The Nonprofit Sector Crossroads
posted on: Friday, August 17, 2007
By Gary R. Snyder
A surprise took place a week or so ago. We saw the nonprofit sector depart from its solid position of just a few years ago. Call it a 180. Call it a new awakening. Call it a reincarnation.
The Independent Sector, the presumptive nonprofit sector leader, has taken up the mantle of representing the charitable world on matters before Congress and federal regulators. IS seems to have drastically changed its position on partnering with government.
Let Us Control Our Own Destiny
Self-regulation has been a committed cause in the charitable sector for decades. But the sector has been under condemnation for years. With the 1992 United Way of America scandal and several others of high media visibility, many charitable leaders in the U.S. became concerned that the public, especially donors, would lose their confidence in the good of charitable organizations. There were outcries at the Fall, 1994 conference of the Independent Sector to clean up cheats. They feared that regulars and lawmakers would “punish all charities collectively for the transgressions of a few”. In 1997 the New Era Philanthropy Foundation took $135 million from seniors; in 1998 $78 million was diverted from the Alleghany Health, Education and Research Foundation; in 1999 Greater Ministries International absconded with $353 million; and, in 2002 the Baptist Foundation took $570 million from its trusting contributors. At all junctions where there were regulatory inquiries, the cry from the sector leadership was ‘trust us, we can regulate our own’.
Throughout the 1990s and early to mid 2000s concerns were expressed that scandals would erode the public’s trust in the critically important nonprofit sector.
The $20+ million Independent Sector was the nonprofit’s sector’s point-organization as well as the leading proponent for self-regulation. In 2005 when outsiders wanted a peek at the charitable sector, IS conducted town hall meetings in 15 locales where speakers rallied the followers around the concept of no government involvement. They spoke about the need to prevent the intrusion of government regulation and police themselves. At the Southfield Michigan meeting, speakers attributed the desire for Congress’ involvement to the 3 R’s---reelection, regulation and recompense. The approached worked and the troops rallied around the self-regulation banner.
Oop…here’s the deal
The media attention to nonprofit sector scandals in the 1990s had increased the sector’s discussion about regulation, self-regulation and transparency. Existing governmental regulation and self-regulation wasn’t effective in preventing the high profile scandals. Independent watchdog organizations were inadequate and only monitored less than 10% of the charities. As late as mid-2007, state nonprofit agencies are still proposing self-regulatory guidelines in the wake of recent scrutiny at both the state and federal level.
It was not until several of the sector’s stalwart agencies got into trouble did Congress, state attorneys general and the Internal Revenue Service say enough is enough. They saw a voluntary sector out of control. They saw the American Red Cross, the United Way, Natures Conservancy, and hundreds of others misbehaving. The headlines screamed of billions of donors’ dollars stolen or wasted and hundreds of agencies not fulfilling their charitable mandate. The abuses that caught the outsiders’ attention were principally perpetrated by the sector’s largest agencies.
With billions of the contributor’s dollars lost just last year, it continues in 2007….with the Smithsonian Institution (poor management and virtually no governance and a multitude of firings) or the EduCap ($11 million diversion of student loan funds to the executive’s husband’s ventures) or the America’s Clean Water Foundation ($25+ million embezzlement with the EPA wanting its money back).
No one wanted to go on record to condemn this malfeasance.
Wow...a marriage
In response and in lockstep, the leadership of the Senate Finance Committee, the House Ways and Means Committee, the IRS and others wanted to know what was going on. The protectionist charitable sector balked initially but soon converted and began to covet a partnership with the lawmakers and regulators. Congress gave the nonprofit leadership, through the efforts of the Independent Sector Panel on the Nonprofit Sector, the opportunity to change public opinion and work toward significant reforms by self-regulating.
The sector admitted it needed assistance from the government. In 2005 the Independent Sector produced a document; Strengthening Transparency Governance and Accountability of Charitable Organizations acknowledged that executives and boards are not aware of their ‘expectations and requirements’ without government help. It further pleaded for the government to closely collaborate with the sector in addressing a multitude of reforms.
With the increasing abuse, the sector leadership is relying on the government to jump-start regulatory measures to avoid the risk of the loss of the faith and support that the public has always given to the charitable community. The IS asked for government assistance in educating board members and professional leaders because both are not aware of the expectations and requirements imposed upon them. Further, they asked the government for sufficient resources to facilitate full implementation and new regulations to prevent abuses. They asked Congress to authorize additional resources to the IRS for overall tax enforcement and for improved oversight of charitable organizations as well as audits and investigations. The report wants the Internal Revenue Code to impose penalties on board members and other managers of charitable organizations who approve of self-dealing or excess benefit transactions, including excessive compensation, not only if they knew that the transaction was improper but also if they “should have known” that it was improper. It suggested increasing reporting requirements. It wanted a more disclosure such as travel, entertainment, gift and car expenses. It wanted board reform including size as well as additional requirements for board participation.
And now, in recent testimony, the IS President cemented the nonprofit-government relationship with a request to create the equivalent of the federal Small Business Administration to implement new stipulations put on the sector.
A flawed plan?
Some felt betrayed by the nonprofit sector’s requests for help from the government. They were troubled by its vacating its long time belief that a strong system of self-regulation and education is critical if the people making up the nonprofit community -- boards, staff, volunteers, and donors -- are to ensure that their organizations are living by the highest ethical standards.
There is very little argument that the sector needs to promote good housekeeping. Cleansing the sector to rid itself of further abuses and poor practices is critical. Finding an appropriate balance between regulation and self-regulation is essential.
A highly regulated sector has its consequences. The IS efforts represented the thinking of big foundations and nonprofits, leaving 70% of the sector---the small and midsized agencies---with potentially being encumbered with time consuming regulatory requirements. With small-medium charity executives already taxed to the limit, many are already looking to leave their charities in the next couple of years. The sector’s challenge is to maintain a quality stable of executives not chase them out.
Few disagree with the leadership of the sectors belief that board members need help in understanding their roles and responsibilities. The sector should build upon the existing, albeit somewhat disjointed, learning network, organizations rather than create another. Boards need to learn how to perform or face a policing system will be not to their liking. Similar to executive counterparts, board members are currently in very high demand. There is an acute leadership shortage. Board improvements must be delicately addressed or we could intensify the current exodus.
Hopefully the nonprofit sector will go down the road that will win the sector’s confidence and regain the public’s trust
Gary Snyder is the Managing Director of Nonprofit Imperative in West Bloomfield, MI..
He can be reached at gary.r.snyder@gmail.comLabels: accountability, government oversight, self-regulation
A surprise took place a week or so ago. We saw the nonprofit sector depart from its solid position of just a few years ago. Call it a 180. Call it a new awakening. Call it a reincarnation.
The Independent Sector, the presumptive nonprofit sector leader, has taken up the mantle of representing the charitable world on matters before Congress and federal regulators. IS seems to have drastically changed its position on partnering with government.
Let Us Control Our Own Destiny
Self-regulation has been a committed cause in the charitable sector for decades. But the sector has been under condemnation for years. With the 1992 United Way of America scandal and several others of high media visibility, many charitable leaders in the U.S. became concerned that the public, especially donors, would lose their confidence in the good of charitable organizations. There were outcries at the Fall, 1994 conference of the Independent Sector to clean up cheats. They feared that regulars and lawmakers would “punish all charities collectively for the transgressions of a few”. In 1997 the New Era Philanthropy Foundation took $135 million from seniors; in 1998 $78 million was diverted from the Alleghany Health, Education and Research Foundation; in 1999 Greater Ministries International absconded with $353 million; and, in 2002 the Baptist Foundation took $570 million from its trusting contributors. At all junctions where there were regulatory inquiries, the cry from the sector leadership was ‘trust us, we can regulate our own’.
Throughout the 1990s and early to mid 2000s concerns were expressed that scandals would erode the public’s trust in the critically important nonprofit sector.
The $20+ million Independent Sector was the nonprofit’s sector’s point-organization as well as the leading proponent for self-regulation. In 2005 when outsiders wanted a peek at the charitable sector, IS conducted town hall meetings in 15 locales where speakers rallied the followers around the concept of no government involvement. They spoke about the need to prevent the intrusion of government regulation and police themselves. At the Southfield Michigan meeting, speakers attributed the desire for Congress’ involvement to the 3 R’s---reelection, regulation and recompense. The approached worked and the troops rallied around the self-regulation banner.
Oop…here’s the deal
The media attention to nonprofit sector scandals in the 1990s had increased the sector’s discussion about regulation, self-regulation and transparency. Existing governmental regulation and self-regulation wasn’t effective in preventing the high profile scandals. Independent watchdog organizations were inadequate and only monitored less than 10% of the charities. As late as mid-2007, state nonprofit agencies are still proposing self-regulatory guidelines in the wake of recent scrutiny at both the state and federal level.
It was not until several of the sector’s stalwart agencies got into trouble did Congress, state attorneys general and the Internal Revenue Service say enough is enough. They saw a voluntary sector out of control. They saw the American Red Cross, the United Way, Natures Conservancy, and hundreds of others misbehaving. The headlines screamed of billions of donors’ dollars stolen or wasted and hundreds of agencies not fulfilling their charitable mandate. The abuses that caught the outsiders’ attention were principally perpetrated by the sector’s largest agencies.
With billions of the contributor’s dollars lost just last year, it continues in 2007….with the Smithsonian Institution (poor management and virtually no governance and a multitude of firings) or the EduCap ($11 million diversion of student loan funds to the executive’s husband’s ventures) or the America’s Clean Water Foundation ($25+ million embezzlement with the EPA wanting its money back).
No one wanted to go on record to condemn this malfeasance.
Wow...a marriage
In response and in lockstep, the leadership of the Senate Finance Committee, the House Ways and Means Committee, the IRS and others wanted to know what was going on. The protectionist charitable sector balked initially but soon converted and began to covet a partnership with the lawmakers and regulators. Congress gave the nonprofit leadership, through the efforts of the Independent Sector Panel on the Nonprofit Sector, the opportunity to change public opinion and work toward significant reforms by self-regulating.
The sector admitted it needed assistance from the government. In 2005 the Independent Sector produced a document; Strengthening Transparency Governance and Accountability of Charitable Organizations acknowledged that executives and boards are not aware of their ‘expectations and requirements’ without government help. It further pleaded for the government to closely collaborate with the sector in addressing a multitude of reforms.
With the increasing abuse, the sector leadership is relying on the government to jump-start regulatory measures to avoid the risk of the loss of the faith and support that the public has always given to the charitable community. The IS asked for government assistance in educating board members and professional leaders because both are not aware of the expectations and requirements imposed upon them. Further, they asked the government for sufficient resources to facilitate full implementation and new regulations to prevent abuses. They asked Congress to authorize additional resources to the IRS for overall tax enforcement and for improved oversight of charitable organizations as well as audits and investigations. The report wants the Internal Revenue Code to impose penalties on board members and other managers of charitable organizations who approve of self-dealing or excess benefit transactions, including excessive compensation, not only if they knew that the transaction was improper but also if they “should have known” that it was improper. It suggested increasing reporting requirements. It wanted a more disclosure such as travel, entertainment, gift and car expenses. It wanted board reform including size as well as additional requirements for board participation.
And now, in recent testimony, the IS President cemented the nonprofit-government relationship with a request to create the equivalent of the federal Small Business Administration to implement new stipulations put on the sector.
A flawed plan?
Some felt betrayed by the nonprofit sector’s requests for help from the government. They were troubled by its vacating its long time belief that a strong system of self-regulation and education is critical if the people making up the nonprofit community -- boards, staff, volunteers, and donors -- are to ensure that their organizations are living by the highest ethical standards.
There is very little argument that the sector needs to promote good housekeeping. Cleansing the sector to rid itself of further abuses and poor practices is critical. Finding an appropriate balance between regulation and self-regulation is essential.
A highly regulated sector has its consequences. The IS efforts represented the thinking of big foundations and nonprofits, leaving 70% of the sector---the small and midsized agencies---with potentially being encumbered with time consuming regulatory requirements. With small-medium charity executives already taxed to the limit, many are already looking to leave their charities in the next couple of years. The sector’s challenge is to maintain a quality stable of executives not chase them out.
Few disagree with the leadership of the sectors belief that board members need help in understanding their roles and responsibilities. The sector should build upon the existing, albeit somewhat disjointed, learning network, organizations rather than create another. Boards need to learn how to perform or face a policing system will be not to their liking. Similar to executive counterparts, board members are currently in very high demand. There is an acute leadership shortage. Board improvements must be delicately addressed or we could intensify the current exodus.
Hopefully the nonprofit sector will go down the road that will win the sector’s confidence and regain the public’s trust
Gary Snyder is the Managing Director of Nonprofit Imperative in West Bloomfield, MI..
He can be reached at gary.r.snyder@gmail.com
Labels: accountability, government oversight, self-regulation
posted by Gary at
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