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"It's reached a point where the IRS doesn't have the resources, staff or the will to oversee nonprofits," Eisenberg says.
State attorneys general also have the authority to investigate foundations, but they often lack the staff or political will to do so. "Foundations are one of the least-regulated entities you can think of," says the National Committee for Responsive Philanthropy's Cohen. "Even realtors have some self-regulation, because they have to have a good reputation to sell a house. What kind of regulation is there for foundations? There's no oversight. How many foundation executives have experienced a perp walk?"
As a result of the scandals, reform legislation has been introduced in Congress that would more strictly limit how foundations can spend their funds. One proposal would exclude administrative expenses from the 5 percent rule, but that idea is strongly opposed by many large foundations. The legislation is now on hold, awaiting a conference committee between the Senate and House that will meet in the next few weeks.
"I think the credibility and legitimacy of the non-profit world is at stake," says Eisenberg. "There aren't just a few bad apples -- there are a lot of bad apples in the barrel. Unless there's a crackdown, we'll see an increasing public distaste for foundations. Who knows what the consequences will be?"
Despite the layoffs and closures at the Daniels Fund, Brown insists the foundation remains committed to Wyoming, New Mexico and Utah. "In January and February, we had four different on-site visits to New Mexico," he says. "We're still doing quality work on the ground.
"What's relevant is what is the best way to serve people. Bill Daniels wanted the money to go to serve people."
However, many of those who live in neighboring states -- particularly in New Mexico, which often ranks with Mississippi for poverty levels -- doubt that the fund will be able to serve them from Denver. "The reality is, if you don't have somebody in New Mexico, you're not going to have a knowledge of what's important," says Bill Strouse, CEO of the Community Action Agency of Southern New Mexico. "My experience has been that when folks don't operate in the state, the amount of funding is not the same. I can't help but think the same thing will happen with Daniels."
Strouse was working with the Fund's six-person staff in Albuquerque and says there were some creative projects in the works, including a statewide help line that would refer people in need to non-profit groups.
"One of the problems we have is that there is so little philanthropy in New Mexico," says Owen Lopez, director of the McCune Charitable Foundation in Santa Fe. "What bothers me is that the powers-that-be in Denver failed to realize there is a lot more than just financial capital in philanthropy. There's also human capital.
"Just having people to sound off on things -- that's a whole different thing than just writing a check for groups that you read about on paper," he adds. "I think it's a control thing in Denver."
A former Daniels Fund employee agrees, saying the layoffs are part of a philosophical shift that centers on the role of foundations. Several of the people in Denver who were laid off had years of experience in working on issues like homelessness and early-childhood education, reflecting a modern approach to philanthropy that emphasizes targeting donations to get at the root of problems rather than just high-profile giving.
"We believed that you could take something like homelessness and make a real impact in Denver if you were strategic in how you spent money," says the source, who asked not to be named. "What we've moved to now is an approach like the El Pomar Foundation. You'll have large grants going to favored projects of boardmembers."
The shift and layoffs also cost the Daniels Fund two high-level executives, including chief operating officer Jesse King, who came from the Rockefeller Foundation and was highly regarded in the non-profit community. "Over the past year, the Daniels Fund has experienced substantial changes," King said in a written statement provided to Westword. "While my heart has remained in one place, I believe the foundation has moved to another, and as a result feel it is time to seek other challenges."
Many both inside and outside the Daniels Fund are particularly concerned with the increasingly conservative and religious makeup of the board and management. Daniels himself was an ardent Republican, but he was never involved in organized religion. Boardmember Jim Nicholson is a former chairman of the Republican National Committee and now serves as ambassador to the Vatican; chairman Saeman is a partner in asset-management firm Medallion Enterprises and a large donor to the conservative Catholic Solidarity Institute -- which until recently was headed by Droege, the Daniels Funds' newly hired vice president for communications. Droege is the former editor of the Denver Catholic Register and organizer of "Pure by Choice," an upcoming stadium event encouraging abstinence in teenagers, as well as "Silent No More," a gathering for women who've had abortions and regretted the decision.
"The facts raise the question of conservative influence," says another former employee who asked not to be named.