posted on: Thursday, May 03, 2007

There apparently is one single thread that ties the nonprofit sector together…there is little self-interest in transforming the sector into one that is accountable and transparent. With outsiders more interested in taking up that mantle, the consequences are going to be enormous.


Take a look at Outsiders looking in

The scene is the Senate Committee on Rules and Administration investigating the problems and deficiecies at the Smithosian Institution and another museums.

The scene is the Senate Finance Committee trying to ensure that billions of dollars in tax breaks given to hospitals actually are effective in helping those in need.

The scene is Senators Grassley and Baucus calling for regulations on family charitable foundations. IRS says that millions of dollars in tax deductions through charitable foundations, called the tax structure, the Type III supporting organization, one of its "Dirty Dozen" tax scams.

The scene is the ranking member of the Committee on Finance, asking the Congressional Budget Office to review the economic benefits received from the tax-exempt status of college athletics and the practice of colleges and universities’ maintaining a large untaxed portfolio of assets while simultaneously borrowing with tax-exempt debt.

The scene is the Congressional Joint Committee on Taxation releasing a report which includes 117 pages of recommendations concerning exempt organizations.

The scene is the Senate Finance Committee Hearing on Charitable Organizations seeking legislative reforms that will strengthen charitable governance and address a tax gap.

The scene is the Internal Revenue Service beefing up the number of nonprofit examinations it conducts aimed at showing that it means business. “The IRS has revised audit techniques to make it harder for nonprofits to get away with bad behavior”, said the director of the IRS’s exempt-organizations office.

The promises:

“We are raising the bar on accountability"…Brian Gallagher, president and CEO of the United Way of America…:

• In 1995, the tone was set by United Way chief executive William Aramony president of the United Way for 22 years when he was convicted on 25 counts for an estimated $1/2 million or more embezzlement;
• In May 2004, Oral Suer the CEO of the United Way of America in the Washington, DC area from 1974 to 2002 was convicted and sentenced to 27 months in jail for defrauding his organization of several hundred thousand dollars;
• In April 2006, the NYC United Way revealed misappropriation of assets ($227,000) by CEO Ralph Dickerson. He walked away with retitution and becoming a paid consultant with other United Ways. No sooner did the Dickerson affair cool down, the United Way of New York City staff, in 2007, were stunned with the announcement that the president and chief executive would be “retiring” in a couple of months following an internal investigation into the group's handling of its assets. Several other top executives have left the organization during the last two to three years.
• At least 30 local United Ways have been involved in misdeeds.

“ We recognize the problem, and we’ve apologized for the problems", Jack McGuire, Interim CEO; “We need to change who we are…”, said senior vice president Joseph C. Becker.

• The tone was apparently set in the the mid 1990’s when the about-to-leave Red Cross executive Elizabeth Dole faced the organization’s largest deficit--$113 million. But the conflicts-of–interests became her most glaring legacy.
• With over $10 million in fines…“We keep assessing fines…but we aren’t sure they (Red Cross) get it yet”, FDA assistant commissioner in the Federal government’s attempt to hold Red Cross in contempt of a 1993 consent decree because of numerous blood collection violations, including contamination.
• At least 44 agency instances of offenses totaling million and millions of dollars and continues to this day.

“What more could we ask for…on any measure I can think of, his results have been outstanding” Roger Sant, chairman of the executive committee of the Smithsonian Institution Board of Regents speaking of Lawrence Small its former top official. (February, 2007); “…regret the circumstances that have led to a loss of confidence in the spending practices and oversight at the Smithsonian”, Roger Sant, (April 11, 2007)

• Small received over $1.15 million for making his house available for official functions in addition to his $915,000 compensation. He used his house only a handful of occasion. His salary doubled in seven years.
• Small stopped filing required monthly financial documentation “for administrative ease”. When brought to the attention of the Regents by the inspector general, they disregarded a recommendation to require more “record-keeping and reporting” and endorsed a $193,000 housing fee to the home that was free and clear of any mortgage.
• From the inspector general: “for some expenditures…there seemed to be no rules or limits”; “Regents were not fully aware of the provisions of the agreement (Small’s employment agreement)…or housing allowance”; “management withheld from the Regents”; “the Regents should have sought more information”; “issues of lack of compliance were raised, management did not act”; “there is a lack of understanding of the importance of public accountability”; “transparency is regarded as an intrusion”; only after Congressional involvement “our reporting relationship changed.”
• The board is at the heart of better accountability. Of the 17 members, eight are public officials, some of whom have never attended a meeting.

The results

Red Cross

The American Red Cross can not get its misdeeds under control with embezzlements in Michigan, Oklahoma and West Virgina in court this month and recently with an accountant in California squirelling away over $100,000 for personal uses and a manager in New Mexico admitting to taking $120,000. Recently, the American Red Cross did however agree to do backgroud checks of volunteers only after felon volunteers diverted millions of dollars in supplies and cash from those in need. The Red Cross board has fulfilled its promise to hire a President. After having an interim leader for 16 months, the board landed a leader---the head of the IRS. The interim executive for the last year and a half was the head of blood division which continues its dispute with the Federal Drug Administration and is regularly fined---totalling in excessive of $10 million. Under tremendous pressure from outsiders, the Board of the Red Cross has agreed to modernize and strengthen its governance structure and practice; full implementation date: 2012.

United Way

At the United Way, there apparently are issues that need to be addressed. Local United Ways affiliates have noticed that that there is slippage in the contributions from their core agencies and movement toward earmarking donations to nonprofits that are more to their liking. In Los Angeles about two-thirds of the $47 million that the United Way gave away went to nonprofits were selected by contributors and not core agencies.. Seattle saw a similar trend with 57% of its donations forwarded to designated nonprofits. The consequences of more focused donations are that the recipients of the past, namely the poor and disadvantaged, are giving way to large institutions such as museums, operas and universities. A competitor, America's Charities is a federation has nearly 200 of the “nation’s most-loved and best-known charities in the nation, including Make-A-Wish Foundation of America®, Feed the Children, Reading Is Fundamental, Junior Achievement and others”.

There is considerable shrinkage in the United Way national system. Some are unhappy with its allocation priorities, others are troubled with its standards, and still others are bothered with its leadership. Unhappy in the way the Central Maryland United Way allocates its funds, the county executive of Howard County wants to leave the UW system. Other nonprofits are complaining about losing money under a new United Way funding formula. In the past three to four years there have been more than 50 United Ways that have been disaffiliated by not meeting the increasing higher standards at the United Way.

The L.A. United Way President said that all fundraising became harder after the fraud in the 1990’s at the national United Way. A shrinking number of affiliates, a smaller number of agencies that are funded, a dwindling amount of dollars donated and decreasing confidence forebode a sad picture. With only 14% that trust how charities spend their money, the trend is clear.

Smithsonian

With Board of Regents asleep at the switch, the Smithsonian leader spent $90,000 for a private plane to take him to one function, spent $4800 on his assistant, $2535 to dust chandelier, $14,525 to add three new French doors; $13,000 for a conference table, $4,000 for two chairs all after pleading guilty and being sentenced to two years probation and 100 hours of community service for purchasing personal items protected under various international laws.. The problem is with the governing structure where the Chief Justice was the head and is reputed to have attended all meetings and the Vice President who attended none.

IRS

The IRS has revised audit techniques to make it harder for nonprofits to get away with bad behavior.


Gary Snyder is the author of Nonprofits: On the Brink and articles in numerous publications. His email address: gary.r.snyder@gmail.com; website: http://www.garyrsnyder.com/