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Delegate: Let’s empower A.G. to probe nonprofits

A Maryland lawmaker wants to give the Office of the Maryland Attorney General more authority to investigate charities and how they spend donations.

Del. Dan Morhaim, D-Baltimore County, said he worries that the state’s top lawyer does not have the autonomous ability to look into the practices of nonprofit charities.

“There is clearly something going on in the world of nonprofits that is poisoning the well for other nonprofits, and it victimizes [donors],” Morhaim said.

“Most nonprofits are OK,” he added, “but my concern is the ones who are really out there to scam someone.”

Identifying problem nonprofits can be a problem, according to the five-term delegate.

Most nonprofits, even those that are not on the up-and-up, file required federal and state forms. But, “they are 30 to 40 pages long, and you have to be pretty sophisticated to find what you are looking for when it comes to finding red flags, and those reports usually aren’t available for review for about six months after filing,” Morhaim said.

Morhaim took an interest in the subject after reading a Tampa Bay Times series that in part highlighted what it called “the dirty secrets of the worst charities.”

In many cases, the Tampa Bay Times article pointed to nonprofits that pay large fees to companies that raise money for them, then spend only a small percentage on their stated charitable focus. One Florida-based charity that was set up to raise money for dying children spent only 3 cents to help children for every dollar raised, according to the report.

“There’s nothing per se illegal about having a fundraising arrangement or having the amount of money that goes to program activities that is very low,” said Henry Bogdan, managing director for Maryland Nonprofits.

Maryland Nonprofits is a Baltimore-based organization that works to improve the nonprofit sector and individual charities within the state.

Bogdan said information on how nonprofits spend their money and how much goes directly to charitable causes, as opposed to fundraising and other expenses, is available if donors are interested in digesting the lengthy reports Morhaim referred to.

That might not be enough, according to Morhaim.

“The average person is not going to go to the secretary of state [of Maryland] or search all this out,” Morhaim said.

There are about 32,000 nonprofits in the state, according to Maryland Nonprofits.

For the most part, the work of reviewing the activities of charitable organizations in the state falls on just two people, one in the attorney general’s office and another in the secretary of state’s office.

Most of the work related to chartering nonprofits and enforcing state laws falls on the Maryland secretary of state. The attorney general’s office assists with some complaints, but only when they are referred to that office.

“A lot of the legal tools are in place,” Bogdan said. “Clearly there is a need for more resources — staff and technology — at the state and the federal level.”

In the attorney general’s office, the bulk of the work related to the investigation of complaints against charities falls on Steve Ruckman, an assistant attorney general.

Ruckman said his office handles about one case a month referred by the secretary of state. The attorney general’s office does not have the authority to independently investigate charitable organizations or how donations are spent, Ruckman said

“Maryland is one of only a handful of states where the attorney general lacks broad common law authority to protect charitable assets,” Ruckman said.

None of the cases referred to Ruckman since he took over nearly a year ago have resulted in prosecution.

“Our main statutory authority comes from the Solicitations Act, so the infractions we pursue deal with the registration and solicitation components of the charitable world and not the management of the asset after it has been lawfully solicited by a registered charity,” Ruckman said.

In most cases, the resolution involves “assurances of voluntary compliance” with state law, Ruckman said.

One possible fix could come from a national model for legislation to protect charitable assets proposed by the National Conference of Commissioners on Uniform State Laws.

Morhaim said he is considering sponsoring a bill in the next General Assembly session to incorporate some of those powers recommended in the model legislation recommendations.

Another possibility is to include requirements for ethics training for employees and board of nonprofits.

“Sometimes letting people know they’re being observed changes behavior,” Morhaim said, adding that he would like to have a bill ready for introduction as early as January.

“That would be my intent, but you have to have a good bill, not just any bill,” Morhaim said.

But additional government regulation and oversight may not be welcomed with open arms by everyone in the nonprofit community.

“I appreciate that you don’t want government regulations to be expensive, intrusive or unreasonable, but you have to strike a balance,” Morhaim said.

Bogdan stopped short of full support for adoption of the model legislation, but said it was worth exploring.

“We’re very interested in being part of that conversation,” Bogdan said.

Even though it seems counter-intuitive, Bogdan said nonprofits have a vested interest in improving enforcement of regulation of nonprofits.

“Whenever there is an issue with a nonprofit doing something illegal, it really brings the credibility of all charities into question,” Bogdan said.