Should the Public Feel its Being Duped by Charities?
posted on: Thursday, December 21, 2006
As the convictions of former CEOs of corporations pass the consciousnesses of the public, leaders in the business community are on alert, however, that their misdeeds do indeed have consequences. Somehow nonprofit leadership has failed to understand that there are penalties for misbehavior.
The impact of the misconduct of former chief executives of Enron and other notable corporations may have had a chilling effect on those that are predisposed to take advantage of their privileged positions of trust. It hopefully reached the radar screen of Board members, as well, of other similarly situated for-profits. One would think that the activities of board members of Enron, WorldCom, Global Crossing, Adelphia, Tyco and Sunbeam would be sufficient to raise board diligence flag.
In response, the President’s Corporate Fraud Task Force took pride in 1063 convictions, including verdicts against 36 chief financial officers and 167 corporate CEOs and presidents since mid-2002. These statistics seem eerily familiar to the wrong-doings in the nonprofit sector. Few in the nonprofit sector want to acknowledge it and most suggest that it represents a “few bad apples”. The actual data suggests otherwise.
Statistics obtained from public sources show that over 1048 nonprofit agencies have been caught in malfeasance and 190 convictions in a similar time-period. As of this writing the amount of charitable proceeds that have been taken away from needed services exceeds $3 billion.
Some nonprofit stalwart agencies have shown how malfeasance can take place with regularity. Unrestricted documents show that 29 United Ways throughout the country and 34 chapters of the American Red Cross have been implicated in significant wrongdoing.
Convictions and plea agreements by charity board members, executive staff, contractors and others occur with astounding frequency and are reaching record levels. The Association of Certified Fraud Examiners, in its 2004 study, noted that nonprofit fraud rose 150% from 2002 to 2004. Gerald Zack, in his 2005 book, Fraud and Abuse in Nonprofit Organizations estimates that nonprofits lose $10 billion a year to theft. My current calculations are approaching $1.3 billion for 2006 and fraud examiners suggest that this represents between 10%-20% of all misdeeds because of the availability of the data.
Nonprofit mismanagement is important for one simple reason. The public is losing trust in the charitable sector. At a time when charity malfeasance is arguably worse than it has ever been, lack of controls is leading to a spreading amount of criminal investigations. Unlike the Securities and Exchange Commission and other federal agencies for for- profits, charitable organizations have no watchdogs. As a result, dubious business practices and disgraceful revelations have done little to force change by charities.
Quite simply, there are few incentives for board members and staff to perform in a trustworthy manner. Unfortunately, the acceleration of the charitable malfeasance has resulted in increased scrutiny by the U.S. Congress, notably the Senate Finance Committee, as well as by state attorneys’ general and the Internal Revenue Service. The nonprofits are no longer called the independent sector. Federal and state agencies are now its partner.
In both for profit and nonprofit scenarios, much of the problem lies with the boards acting like marionettes---simply being beholden to the executive. In many instances, agencies have blemished the charitable landscape.
But now that the nonprofit misdeeds have surfaced, regulatory agencies are taking action. The for-profits have seen members of the boards bad practices gain sufficient public scrutiny and vilification. Last year 10 directors of Enron agreed to pay a total of $13 million out of their own pockets. The overall settlement included a payment of $155 million from Enron’s officers and directors insurance policy. In WorldCom’s case the derelict directors were force to pay $24.75 million. This could forebode significant exposure for nonprofit board trustees as well.
While personal payments are very rare, board members of nonprofits can learn from private sector and are being sent several messages. First, exercise your fiduciary responsibility and stopping being detached. Second, make sure that the charity has directors and officers insurance. And lastly, make sure that the board has sufficient skills to evaluate the recommendations and has the technical competence to monitor the executive.
Gary Snyder
248.324.3700
gary.r.snyder@gmail.com
website www.garyrsnyder.com
The impact of the misconduct of former chief executives of Enron and other notable corporations may have had a chilling effect on those that are predisposed to take advantage of their privileged positions of trust. It hopefully reached the radar screen of Board members, as well, of other similarly situated for-profits. One would think that the activities of board members of Enron, WorldCom, Global Crossing, Adelphia, Tyco and Sunbeam would be sufficient to raise board diligence flag.
In response, the President’s Corporate Fraud Task Force took pride in 1063 convictions, including verdicts against 36 chief financial officers and 167 corporate CEOs and presidents since mid-2002. These statistics seem eerily familiar to the wrong-doings in the nonprofit sector. Few in the nonprofit sector want to acknowledge it and most suggest that it represents a “few bad apples”. The actual data suggests otherwise.
Statistics obtained from public sources show that over 1048 nonprofit agencies have been caught in malfeasance and 190 convictions in a similar time-period. As of this writing the amount of charitable proceeds that have been taken away from needed services exceeds $3 billion.
Some nonprofit stalwart agencies have shown how malfeasance can take place with regularity. Unrestricted documents show that 29 United Ways throughout the country and 34 chapters of the American Red Cross have been implicated in significant wrongdoing.
Convictions and plea agreements by charity board members, executive staff, contractors and others occur with astounding frequency and are reaching record levels. The Association of Certified Fraud Examiners, in its 2004 study, noted that nonprofit fraud rose 150% from 2002 to 2004. Gerald Zack, in his 2005 book, Fraud and Abuse in Nonprofit Organizations estimates that nonprofits lose $10 billion a year to theft. My current calculations are approaching $1.3 billion for 2006 and fraud examiners suggest that this represents between 10%-20% of all misdeeds because of the availability of the data.
Nonprofit mismanagement is important for one simple reason. The public is losing trust in the charitable sector. At a time when charity malfeasance is arguably worse than it has ever been, lack of controls is leading to a spreading amount of criminal investigations. Unlike the Securities and Exchange Commission and other federal agencies for for- profits, charitable organizations have no watchdogs. As a result, dubious business practices and disgraceful revelations have done little to force change by charities.
Quite simply, there are few incentives for board members and staff to perform in a trustworthy manner. Unfortunately, the acceleration of the charitable malfeasance has resulted in increased scrutiny by the U.S. Congress, notably the Senate Finance Committee, as well as by state attorneys’ general and the Internal Revenue Service. The nonprofits are no longer called the independent sector. Federal and state agencies are now its partner.
In both for profit and nonprofit scenarios, much of the problem lies with the boards acting like marionettes---simply being beholden to the executive. In many instances, agencies have blemished the charitable landscape.
But now that the nonprofit misdeeds have surfaced, regulatory agencies are taking action. The for-profits have seen members of the boards bad practices gain sufficient public scrutiny and vilification. Last year 10 directors of Enron agreed to pay a total of $13 million out of their own pockets. The overall settlement included a payment of $155 million from Enron’s officers and directors insurance policy. In WorldCom’s case the derelict directors were force to pay $24.75 million. This could forebode significant exposure for nonprofit board trustees as well.
While personal payments are very rare, board members of nonprofits can learn from private sector and are being sent several messages. First, exercise your fiduciary responsibility and stopping being detached. Second, make sure that the charity has directors and officers insurance. And lastly, make sure that the board has sufficient skills to evaluate the recommendations and has the technical competence to monitor the executive.
Gary Snyder
248.324.3700
gary.r.snyder@gmail.com
website www.garyrsnyder.com
posted by Gary at
9:29 AM
|
0 comments
links to this post
Is There an Epidemic of Parent, Teacher and Student Fraud?
posted on: Tuesday, December 12, 2006
You, your daughter and son are raising money for your child’s school.
Guess who it’s going to benefit?
In the last edition of the weekly e-newsletter Nonprofit Misdeeds there were three cases of parent-teacher embezzlement in Michigan, in just one week. My interest was peaked because Michigan is my home state. The day after the newsletter’s publication, four other elementary schools embezzlements showed up in Michigan. I looked into how widespread parent, teacher, and student theft was. I was appalled… almost $500,000 was taken from Michigan students in just a two week period!! In Tennessee…$140,000 and California…$92,000.
Is this fodder for Senators Grassley and Baucus' Senate Committee to start exploring?
Gary Snyder
You, your daughter and son are raising money for your child’s school.
Guess who it’s going to benefit?
In the last edition of the weekly e-newsletter Nonprofit Misdeeds there were three cases of parent-teacher embezzlement in Michigan, in just one week. My interest was peaked because Michigan is my home state. The day after the newsletter’s publication, four other elementary schools embezzlements showed up in Michigan. I looked into how widespread parent, teacher, and student theft was. I was appalled… almost $500,000 was taken from Michigan students in just a two week period!! In Tennessee…$140,000 and California…$92,000.
Is this fodder for Senators Grassley and Baucus' Senate Committee to start exploring?
Gary Snyder
posted by Gary at
4:18 PM
|
0 comments
links to this post
