The Need for Financial Transparency at the Orthodox Union
By Zachary Schrieber
As questions continue to swirl over public accountability regarding recent political activity and decisions by the Orthodox Union, another issue must be addressed as well:
The surprising lack of financial transparency at the organization.
The OU is classified as a 501(c)(3) “religious organization” which means it is both exempt from paying taxes on its revenue and donors may deduct their contributions from their personal income taxes.
But the OU also benefits from a less well known tax and regulatory advantage permitted for some religious nonprofit institutions, 26 USC 6033, which exempts “churches, their integrated auxiliaries, and conventions or associations of churches” from requirements to file Form 990 with the IRS. This is the form which contains important and detailed financial information that both the government and the general public can use to ensure that nonprofit organizations are acting in accordance with their mission and with sound financial practices. It was filings on these forms that contributed to the investigations of financial misconduct at high profile nonprofit organizations like the Wounded Warrior Project and the Red Cross.
While the OU does release an annual impact statement, the financial information in the report is barely more than basic pie graphs detailing broad categories of revenues and expenses. The annually published impact statements lack the detailed financial transparency of the Form 990, which would also include a much more specific description of expenses, a detailed accounting of revenue sources, the salaries of executive officers, conference and office expenses, the cost of fundraisers and travel, and the budget allocated for general staff salaries and overhead.
There is a long history of exempting religious organizations from the detailed financial filings with which other nonprofit organizations must comply. While Congress has attempted to amend the law on a number of occasions, most notably after a series of scandals at Evangelical mega-churches in the 1980s, it has continued to maintain this reporting exemption for religious groups “in view of the traditional separation of church and state.”
But even if the OU is not legally obligated to report detailed financial information to the government, there is still nothing that would preclude the organization from voluntarily disclosing the information that would normally be included on a Form 990. This is not a revolutionary idea. In 2011, after an extensive multi-year investigation into the financial practices of large religious organizations, Senator Chuck Grassley (R-IA) issued a report noting that self-regulating through a private accreditation service (the Evangelical Council for Financial Accountability is one of the main oversight organizations for churches) was a better solution than increased government oversight. But no oversight group acts as a clearinghouse for the OU, nor is the public awarded information necessary for it to act as a qualified watchdog.
The need for the OU to be more open with its finances is even more important now that the registered nonprofit organization operates, effectively, like a for-profit corporation. It has divisions dedicated to publishing books, operating dozens of international summer camps, and managing its flagship kashrut service. It likely generates tens of millions of dollars from these revenue sources, and yet still asks for donations to further fund its programs. But unlike the private companies or other nonprofit organizations that provide similar services, the OU both claims to represent the broader community while also acting without democratic accountability and maintaining a level of financial secrecy. It is able to remain private, benefit from certain tax and legal exemptions, all while claiming to “lead the Orthodox Jewish community” without fully informing the community of its operating budget nor including its broader constituent base in the decision-making process.
The need for transparency has become more exacerbated as the OU moves from its traditional role as an internal regulatory service of religious Jewish life in the United States to one that has made messy and complex alliances with national politicians and other religious organizations. Deciding exactly what is considered kosher, or basic political advocacy for more state-level funding for school busses and security for yeshivot, is much different than taking a position on the exact doctrinal boundaries of the First Amendment.
The OU could take steps to alleviate any tension between its universal religious purpose and its more controversial political advocacy by creating a legally separate, but affiliated, 501(c)(4) social welfare organization. This structure, which is used by other major national nonprofits that serve dual purposes, like the Sierra Club, ACLU, and the NRA, permits employees to work at both organizations and the two sister-groups could even share office space (provided that each entity pays its fair share of expenses) but prevents the intermingling of funds between the two. Donations to this new version of OU Advocacy would not be tax deductible on individual tax returns, but the organization itself would still be exempt from paying taxes on revenue.
But even if the OU were to divide into sister-organizations, this would not reduce the need for it to release information found in Form 990.
It might be useful to view the OU as a type of limited partnership, one in which the executive officers of the organization are considered general partners, with managerial rights, while the remainder of the Orthodox Jewish community is classified as a limited partner. The community-at-large benefits from the decisions of the executive officers but is neither actively involved in the day-to-day operations of the organization nor is it awarded general voting rights (although a more democratic OU is a provocative and likely worthwhile idea). Still, the limited partners retain the right to inspect the books of the partnership.
The OU itself does not even conform with how it encourages its affiliated synagogues to be financially transparent with parishioners. The OU website provides template by-laws that include provisions encouraging financial accountability. But there does not appear to be any similar publicly available information provided by the OU beyond the broad explanations found in the annual report.
None of this is to say that the OU should lose its general 501(c)(3) nonprofit status, that its directors are misusing or embezzling funds, or even that the OU should refrain from entering the national stage.
But as the OU continues to become more vocal in the national political arena, especially in areas where there is bound to be far less uniformity of opinion (questions of religious liberty and government regulations, associations with certain political actors, or politically conservative opposition to the OU’s statements on gun control) there is an ever greater need for financial transparency and public accountability. Only then can members of the Orthodox Jewish community at-large continue to ensure that the body which claims to represent them and their interests is acting responsibly.