DATELINE: June 13, 2007, Chicago
Donna B. Henriques and Andrew W. Lehren are reporting in today’s New York Times that two earmarks to a faith-based group went awry. Their article—U.S. Grants Winds Up as 2 Ships Gone Awry—demonstrates once again why grants, particularly earmarked ones, to faith-based groups pose serious issues.
Back in 1999, the United States Coast Guard needed to dispose of two decommissioned ships. Rather than following the normal auction procedure, the Coast Guard ended up transferring the two ships to a faith-based charity that was supposed to use them to provide medical services to islands located in the South Pacific. Henruiqes and Lehren report that Coast Guard records indicate that those services...
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have been provided since 1999. In fact, Canvasback Mission, the faith-based recipient of the grants, sold both ships—one for $85,000 and the other for $330,000. The Times reports that Canvasback did not inform the Coast Guard of the sales.
The transfer by the Coast Guard to Canvasback apparently required congressional approval. That approval took the form of two authorizing earmarks. Because the transfer was not made through a federally-administered program with clear grant management rules of the road, there apparently was no accountability for how the federal funds were used. According to the two reporters, had the disposition of the two ships taken place through normal procedures, the General Services Administration would have monitored the use of the ships for five years. We assume that the earmarks were not subject to Office of Management and Budget Circulars A-110, A-122 or A-133. That is the potential problems with earmarks to nonprofits.
More important, the earmarks were made directly to a faith-based group. As Hentriques and Lehren point out in their article, the sales raise a core question: Were the sale proceeds then used to further a secular mission or were they used to further religious efforts, thereby raising constitutional issues. The founder and president of Canvasback, Jamie W. Spence, told the Times that the proceeds from the sale supported Canvasback’s mission in the Marshall Islands, which include providing dental and eye care, as well as diabetes counseling. Spence also told the Times that the sales proceeds were commingled with Canvasback’s other funds, but that all the funds were used to support Canvasback's secular mission. Canvasback also engages in evangelical activities, making such commingling troubling, to put it mildly. That is particularly true because nonprofit accounting expert, Julie L. Floch, of Eisner LLP, reviewed Canvasback’s Form 990’s for the Times. Floch concluded that there is no clear audit trail for the boats. JudyBlazek of Blazek & Vetterling L.L.P reached a similar conclusion, according to the Times. Both experts also found the Form 990s to be incomplete and internally inconsistent.
The Times article turns out to be quite the tease, reporting that the gifts of the two ships were just two of 900 earmarks made to faith-based groups since 1987. Regrettably, Henriques and Lehren don’t report on any of the other 898 earmarks, leaving us to wonder whether everything is hunky dory or whether there are other accountability stories to be told. Inquiring minds want to know so Henriques, Lehren or Stepahnie Strom should get on the case.
The faith-based aspects of this story are extremely troubling, but the story offers a lesson to Robert Egger, who wrote an op-ed piece appearing in a recent issue of the Chronicle of Philanthropy arguing that the restrictions on campaign interventions by Section 501(c)(3) organizations should be lifted. Yesterday, we commented on that piece, clearly demonstrating the flawed logic that formed the basis for Egger’s arguments. The Henriques and Lehren story provides further support for our contention that charities should continue to be prohbited from engaging in campaign interventions. Earmarks are a sign of the corrupting influence of money on politics. Often, the earmarks are nothing but hidden paybacks to a politician’s supporters. In the case of the earmark to Canvasback, we don’t know the motivation behind the earmarks, but were charities permitted to intervene in political campaigns, we would expect to see more earmarks to charities as payback, just as is the case today for earmarks to others. Yet, as Henriques and Lehren so aptly demonstrate in their story, earmarks pose serious accountability issues. Because earmarks are made outside of the normal grantmaking process, they most likely escape the OMB rules that apply to other federal grants. There simply isn’t clear auditing or monitoring activity by a federal agency. We can’t say whether there were legal requirements that the Canvasback earmarks be audited, but the Henriques and Lehren story make clear that if there were requirements, they weren’t adhered to. That is the problem with the ad hoc nature of earmarks.
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