GAO report looks at prevalence of ‘insiders’ in nonprofit conversions

by Jeremy

Dive Brief:

  • A new report from the U.S. Government Accountability Office highlights concerns about conflicts of interest in transactions through which for-profit colleges become nonprofit institutions.
  • The GAO counted 59 such conversions between January 2011 and August 2020. In about a third of those, for-profit college officials were “insiders,” meaning they had a relationship with the nonprofit purchasing entity that could influence its financial decisions.
  • Several for-profit colleges have sought nonprofit status to circumvent heightened regulations, something the U.S. Department of Education has primarily granted.

Dive Insight:

Nearly all nonprofit conversions the GAO tracked involved the sale of a for-profit college to a tax-exempt organization. However, IRS approval isn’t enough for the colleges to be considered nonprofits to access federal financial aid. The U.S. Department of Education must also decide.

GAO report looks at prevalence of ‘insiders’ in nonprofit conversions

The GAO notes that the department approved 35 of the 59 transactions and denied two during the period studied. Another nine were being reviewed, and 13 of the schools closed before a decision was made.

The IRS and the department each look at which individuals are involved in a transaction and how they might benefit from its completion, among other factors. The GAO noted it didn’t analyze whether any college’s conversion helped insiders but focused on oversight.

Its report stems from a request by several Democratic lawmakers in 2018 to look into these dealings, which have faced criticism in part for the ties the schools sometimes keep with their former owners.

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