A 2023 audit by the inspector general at the U.S. Department of Justice found significant deficiencies in financial management by the Pawtucket nonprofit Blackstone Valley Advocacy Center, including a lack of compliance with federal award requirements – a total of $87,000 in questioned costs.
The federal agency is a watchdog that some on the state level would like to have.
For years, House Minority Leader Michael W. Chippendale, R-Foster, has been calling for a state inspector general to examine how state finances, including grants to nonprofits, are expended.
And one area long under the radar is how nonprofit executives are compensated.
According to Candid, an online database on the nonprofit sector, the U.S. median nonprofit CEO compensation has been rising, reaching $132,077 in 2022, up from $118,541 in 2018.
In Rhode Island, the lack of oversight of groups receiving state grants, according to Chippendale, is partly due to lawmakers being timid about criticizing nonprofit organizations that have charitable missions.
“How dare you go after a group that protects veterans or victims of domestic violence,” he said.
This year, the General Assembly passed a law – signed by Gov. Daniel J. McKee – requiring any nonprofit receiving $50,000 or more in taxpayer funding to disclose salaries and job descriptions of its top five employees who receive more than $100,000.
Initially, the legislation would have mandated that nonprofits provide a list of their 10 highest-paid directors, officers and employees, along with details of other forms of compensation and all funding sources.
“There was good intent,” Chippendale said, referring to the early version of the bill. “And it was watered down to the point where it has changed nothing. We see this all the time.”
Federal law already requires that employees receiving over $150,000 in reportable compensation must have their pay disclosed, along with five employees who are not officers, directors or key employees but earn more than $100,000 in reportable compensation.
Nancy Wolanski, the director for the R.I. Alliance for Nonprofits at United Way of Rhode Island Inc., testified that over 25% of respondents to its most recent survey reported compensating senior leadership less than $50,000 annually.
Nonprofits such as the Rhode Island Coalition Against Domestic Violence submitted written testimony opposing the bill, arguing that it imposes an “unnecessary and duplicative reporting burden.”
Steven Brown, executive director of the nonprofit American Civil Liberties Union of Rhode Island Inc., also opposed the initial legislation in written testimony, saying it would run afoul of privacy laws because it would require names to be made public in reports to the General Assembly. The provision was removed in the legislation that passed.
Still, under the terms of the law, the compensation disclosures must include descriptions of the positions, the total salary or compensation paid, along with all benefits, including health insurance, retirement or pension contributions, and any other allowances for items such as automobiles, lodging or communication devices.
While federal tax filings, which are made public, can shed more light on nonprofit expenditures and compensation, some nonprofits fail to file those documents on time.
The IRS maintains a database of nonprofits that have lost their tax-exempt status due to failing to submit returns for three consecutive years.
For instance, Black Lives Matter Rhode Island, which state records indicate received grants of $636,994 in fiscal year 2024 and $180,000 in 2022, had its tax-exempt status revoked in March 2024.
Executive Director Gary Dantzler did not respond to a request for comment.
In a state with an area median income of approximately $83,000, Chippendale said, additional scrutiny is overdue.
Rep. Patricia A. Serpa, the lone sponsor of the House bill tying public funding to compensation disclosures, is of a similar opinion.
She said her introduction of the bill was prompted by an increasing number of nonprofits approaching the General Assembly for funding, sharing stories of financial struggles that became increasingly difficult to reconcile with the rising salaries of their leadership.
“I found their arguments to be extremely weak,” she said.
Sen. John P. Burke, D-West Warwick, agreed. He was the primary sponsor of the Senate bill.
“If nonprofits are to receive legislative funding, it should be made clear exactly how that money is being spent,” Burke said after the legislation was signed into law in July. “We have worked hard to improve transparency in all aspects of government, and it’s important that nonprofits share in that transparency. If CEOs are making exorbitant salaries, then lawmakers should be aware of that before funding those agencies.”
