At The Center for Ethics, Governance, and Accountability (CEGA), we only add value to the non-profit sector if we can identify well-publicized problems, dissect them into meaningful pieces, eliminate confusion or misunderstandings, and make recommendations for positive change. ACORN – with all its reported problems – must surely serve as an excellent ‘case study’ and represent some guidance to other non-profits with regard to issues of governance and accountability.

If we can study ACORN – and turn any problems into knowledge – then we have the potential for ‘ACORN’ to serve as an ‘acorn’ in its purest analogy of growth and strength with nurture and care – all of which are required for any non-profit to remain or become a going concern, particularly in today’s economic climate.

This article seeks to identify several important issues that can be applicable to all non-profits.

This article is apolitical – issues of ethics, governance, and accountability should transcend partisan politics and generalizations.

The problems associated with ACORN have been widely publicized. We will not concern ourselves with a comprehensive review of the problems faced by the ACORN organization; but, rather, we will address two specific issues that can serve to benefit all non-profits:

1.   Avoiding numerous ‘affiliate’ or ‘chapter’ offices

2.   Maintaining a solid focus on the specific mission

When an organization completes its IRS Form 1023 (recently revised by the IRS in its attempt to strengthen controls on non-profit organizations) the applicant must certify its specific mission and its geographically dispersed offices, if any. These two questions, as specifically addressed in the Form 1023 application, are critical not only to the granting of the 501(c)3 status of a non-profit, but also to the establishment of governance and accountability standards to be enforced by the board of directors of the non-profit.

Before moving forward, let’s take a backward look at ACORN’s formation.It is interesting to note that ACORN was reportedly formed in 1970, well before Congress sought to strengthen non-profit accountability in the wake of the for-profit Enron fiasco of 2001 or the non-profit United Way fiasco of 1991. The required annual filing by non-profits to the IRS is by way of its Form 990. It would be interesting to review the level of detail in the ACORN filings from years gone by. Similarly, it would be interesting to review ACORN’s Form 1023 filing to see if its mission changed over the years.

While these areas of interest are beyond the scope of this brief article, all non-profit entities are encouraged to conduct a periodic review of past certifications to the IRS and make any necessary modifications to remain in compliance.

As mentioned in previous articles – and, as well known by knowledgeable non-profit employees and board members – the awarding of ‘charitable’ status by the IRS is a privilege that comes with appropriate regulations. Note particularly the requirements of Form 1023:

Among other things, Part II of the application requires that Bylaws be produced, Part III requires certification that the organization meets the criteria for charitable status, Part IV requires a narrative that describes the intended activities of the organization – “past, present, and planned” – with a proviso that the narrative must be “thorough and accurate.”

But the application does not stop there. Part V, which includes several sections, seeks to identify employment agreements, compensation justification, potential conflicting arrangements between board members, staff, contractors, etc. Specifically required is a certification as to whether or not the organization has a Conflict of Interest policy. Part VI seeks to determine if individuals or members will receive benefits from the organization. The section also includes the “past, present, and planned” language.

Part VII seeks to determine whether the organization will be taking over the activities of another organization; i.e. becoming a “successor organization.” Part VIII requires the applicant to disclose “past, present, and planned” activities that involve supporting or opposing candidates in political campaigns and/or attempting to influence legislation (i.e. ‘lobbying’).

Additional sections of Part VIII require information on the types of fundraising that an organization receives, whether it is from ‘bingo or gaming’ or other more traditional types of ‘fundraising.’ The section also requires disclosure of any contracts with fundraisers, governmental affiliation, economic development, joint ventures, foreign country operations, a listing of all states and localities will fundraising will be conducted, relationships between any recipient organization, close connections with any organizations, provision of low-income housing, etc. As can be seen, the Form 1023 is a comprehensive document. This is as it should be; the IRS requests as much information as possible to make its determination of non-profit status.

With this background on filing requirements, let’s turn now to the two issues to be addressed in this article:

1.   It is recommended that non-profit organizations avoid having numerous offices, chapters, affiliate organizations, etc. Why? Because the more offices, the more complexity, and the more difficulty in maintaining proper records, knowledge of operations, and acceptable management procedures.

2.   It is recommended that non-profit organizations maintain a close watch on all activities to avoid ‘creep’ that would result in activities that are clearly beyond the scope certified in the IRS application. All staff members and board members must be able to speak with certainty when describing the mission and activities of the organization.

When the news reports of the ACORN organization are reviewed, it becomes immediately obvious why its ongoing management was challenging: offices in 75 cities; international expansion; allegations of embezzlement that occurred ten years ago; affiliation with other non-profit organizations; a political action committee (PAC); political organizing programs; alliances with Project Vote and inadequate documentation to determine non-profit and excluded activities; etc.

Of importance is the opportunity for leaders in non-profit organizations to see the specificity of IRS requirements mentioned in this article, compare against the challenges ACORN has created for itself (as widely reported), and make a determination as to how their non-profit organizations will be organized, led, and mission-based. While some may want to argue that it is easy to fall outside of the IRS regulations, the simple facts in this article seem to differ strongly. (The applicant must say what it means and mean what it says.)

From our youth, we are taught that an acorn (essentially a seed) represents a great thing for the future. Carefully planted and nurtured, an acorn can become a majestic oak tree, serving many purposes from CO2 sequestration, to shade, to food for animals, to furniture. The tree may grow in an unruly fashion, but it can be pruned. Disease may set in, but it can be treated. While care and attention can provide the nurturing necessary to see the acorn through to success, the most critical element is ‘paying attention’ to what is actually happening to the acorn.

This appears to be a major problem with the ACORN organization; formed in 1970, just when did it start to veer off course? Who was there to nurture it? What now will be the consequences? Will board members be held personally accountable?

Fortunately, every non-profit organization currently in existence today – or planning to emerge in the future – has the opportunity to be an acorn and not an ACORN. We urge all non-profits to take their charitable status very seriously and to demonstrate excellence in all aspects of their operations. So nurtured, your tree will certainly grow strong.