Protest Oregon's Proposed New Fundraising Law

Read Dan Pallotta's latest post in the Harvard Business Review:

Oregon's Attorney General John Kroger has introduced a bill that would strip the tax-deductible status from donations made to charities that spend less than 30% of their annual budget on services over the course of a three-year period. The law is intended to weed out scams.

And that's a problem. The fact that a charity spends less than 30% of donations on services doesn't mean it's a scam, and the fact that it spends more than that doesn't mean it's not one. The proposed law could not be more dysfunctionally designed: It has a blind spot for real fraud and puts a spotlight on potential innocence.

Here are six reasons why anyone who cares about social progress should contact Mr. Kruger's office and ask him to withdraw this proposed legislation:

1.It uses a false theory of transparency. It assumes — and makes the public think — that disclosure of overhead is transparency. Nothing could be further from the truth. Many reported overhead ratios distort and obscure the truth. They cloak the underlying accounting that goes into calculating the overhead percentage. Reporting a high rate of overhead probably signals a kind of innocence: It means the charity isn't using accounting shenanigans. The law drives right past real fraud (in the form of fraudulent accounting) — misses it completely, every time. Charities using aggressive, unethical accounting practices to mask high overhead get a free pass — or worse, they're made to look good. This practice is widespread. The Nonprofit Overhead Cost Project at Indiana University reported that, of 126,956 tax forms they studied, half of the organizations reported a hard-to-believe 0% fundraising cost, and one-quarter of charities with revenues between $1 million and $5 million reported a 0% fundraising cost.

Read more here.