This article out of Fairbanks Alaska concerns a lack of federal oversight of money nonprofits obtain through earmarks. "Some [who work in nonprofits] add, though, that federal program officers don't, or can't, always watch closely. In addition, if the federal agency isn't involved in selecting the grantee, as occurs with earmarked funds, fundamental problems may escape the agency's notice, they say." A nonprofit in Fairbanks, LOVE Social Services, about $450,000 of a $2.9 million that Sen. Ted Stevens (R-AK) earmarked for the group's after-school and tutoring program for personal and church expenses. The nonprofit leaders interviewed say rules for federal grants are strict, but federal oversight of compliance with those rules is not foolproof.

Leaders of several nonprofits who run their operations at least in part on federal grants say they are amazed and appalled that the alleged misuse of the LOVE Social Services money went undetected for so long. "When a nonprofit is highlighted like that, the rest of us cringe," said Coleen Turner, executive director of the Resource Center for Parents and Children

Senate Finance Committee Chairman Max Baucus (D-MT) and Finance Ranking member Charles Grassley (R-IA) sent letters to Internal Revenue Service (IRS) Commissioner Mark Everson and IRS Chief Counsel Donald Korb asking for "an updated list of the newest, biggest tax avoidance scams — including those using nonprofit groups - that deserve the committee's attention." The Senators are asking that they receive the document by April 1. The letter also referenced the IRS 2007 "Dirty Dozen", a listing of the top tax scams. On this "dirty dozen" listing was the "abuse of charitable organizations and deductions."

Read the story in the Washington Post here.

Yesterday the IRS released its Report on Exempt Organizations Executive Compensation and the New York Times reported on these findings. About 600 charities and foundations had to file amended tax forms and problems were found in the way nonprofits reported payments to their executives and other employees. One of the reasons for the study that began in 2004 was to pin point excessive compensation to nonprofit executives through audits and questionnaires, ultimately improving tax law reporting of compensation practices of exempt organizations. Senate Finance Committee Chairman Baucus (D-MT) reacted with this statement;

If the reporting errors were caused by confusing paperwork, that should be fixed immediately. But as Chairman of the Finance Committee, I am committed to pursuing abuse in this sector where so much good is otherwise done.

In response to the New York Times article and the IRS report, this blog at Inside Philanthropy asks, "can nonprofits police themselves?" And according to a BNA Money and Politics ($$) article, nonprofits are more likely to be under scrutiny by the financial investigative unit of the IRS.

The financial investigative unit, with more experienced agents trained in forensic accounting, was originally designed to support the criminal investigations division at IRS in audits of terrorist fund raising, but of late has not been busy enough with that, so it has been deployed to inspect larger, more complex nonprofits. The investigative units are based in St. Paul and Denver but have been making stops everywhere, he said.