posted on: Tuesday, August 26, 2008

Reference Checking is a Must
By Gary Snyder

We have seen an inordinate amount of charitable fraud because many fail to check references. Most hiring organizations either do not trust the information that they obtain or they believe that there is no need to even go through the process. In any event, the consequences can be catastrophic.

Take a look at some recent charities that failed to gather references:

• The Heartland Latino Leadership Conference, in Nebraska, treasurer and finance chair was arrested for embezzling an unknown amount of the conference’s funds. They were excited when hired but all his credentials were falsified.

• If the board at the Martin Luther Christian Day School, in Wisconsin, had checked the background of its principal, it would found that he was charged for taking money from collections at the Hope Lutheran Church. The two organizations have pressed charges.

• The director of residential life was in jail on aggravated assault charges after taking $48,000 from the Southern Oregon University. Had they done a reference check they would have found out that he had also defrauded a bank of $13,000 prior to his university appointment.

• Citizens for Affordable Housing, in Nevada, would feel a lot better if they had checked references before hiring the director that embezzled $1 million. The director had a history of similar problems.

• The CEO at the Mission House for Women in North Carolina had previously served prison time for drug charges.

• At Riverdale County School the bookkeeper took $930,000. Had the school checked references they would have found out that she had a record for Medicaid fraud.

The reference check can reveal information that causes you to eliminate someone as a candidate. You need to spend time up front with the reference to introduce yourself and to explain the specific opportunity. Though you’re clearly looking for specific information, you may find that references are more forthcoming when the process feels like a conversation. It is helpful to do a number of references–ideally five to six for senior-level candidates.
Here is some of what you need to gather:

1. confirmation of the candidate’s track record, skills, and competencies,
2. management and communication style, track record, and both strengths and areas for improvement
3. as a former professional recruiter, I always zeroed in on financial issues, particularly for those in positions of financial trust such as executive directors, chief financial officers, treasurers, accountants or anyone that has signing authority.

Frequently your intuition tells you more than that which you are being told. Drilling down below the surface of initial comments will make a reference truly useful. Listen not just to the overall comments a reference makes, but also to the specific word choices and the tone and enthusiasm. Ask follow-up questions.

Reference checking has its own set of confidentiality and legal issues. You must always get permission from the candidate before taking references. You should ask them to sign a release giving you permission to check both named and un-named references as well as to conduct credit and background checks, and can not legally start that process until they do.

Your personal notes from a referencing conversation are not to be shared. Instead, write up a summary of each reference check to share with the full search committee. To protect the reference-giver, do not attribute sources of specific quotes or comments, and destroy hand-written notes once the referencing report is written. Note that candidates can request a copy of the reference report and any stored information in their files. And of course, EEOC guidelines on discriminatory questions for interviews apply to reference checks as well.

Many organizations turn to professional third parties for reference checks. Why? Professional recruiters are able to gather information objectively that allows the organization to benchmark the candidate’s skills and personal qualities against the job description. In addition, while candidates generally do not offer references that would not give glowing testimonials, professional recruiters have extensive personal and professional networks that often allow the organization to benefit from references that have not been named by the candidate. Furthermore, as professional recruiters tend to do reference checks much more frequently than any given nonprofit leader, their expertise and comfort in making reference calls may help get the most out of each one.

This is by no means a comprehensive approach to reference checking. But be assured, if you this approach you more than likely will not face the heartache of the 6 agencies previously mentioned.

(a thanks to BridgeStar.org for information, structure and provoking this article)

Gary Snyder is the author of Nonprofits: On the Brink (iUniverse) and articles in numerous publications. He is the publisher of Nonprofit Imperative, a twice-monthly publication on the state of the charitable sector. His email: gary.r.snyder@gmail.com; website: www.garyrsnyder.com; phone: 248.324.3700.

posted on: Thursday, August 21, 2008

by Niki Jagpal

Word: ‘Caucus’

Function: noun

Definition:

a) a closed meeting of a group of persons belonging to the same political party or faction usually to select candidates or to decide on policy;
b) a group of people united to promote an agreed-upon cause

On August 19, 2008, the Chronicle of Philanthropy (subscription required) reported that Sens. Charles Schumer (D-N.Y.) and Richard Burr (R-N.C.) created a Senate Philanthropy Caucus (SPC) “to look at ways to help foundations and charities.”

Schumer and Burr sent out a letter late last month ”strongly encouraging” their colleagues in the Senate to participate in the SPC. The letter highlights the important contributions institutional philanthropy has made to benefit broadly U.S. society. A critical observation made in the dear colleague letter is the enormous increase in foundation giving (estimated at $42.9 billion and reflecting a collective ten percent increase in giving by the U.S.’s 72,000 foundations compared to 2006). The letter notes a crucial role that nonprofits play in the communities they serve: “the knowledge and social and economic benefits that accrue to communities with strong nonprofits…almost defy quantification.”

The SPC complements the House-level Congressional Philanthropy Caucus (HPC) co-chaired by Rep. Robin Haynes (R-NC) and the late Rep. Stephanie Tubbs Jones (D-OH). The House-level caucus was formed in the spring of 2007, following the Council on Foundations-sponsored annual Foundations on the Hill lobbying event in March 2007. As the Examiner reported then, one point of agreement between foundation executives and members of Congress was the need for Congress to better understand what foundations do.

The formation of the SPC is a positive sign for the U.S. charitable sector, indicating sustained interest in philanthropy and the nonprofit sector at Congress. But as the Chronicle noted, to date the HPC comprising 44 members has held one official meeting. In attendance? One Council on Foundation’s representative who gave an overview to some 20 Congressional aides and two House members. The topic? How foundations work. Viewed from the outside? Not particularly impressive.

The congressional philanthropy caucuses are positive developments and offer potentially powerful alliance between the government and the nonprofit sectors. More specifically, the explicit links among policy, communities and philanthropy are encouraging. For far too long, foundations and nonprofits alike have shied away from the historic roles of advocacy, civic engagement and community organizing in increasing access to the policy process and promoting participatory democracy.

But are philanthropy and nonprofits getting heightened Congressional attention because government is offloading its social responsibilities? Yes, the U.S. civil society sector has made lasting and positive contributions to communities; but philanthropy would do well to remember that it is the government’s role to provide basic services to its citizens during times of hardship and need, to create a more level playing field and to encourage a transparent, inclusive and truly participatory democracy. Takeaway lesson for foundations? It isn’t just Congress that needs to be educated about what you do; the public and your grantees also need to better understand what you do and do not do (do = = fund) because foundation dollars are partially public dollars as a result of the foregone tax revenue from foundations’ tax exempt status.

Discussing the newly revised IRS form 990 at the Georgetown University Law Center in April this year, Steven Miller, commissioner of the Tax Exempt and Government Entities Division of the IRS, noted that the IRS would be “more aggressive” in monitoring the “efficiency and effectiveness” of charitable organizations, even though such monitoring is not expressly within the agency’s jurisdiction. Why not revise the 990 PF form to include the same accountability and governance data? This would build Congressional and public trust and knowledge of foundations but no revisions to the PF form appear imminent.

I’m hopeful that the Congressional Philanthropy Caucuses will fall under Merriam-Webster’s definition ‘b’ above and function as a group united around a common cause. But the roles of government, philanthropy and nonprofits must be clearly delineated to avoid government shirking its public responsibilities and foisting them onto the civil society sector instead. And we would all benefit from knowing more about what exactly it is that foundations do.

Niki Jagpal is research director at the National Committee for Responsive Philanthropy (NCRP).

By NCRP

NCRP expresses its deepest condolences to Rep. Stephanie Tubbs Jones’s family, friends and colleagues at this tragic time of her sudden passing away. As the first African American female representative to serve on the House Ways and Means Committee and a lifelong advocate of voting rights and election protection, her loss will be deeply felt by Ohioans and all those committed to advancing participatory democracy. The philanthropic community mourns the loss of her leadership as co-chair of the House Philanthropy Caucus. NCRP wishes her family and all those who knew and worked with her peace and strength in coping with this significant loss.

posted on: Wednesday, August 13, 2008

by Gary Snyder


U.S. organizations lose about seven percent of their revenues to fraud, according to the newly released survey of the Association of Certified Fraud Examiners. When compared to the projected U.S. Gross Domestic Product for 2008 — seven percent equates to $994 billion. This is up from an estimated 6% representing more than $761 million in losses in 2006.

This is startling because a study published in the December 2007 issue of Nonprofit and Voluntary Sector Quarterly projected a $40 billion loss for 2006 or about 13% to charities to fraud. The study was based on data also from the Association of Certified Fraud Examiners.

Fraud in the charitable sector is almost twice as widespread as that found in all sectors.

Fraud, from the 2006-2008 ACFE studies, in public companies has decreased by 29% (probably impacted by Sarbanes-Oxley or SOX), stayed even in the governmental sector and increased by 9% in the nonprofit sector.

In their just released Report to the Nation on Occupational Fraud and Abuse, the Association notes that the average case cost a business $175,000. In a quarter of 959 cases used to compile the study, the loss was $1 million or more. The most costly type of fraud was financial statement fraud — more commonly known as cooking the books —, which cost organizations an average of $2 million. In the charity study, four nonprofits realized losses of more than $1,000,000 with one losing $17 million.

Not surprisingly, smaller businesses suffered the greatest losses because smaller businesses normally can't afford dedicated resources to detect and prevent fraud. For small businesses, the average case studied cost about $200,000. In the nonprofit study, there appears to be no significant relation between the size of the fraud and the size or age of the organization.

The typical fraud in the latest study lasted two years from the time it began until the time it was caught by the victim organization. The only exception was publicly traded companies that detected fraud in eighteen months, presumably because of SOX controls.

The establishment of internal controls dictated by Sarbanes-Oxley seems to be taking hold. Its controls have had a measurable impact on the organization’s exposure to fraud. Two areas in which nonprofits could improve their results in catching (or discouraging) fraud are to implement a management review of the financial statements and establish a hotline. These two internal controls could reduce losses by more than twenty percent as well as cutting detection time by a similar amount.

Despite increased focus on anti-fraud measures in the wake of SOX, malfeasance is much more likely to be detected by a tip than by audits, controls or any other means. Almost 50% of nonprofit detection is tips, followed by internal controls (24%), external audits (14.9%), internal audits (13.2%), and by accident (12%).

And, the most commonly cited red flags of illegal behavior? Perpetrators that are living beyond their apparent means or experiencing financial difficulties at the time of the frauds.


Greenlee, Janet, et al, An Investigation of Fraud in Nonprofit Organizations: Occurrences and Deterrents



Gary Snyder is managing partner of Nonprofit Imperative and author of Nonprofits: On the Brink and Nonprofit Imperative. He can be reached at http://gary.r.snyder@gmail.com. His website is: www.garyrsnyder.com.