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Statement of Mr. James S. Green
Associate General Counsel
Office of the General Counsel
U.S. Office of Personnel Management

before the

Subcommittee on Oversight of the Committee on Ways and Means
United States House of Representatives

on

Charities and Employment Taxes

May 25, 2006

Background

Mr. Chairman and members of the Subcommittee, thank you for the opportunity to testify before you today on the Combined Federal Campaign (CFC) and the extent to which CFC participating charities comply with their Federal tax obligations to the Internal Revenue Service. The CFC is a fund-raising drive conducted every fall that allows Federal employees and military personnel to donate money to the charities of their choice through a workplace solicitation. Since its establishment in 1957 by Executive Order 10728 the campaign has raised over $5 billion on behalf of charitable organizations across the country and around the world.

Management and Structure of the CFC

OPM is responsible for the overall management and oversight of the CFC. However, OPM does not directly manage the Federal employee contribution process. The CFC structure relies on the dedication and commitment of the Federal employees who make up the Local Federal Coordinating Committees (LFCC) to determine which organizations will administer local campaigns. Only charities seeking national or international status are vetted at the Office of Combined Federal Campaign Operations (OCFCO) at OPM headquarters. Through an annual competition, the LFCC’s enter into agreements with a local non-profit organization, which we refer to as Principal Combined Fund Organizations (PCFO), to serve as the local fiscal agent, administering the local campaign by providing marketing, fund receipt and disbursement, accounting, and other administrative support. LFCC’s also are responsible for reviewing and approving applications for participation by local charities in each of the 299 local CFC’s. OPM’s OCFCO serves a similar role in reviewing and approving the applications of national and international charitable organizations, which participate in all of the local CFCs. Thus, Federal employees in the geographic areas of the 299 local CFC’s have a wide choice of donating to charities that provide local services, to charities that provide national and international service, or a combination of both.

OPM regulates and provides oversight and guidance to each of the local campaigns to ensure that each campaign is conducted in accordance with OPM regulations, congressional mandates, and established policy. This oversight is primarily conducted through the review of a number of accountability and status reports from each local campaign throughout the year. OPM also establishes the criteria for local and national/international participation. In the 2005 CFC, a total of 1,839 charities applied for national or international participation through OPM headquarters. Of these 1,714, or approximately 93%, were admitted. The estimated number of charities participating in all of the 299 local campaigns is over 20,000.

Although solicitation of Federal employees in the workplace is only permitted from September 1 through December 15 each year, each yearly CFC covers an approximate two-year period. The process begins with each LFCC’s selection of a PCFO by March of the year, followed by the review of applications and completion of eligibility decisions around May of that year. Both local and national/international applicants have the right to have initial negative eligibility determinations appealed to OPM, with an ultimate eligibility determinations made by the Deputy Director of OPM. By regulation, OPM must complete its review of national applications and appeals by June 30 of each year. That timeframe allows sufficient time for the printing and distribution of the 299 local campaign brochures used as the primary vehicle to educate and solicit Federal employees as to which charities will be participating in their local CFC. The brochures list the local charities unique to each local campaign as well as the national/international organizations that participate in each CFC. The campaigns themselves take place during a 6 week period between September and December of each year. .

The majority of Federal employee contributions are made through payroll deduction and are processed by the local PCFO over the course of the 12 month period following the campaign which ran in the September through December timeframe. Actual distributions of the funds to the charities are made by each PCFO during that time as well. The campaign period ends with an audit of each PCFO’s activities conducted by an independent public accountant but a local campaign is not considered closed until OPM is satisfied with the independent auditor’s report and any findings are resolved.

Due to the decentralized structure of the CFC, a majority of the specific information related to the local campaigns and its participating charitable organizations is maintained locally. OPM has initiated projects to improve access to campaign information and to promote electronic giving. Specifically, OPM is currently developing a National Charity Registry that will collect important information on each charitable organization (international, national and local) that participates in the CFC. The design of this initiative began last year and is expected to be completed in time for the 2007 campaign. The first phase of the project is the assignment of new and unique codes for each of the estimated 20,000 participating charities. With the implementation of this centralized Registry of information, OPM will be in a better position to assess the status of all CFC participating charitable organizations.

Currently, each of the 298 local campaigns assigns a four-digit code to thousands of local charities. Because of the limits of the four-digit coding structure, charities in different campaigns can have the same CFC code assignment. At the same time, the number of new charities participating in the campaign continues to grow, and each year, OCFCO must take parts of the coding series allocated to local charities to accommodate the expanding list of national/ international federations. Under this redundant coding
structure, donor funds can be inadvertently misdirected and attempts to fully automate the campaign on a national scale remain stalled. Recoding all CFC charities into one unified system resolves these issues and sets the stage for Federal donors to give universally, to any charity, regardless of their current duty station.

Screening Charities for Participation in the CFC

All CFC participating charities must apply each year for that year’s campaign, with an application made either to OPM or the appropriate LFCC, depending on whether the applicant is applying as a national /international or local organization. These applications set forth the information and background submissions required by OPM’s regulatory eligibility criteria and public accountability standards and each applicant must certify that information in order to participate in the CFC. These criteria were designed to ensure Federal donors that only legitimate, accountable, and responsible charitable organizations are admitted to the CFC. The criteria for both local and national/international applicants includes, but is not limited to, a demonstration by the applicant that it:

• Has status as an IRS determined tax-exempt charity under section 501(c)(3) of the Internal Revenue Code;
• Completed and provided to the IRS a Form 990, the annual tax return document for non-profits;
• Provides real health and human services, benefits, assistance or program activities; and
• Has an active and responsible Board of Directors, in which a majority of its Board members serve without compensation and without a conflict of interest.

Determinations of eligibility are based in part on a series of self certifications by the charitable organization, which affirms that the information provided is correct and that the charity agrees to comply with the eligibility criteria. For example, OPM requires that all applicants submit either to OPM or the local LFCC, depending on application status, a copy of its IRS 501 (c)(3) determination letter, a copy of its IRS Form 990, a copy of the organization’s audited financial statement, a detailed description of its claim of providing real services, a copy of the annual report or more frequently published document such as a quarterly newsletter, information on its governing Board of Directors’ compensation, meeting dates, and terms of office. In addition, in 2005 OPM amended the CFC regulations to add a new certification on compliance with terrorism prevention laws. OPM also is considering proposing revisions to its CFC regulations which we believe will streamline the CFC eligibility process and public accountability standards.

The current eligibility criteria do not require the applicant organization to disclose the status of its payment of payroll or any other taxes. A requirement for this type of information has not been included in the CFC Executive Orders or the existing congressional eligibility mandates. The current law prevents OPM from making the existing eligibility criteria more restrictive than it was under the eligibility criteria in effect in 1984. As such, OPM currently does not screen charities for compliance with tax payments to the IRS and has never denied an organization because of non-compliance in this area.

OPMs Oversight and Monitoring Program

In addition to the eligibility determination process for national/international applicants, OPM conducts a number of monitoring activities over local campaigns to minimize the risk of non-compliance with CFC regulations and prevent abuse in the CFC . In particular, OPM’s OCFCO receives copies of audit reports for each local campaign as required by CFC regulations. OPM also receives audit reports from OPM’s Office of the Inspector General, which audits approximately 15 local CFCs each year. The OCFCO reviews all audit findings and works with the local CFC’s to resolve each finding. The OCFCO also selects a sample of local CFC brochures each year to review for compliance with CFC regulations and OPM guidance. In addition, the OCFCO requires each local campaign to report campaign results, including amounts raised, costs of the campaign, and Federal employee participation rates, after the solicitation period. This information helps us identify campaign performance and potential at-risk campaigns that might need assistance, require merging with another more efficient campaign, or require dissolution. Finally, OPM regularly communicates with the local campaigns to ensure that each campaign is operational and has an active LFCC.

Conclusion and Next Steps

In light of the GAO findings reported today, the Director of OPM has already requested that staff examine options for improving the screening process with particular emphasis on preventing charities that are not in compliance with Federal tax laws from participating in the CFC.

Mr. Chairman and Subcommittee members, this concludes my remarks. I am happy to answer any questions you or the members of the Subcommittee may have.