Foundations Shown To Be Scam For Wealthy Trustees

Foundations Paying Millions of Dollars to Their Own Well-To-Do Trustees Instead of Charities, Study Shows

WASHINGTON - August 29 - A new study analyzing the tax returns of 238 foundations has revealed that in a single year, they spent nearly $45 million on "trustee fees" -- the vast bulk of which go to their own predominately wealthy boards of directors rather than to the charitable causes they were set up to fund.

The study, "Foundation Trustee Fees: Uses and Abuses," was released today by researchers at the Center for Public and Nonprofit Leadership at the Georgetown Public Policy Institute. The study is available in pdf format and can be requested directly from the Center by contacting study co-author Pablo Eisenberg or by phone at 202-362-0256 or by contacting Rick Cohen at the National Committee for Responsive Philanthropy at 202-387-9177.

Among the findings:

-- A substantial majority of the foundations surveyed paid fees to their board trustees, including 64 percent of the large foundations and 79 percent of the smaller foundations. The amount of the trustee fees varied greatly and did not appear to depend on the size of the foundation.

-- The 238 foundations surveyed paid a total of $44,891,982 in trustee fees in 1998. Of this amount, $31,054,256 was distributed to individual board members -- $24,749,451 at the large foundations and $6,304,805 at the smaller foundations. The remainder, $13,837,726, went to bank trustees at 25 foundations.

-- Fourteen of the large foundations paid their trustees more than $100,000 each. The largest amounts went to two trustees of the Kimbell Art Foundation ($750,000 and $747,000) and to Walter Annenberg of the Annenberg Foundation ($500,000). Three large foundations paid between $90,000 and $100,000 to each of their board members, 27 paid $50,000 or more, and 56 paid $25,000 or more.

-- Five of the smaller foundations paid their trustees more than $100,000 each in fees. The highest fee, $232,619, was paid by the Ira and Doris Kukin Foundation. Four smaller institutions paid between $90,000 and $100,000 each to their board members, 16 paid $50,000 or more, and 31, or 50 percent, paid $25,000 or more.

-- Based on the 990-PF's and our follow-up phone calls, we found that, with a number of notable exceptions, trustees in general spent little time on foundation business.

-- The Internal Revenue Service and the state attorneys general, which have the responsibility for overseeing foundation activities, have not had the resources or, at times, the will to effectively crack down on abuses.

In light of the findings, the researchers included the following among their recommendations for policy reform:

-- Limit private foundation trustee fees to no more than $8,000 per trustee annually. Such a level was found modest enough to curb excesses, but sufficient to allow for the kinds of small, reasonable payments that can help promote diversity among foundation boards.

-- Prohibit foundations from counting trustee fees as part of their annual minimum required charitable spending (also known as "payout").

-- If the IRS and state attorneys general are to oversee and police the nonprofit sector effectively, their resources will have to be greatly expanded. All or a substantial portion of the excise-tax paid by private foundations should be allocated for this purpose.

The study on foundation trustee fees was researched and authored by Christine Ahn, Pablo Eisenberg and Channapha Khamvongsa Tweet