WASHINGTON - The Judiciary Committee today approved Sen. Chuck Grassley's amendment seeking accountability from non-profit groups that would receive federal grants under an expanded prison rehabilitation program. The Grassley amendment is meant to prevent situations like that of the Boys and Girls Clubs of America, which closed clubs nationwide as it accepted millions of dollars in federal grants while making extensive offshore investments to avoid U.S. taxes and paying millions of dollars in executive compensation.
"The country faces a multi-trillion-dollar debt," Grassley said. "The government has to be more selective than ever about the criteria for the organizations that receive tax dollars through federal grants. If organizations are holding money off-shore to avoid paying taxes, they shouldn't be getting federal grants. If they accept federal grants, they should have to be transparent about executive compensation and fringe benefits. These are common-sense principles."
Grassley, ranking member of the Judiciary Committee, offered the amendment to legislation before the committee that would reauthorize grant programs to help prisoners re-enter society. The legislation reauthorizes the Second Chance Act, authorizing increased funding from $160 million for two years to $650 million over five years. The proposal expands the pool of applicants eligible for grants by opening eligibility to non-profit groups. The committee approved the legislation, along with Grassley's amendment.
Grassley's amendment added a number of good government provisions to the bill that would apply to all non-profit organizations receiving federal grants through this program, including:
(1) A requirement that non-profits be defined as those recognized as tax-exempt charities by the Internal Revenue Service.
(2) A requirement that 10 percent of grant recipients be audited for compliance with grant requirements. Any grant recipient found to have violated a grant program would be excluded for two years.
(3) A prohibition to the Attorney General from providing any taxpayer dollars, in the form of grants, to any non-profit that holds money in off-shore accounts for the purpose of avoiding paying unrelated business income tax.
(4) Increased transparency for grant recipients and the American taxpayers, by requiring that non-profits receiving grants under this program disclose studies used to determine executive compensation for their organization.
In audit after audit, the Inspector General has found unallowable costs and unauthorized expenditures of taxpayer grant dollars handed out to grantees across all Department of Justice programs, Grassley said. In some instances, these audits have questioned salaries and other fringe benefits paid to staff of grant recipients.
As part of an inquiry conducted last year, Grassley and his colleagues discovered that the Boys and Girls Clubs of America held more $50 million in off-shore equity and partnerships, including hedge funds and limited partnerships. This included funds held in the Cayman Islands, British Virgin Islands, and Bermuda. When asked why the money was held off-shore, the organization said the answer was to avoid paying unrelated business income tax under the Internal Revenue Code.
"While this practice isn't illegal, it's a loophole that I saw exploited in the many investigations and hearings I conducted as the chairman and ranking member of the Finance Committee," Grassley said. "As a senior member of that committee, I'll continue to work to close that loophole for all charities. For now, it makes sense to question why the federal government should award taxpayer dollars, in the form of grants, to non-profits that are holding millions of dollars in off-shore bank accounts for the purpose of evading the tax code."
Grassley added, "This amendment also will help to bring transparency to the determination of executive compensation at non-profits that receive federal grants. I've said repeatedly that the compensation studies used by charities to justify executive compensation have resulted in a race to the top. Making these studies available to the public for review would bring more accountability to the compensation-setting practices of nonprofits receiving grants under this program."
Last year, Grassley, along with three fellow senators including Sen. Tom Coburn, started asking questions of the Boys and Girls Clubs of America when a Judiciary Committee-approved bill would have recast a federal grant program established in 1998 from its original purpose of providing seed money to start boys and girls clubs in needy neighborhoods to providing a steady stream of funding for the national organization. The legislation also sought to remove the original congressional requirement that the national organization extend services and open clubs for young people in public housing projects and distressed areas.
The organization responded in full to the senators' questions and made the information publicly available.
The senators learned the president of the national organization received more than $900,000 in compensation in 2008, even while local boys and girls clubs nationwide close their doors due to budget shortfalls. They also gathered information about the offshore filings.
As chairman, ranking member and now a senior member of the Finance Committee, with jurisdiction over tax policy, Grassley has long conducted oversight of the tax-exempt sector, including charities' offshore investments and compensation practices.
The Finance Committee held a hearing in September 2007 exploring offshore activities by tax-exempt organizations.
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