posted on: Tuesday, October 28, 2008

by Pete Manzo

How foundations should adapt their grantmaking to help nonprofits in this environment has been a hot topic in the philanthropic world in recent weeks, and going as far back as last spring.

Foundation funding won't drop as sharply as the Dow, thankfully. Overall, foundation giving is likely to stay flat or decline slightly, as the Foundation Center’s review of giving through several past downturns indicates. Of course, for some subset of foundations, grantmaking may decline considerably.

Far more importantly for human services nonprofits, however, government funding is almost certain to fall sharply over the next year or two. At the same time, service providers are likely to see demand for their services rise at the same time their resources fall.

There have been many suggestions among the philanthropy commentariat of different things foundations can do to help nonprofits get through the hard times. I’ve tried to read as many of them as I could, and no doubt I’ve missed many. Here are a few samples:

• Chronicle of Philanthropy listing of articles on nonprofits and economic pressures
• COF open letter on how foundations can respond to the financial crisis
• COF survey report on foundation responses to downturn (May 2008)

One suggestion I haven’t seen, though, is a call to release restrictions on grants, and proactively contact grantees and invite them to reprogram the use of restricted grant funds. This might be the quickest, most powerful way for foundations to help their grantees.

The for-profit financial world, ironically, began doing this nearly a year ago, as the dimensions of the subprime mortgage crisis became more clear. Countrywide, for example, began contacting mortgagee’s last fall and offering to modify their loans, to reduce the risk of default from adjustable rate mortgages. They are now on their second or third round of doing so, a massive undertaking described in this Los Angeles Times article.

Taking this strategy would pay more than just financial dividends. The added flexibility may be critically important to enabling grantees to weather the storm. Speed is also an important virtue here – existing grant funds can be reprogrammed much faster than new funds can be sought, or disbursed.

Perhaps just as important, the work involved in contacting grantees and offering to modify grant terms would promote a number of important goals, including:

• Increasing a foundation's understanding of the impact on their grantees, and providing grantees information about how the foundation is being affected and reacting at its end, which will help both parties plan for the future;
• Sharing information about options and opportunities that may be helpful to the foundation, the grantee and their respective partners and allies; and
• Strengthening relationships between a foundation and its grantees.
  

It also could lay the groundwork for increased trust and openness between foundations and nonprofits in the future. During the 2002 downturn, I participated in several panels on how nonprofits could deal with the economic slump, and I gave similar advice – that they should take stock of the alignment between what they thought they did best, what they thought their clients needed, what would best help the organization address those two factors, and what their funding allowed, and then they should go to their funders and make a pitch for reprogramming the funding they already had in hand. It was unrealistic, though, to expect many nonprofits to actually try this tack, both because of the power differential between nonprofits and their funders, and because of the uncomfortable “Sophie’s Choice” position it might put nonprofits in – they might not want to go on record with outsiders saying they think one of their programs is more important, or more effective, than others. Reaching out to grantees and offering to release restrictions can reduce those barriers and create a different dynamic for future conversations.

Is this a crazy idea? Just impractical? Other suggestions?

Pete Manzo is director of strategic initiatives at the Advancement Project.

posted on: Wednesday, October 22, 2008

When The Going Gets Tough, the Tough Get to Fundraise
By Melissa Johnson

Over the last few months, the nation’s economy has tinkered on the point of total upheaval. Although the stock market seems to be stabilizing and gas prices are beginning to come down, families hit with job losses and uncertainty in many places of business will be looking to nonprofits to pick up where the government is falling short.

NCRP board member Margie Fine, provides key strategic advice to nonprofits across the country that will fill this gap of providing services and advocating for children, families, and communities in need. During this time of crisis, nonprofits have to be proactive not only in their spending and efficiency, but also in striking the right balance between communication, inquiry, and transparency with foundations that support them.

Read the full article “Fundraising Success in A Time of Financial Crisis – It Is Possible” on the Center for Community Change’s Movement Vision Lab.

Melissa is the field director of the National Committee for Responsive Philanthropy (NCRP).

Donors As Beneficiaries
By Gary Snyder


A recent article brings to our attention, once again, that corporate citizens and other donors are generously giving to charities that benefit political insiders and ostensibly, themselves.. The New York Times cites among others, the support for the symphony orchestra in Johnston, Pa, the beloved charity of Representative John Murtha.

There is typically a close relationship between the contributor and the politician. In this case, the major sponsors to the Congressman’s charity are two giant defense contractors ---General Dynamics and Northrop Grumman. Murtha’s Congressional committee hands out lucrative defense contracts.

There are other types of relationships. Representative Joe Barton, a Texan established a charitable foundation and hands out grants within his district. An influential member of the Committee on Energy and Commerce, the Joe Barton Family Foundation has a big donor, a major nuclear energy company, Exelon Corporation. The congressman’s daughter-in-law is the executive director of the foundation.

Over the years, we’ve seen U.S. Representative Alan Mollohan use donors and federal dollars--- at least $202 million--- to fund five nonprofits in Mollohan’s district, most of which were under his control. House Majority Leader Steny Hoyer has joined in steps to clean up pork barrel spending…apparently everybody else’s. The congressman has tucked $96 million worth of pet projects into next year's federal budget, including $450,000 for a campaign donor's foundation. Hoyer inserted into a 2008 education-spending bill for InTune Foundation Group, who’s Web site describes it as a music-education nonprofit group.
We’ve seen this practice at all levels of government. For example, Pennsylvania State Senator Vincent J. Fumo use of money from a nonprofit for personal and political purposes with some $17 million is in question.

Another example is Gov. Arnold Schwarzenegger, of California, who set up a little-known nonprofit group that has paid for many of his international trips. Donations paid for his and aides' journeys to Israel, China, Japan, Canada and Europe on trips, described by the governor's office as trade missions, costing hundreds of thousands of dollars. Schwarzenegger solicited the $435,000 in gifts for the protocol foundation at a fundraiser. Only after ongoing inquiries did the Governor revealed for the first time the names of donors to the secretive nonprofit group.

The practice of unregulated contributions is pervasive. The one bad deed deserves another axiom seems to apply to the cozy relationship between politicos and their corporate and lobbying donors and benefactors. This seedy practice certainly needs further scrutiny.


Gary R. Snyder is the author of Nonprofits: On the Brink. His email is gary.r.snyder@gmail.com; website: www.garyrsnyder.com, phone: 248.324.3700.

posted on: Friday, October 03, 2008

By Gary Snyder

It all began with calls from friends and subscribers to Nonprofit Imperative, a twice-monthly e-newsletter that I publish. All wanted to bring to my attention to the well-documented stories on the fiasco at the United Way of the Central Carolinas.

A Compromised Agency

Let us take a look at the specifics of the mid-sized United Way controversy:

• The Board signed an agreement with the agency President and CEO giving her the highest salary and benefits package in the entire United Way system;
• The Board gave the CEO a $36,000 a year expense account;
• The Board agreed to a bonus which is the biggest of a sampling of 14 agencies of similar or larger size;
• The Board added $822,000 to the executive’s retirement benefits last year, a seven-fold increase over the $108,000 paid the previous year;

Under almost catatonic pressure from media, donors and others, the Board realized that they had to extricate themselves from the obscene contract. So what did they do?

• They relieved her of her position
• The Board gave the President and CEO 2 1/3 years of salary ($675,700) or the equivalent by reducing the payments if she gets another job;
• The Board fulfilled its obligations under her retirement plan.
• All resulting in at least a million dollar payday for the executive.

At least three board members resigned, including its chairperson. In spite of its promise of transparency, the United Way has withheld records of expense accounts and board minutes.

A Compromised Sector

One wonders how boards made up of many of the areas brightest minds came to a conclusion to endorse such a contract? Furthermore, how did they think that the general public would agree to such an egregious agreements? How did this pass muster at the national United Way of America? Why haven’t we heard an outpouring by nonprofit leaders crying out about such abuse?

The answer to all of the aforementioned questions is that few people care about what happens to a nonprofit. Only those that are directly affected cry out and that is only for a short period of time.

As with so many organizations, nonprofits have a culture of denial. Few believe that any financial abuse could happen, especially in the pristine charitable sector. The Board is typically oblivious. The internal controls are frequently nonexistent. The executive may be either deceitful or unaware. All rules are fungible. This creates a climate for anyone that makes decisions about the financial resources of the agency to take advantage of his/her trusted position.

The nonprofit world has accepted that multi-million embezzlements are a cost of doing business. Routinely, the courts have subscribed to that belief ordering restitution (which are rarely paid in full) in lieu jail sentences. The denial culture is perpetuated.

But in all instances the real culprit is the board. In the very rare circumstances when the board fulfills its fiduciary responsibility, it often surrenders any implementation to the executive to carry out. The board relies on the executive so it can “skate” and shun its own responsibilities.

In most instances a close personal bond, and considerable trust, is established between the board and executive. Frequently the executive becomes invaluable in carrying out the board’s wishes (and often at the expense of agency’s mission). Resisting conflict is the watchword.

A Compromised United Way

We have seen such denial and disengagement in the United Way network for years resulting in abuse in the form of fraud, embezzlement and mismanagement.

Late last year, the chief executive of the United Way of Metropolitan Atlanta secured a seven-figure---$1.6 million---retirement package for himself promising him roughly $106,000 a year for life. In his final year before retirement, he collected $446,7000 and $1.2 million in his last three years, not counting the lump sum payment.

The board did not even vote on the increases.

The tone at the United Way of America headquarters was set in the early 1990s when national president, William Aramony, was convicted of fraud for misusing the agency’s assets. The trend continued with Oral Suer, who ran the United Way of the Capital Area for 27 years and pleaded guilty to defrauding the charity of almost $500,000. While the president and CEO of the United Way of New York City in 2007 was under investigation for handling assets and resigned, we learn that his predecessor had used $227,000 of the charity’s money to cover personal expenses.

So as not to be undone, smaller United Way agencies have had their share of mismanagement and fraud. The Controller of the Capital Area United Way (Lansing Michigan) was successfully prosecuted for stealing about $1.9 million to fund her addiction to quarter horses. At the San Joaquin County local an employee embezzled over $200,000 and pleaded guilty to forgery and fraud. We have been able to document mismanagement and fraud at a number of affiliates including Chicago (IL), Tucson (AZ), Sacramento (CA), Bay area (CA), Santa Clara (CA), Toledo (OH), Harvey (IL), Freeborn (MN), Youngstown (OH), Story County (IA), Florida, Albemarle Area (NC), Orange (NJ), Pottawatomie (OK), Arizona, Montana, Stateline (IL), Iron County (UT), Shiawassee (MI), Wells County (IN), Washington, DC.

Some United Way affiliates, in an attempt to make contributions look more robust, were directed to count as their own contributions money that which was actually handled by other organizations. Some were also directed to count the value of volunteer’s time, a practice that is frowned upon by fundraising pundits. The practice of double counting was aimed at trying to show that it was recovering from scandals. When caught, cries of deception exploded.

Finding out about United Way malfeasance is challenging, to say the least. Beyond the flurry of press clippings about the merits of the United Way of America, we have been able to find over thirty affiliates that have been involved in wrong doing, amounting to tens of millions of dollars. Just last month, in New Jersey, a local got hit for embezzlement for over $500,000.

The problems are rampant. The solutions are somewhat complex.


The combination of poor leadership, compromise practices, weak governance, fraud, embezzlement and mismanagement in the United Way network has resulted in a broken organization.

The United Way star is falling from grace. Some want to blame it on the economy and others on its business model. It may, in part, be both. But the old and tired approaches, sugar-coated by press releases, have not worked. The public relations campaigns are not swaying corporate America, unions and especially significant donors. Many United Way benefactors question the organization’s decision-making and are directing their gifts to their favorite causes instead of having the organization distribute the money.

There is irrefutable evidence that such scandals have had an effect on donations. After the Aramony affair, United Way donations decreased by 11%. Similar results showed in Lansing Michigan and New York fundraising after their respective malfeasance schemes became publicized. Similar results will most assuredly happen at the United Way of the Central Carolinas.

But the first to realize that the organization was broke were the recipient-agencies. They saw relations breaking down between the U-W and their agencies, they saw their input diminishing, they saw U-W volunteers reporting back that their input was being ignored and then they saw competition by America’s Charities and others. Their beliefs have come true as the number of U-W agencies began shrinking, contributions falling and the United Way dropping as a percentage of total giving. Many of the United Ways staunches supporters are bailing.

Another big kid on the block is exposed as vulnerable. We have seen it before---American Red Cross, Smithsonian Institution. Both are bleeding red ink and going to the taxpayers for a bailout. What is the next iteration that the United Way will use to keep it afloat in order to deny that there are any misdeeds?


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.com. His website is: http://garyrsnyder.com.

In all fairness, a correction is important. As a matter of record, some of the local agencies have indicated that their misdeeds are only allegations, not documented.