Foundation Center, or Charity Navigator, spending money to key-punch information that ought to be electronic.
If you think about what we’re doing, we are taking scanned images, pictures, and key-punching the information off of the pictures into a database so we can manipulate that. That’s just crazy.
Most of the forms now are prepared using some sort of software, meaning that at the origin, this data is already electronic. But then they print it off from the software and send a paper copy to the IRS.
If all of this was filed electronically, then the IRS has the capability to create validation rules in their database so that certain things that shouldn’t happen can’t happen.
For instance, a state abbreviation couldn’t be incorrect. Or lines one through 12 would have to add up. It says you need to attach a schedule — then the software could check to see if that schedule was attached and if it wasn’t, send it back to the filer and say, “We need this schedule before we can accept this return.”
It’s exactly the kind of stuff you have to do when you file your Form 1040 return using TurboTax. When you hit that submit button, it goes through a series of validation checks, and if you screw up something, it will pop it back to you and say, “The IRS has not accepted this return because of X, Y, and Z.”
If we have that mechanism for individual filers, what’s the delay in getting something in place for nonprofits?
It is not a revenue-generating portion of the IRS. The IRS is basically a revenue-collection agency. Public charities and private foundations are not generating much revenue for the country.
There are a lot of people — and I have finally come around to this point of view, too — who think that charities oversight shouldn’t be done by the IRS. There should be a separate agency that is dedicated to overseeing charities.
As long as charities oversight is part of the IRS’s job, then that is going to be close to the last thing on the list.
This is not helping to fill the U.S. treasury. It is not as sexy as making sure that everybody pays the proper individual income taxes.
If there was a separate agency that was only charged with doing charity oversight, they may still have trouble getting money from Congress to do that job, but at least we would know that all of the money that went to that agency was tasked with doing that job.
