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Law would improve oversight of not-for-profits: Attorney general says he needs enforcement options

February 21, 2005

Indiana Attorney General Steve Carter thinks there's room to improve oversight of the state's 60,000-plus not-for-profit organizations, a task that happens to fall under his purview.

So two months into his second term as Indiana's top lawyer-and nearly two years after becoming embroiled in a highprofile charitable dispute-Carter is backing legislation that would strengthen existing laws and allow his office flexibility in dealing with problems when they arise.

"We're not proposing to give ourselves a magic wand," said Brent Embry, director of the AG's Consumer Protection Division. "Our thought was, let's identify what remedies are available [when wrongdoing is suspected] ... and maybe some of the bad actors will think twice."

State lawmakers are considering nearly identical bills making their way through the Senate and House. The measures spell out a range of actions the attorney general could pursue if a not-for-profit corporation or benevolent trust is being mismanaged.

Now, the only option is to petition a court to dissolve the entity in question.

"A trustee does something wrong and the trust is dead?" IU Professor Les Lenkowsky posed the question rhetorically, his tone suggesting the folly of the status quo. "[Carter is] saying, 'Look, give me a few more options in the law here."

House Bill 1453 and Senate Bill 424 propose other remedies, including injunctive relief, temporary or permanent receivership, and removal or replacement of offending directors and trustees. A court still would have to approve any such action.

The pending legislation also attempts to tighten professional fund-raising rules.

Earlier this month, the House Committee on Employment and Labor unanimously cleared the bill. The Senate Judiciary Committee made some minor changes before advancing it on a 10-1 vote.

Sen. David Ford, a Hartford City Republican, dissented after failing to strip out the language related to benevolent trusts.

"Why is the attorney general involved [in those] at all?" Ford asked.

Under state law, the attorney general is the only party with authority to enforce the terms of such trusts-a duty that led to Carter's involvement in the dispute surrounding Conner Prairie, set up as a public charitable trust in 1964.

In that case, Carter was asked to determine whether museum trustee Earlham College had managed its multimillion-dollar endowment appropriately. He started the review in June 2003 and is nearing a settlement with the Richmond school that would give Conner Prairie freedom and its own $94 million endowment.

The controversy drew public attention to the attorney general's not-for-profit duties, but is otherwise unrelated to the pending legislation, Carter said.

His office has been studying the subject for years, Embry said, and this summer convened a panel of experts to solicit advice.

"The attorney general is taking reasonable steps to address things that have been a problem," said Lenkowsky, the Indiana University professor of public affairs and philanthropic studies who was part of that group. "He's not overreacting."

Not-for-profit accountability has been a hot topic nationally, and the conversation has had far-reaching results. Federal lawmakers, for example, are expected to draft legislation on the topic sometime this year.

Industry professionals welcome the attention-to a point.

"You can't make all these decisions on a federal level," said fellow advisory panel member Carol Simonetti, president and CEO of the Indiana Grantmakers Alliance. "There is such a diverse group of organizations out there. The further away you get, the harder it is to monitor."

Still, she and others applaud Carter's efforts.

"The threat of increased scrutiny is a positive," said Brian Payne, president of the Central Indiana Community Foundation. "I don't know if they need new rules or the means to enforce the ones they have."

First things first, Embry said.

"If we get this [legislation] passed, it will be a big step forward," he said. "We need to craft a program that's realistic about the resources we have available to execute it."
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