posted on: Monday, November 23, 2009

By Kevin Laskowski



Philanthropy has exploded in the past two decades. There are more foundations, funds, ways to give, and dollars being given than ever before, but is the sector growing too fast?

A new survey of 185 family foundations from the National Center for Family Philanthropy reveals a “troubling” statistic:

Only about half of all responding foundations (53 percent) have [a conflict-of-interest policy]. Having such a policy indicates the board has discussed the issue and has awareness and explicit expectations of board members regarding potential conflicts of interest. Twenty-six percent reported having a written code of ethics, and only 18 percent have a formal process to review legal compliance issues. Forty-six percent of the foundations said they currently do not have any of these (see Figure 4). (emphasis added)

This finding is an important barometer for the sector as a whole. Family foundations comprise more than half of the foundation field at large. They account for roughly half of all giving, assets, and new gifts and bequests from donors among independent foundations. According to the Foundation Center, both the number and giving of family foundations has doubled since the 1990s.

The Association of Small Foundations discovered similar statistics among its members in its 2008-2009 Foundation Operations and Management Report. In that survey, 58 percent of respondents reported having a conflict of interest policy.

Looking at this new survey from NCFP, it seems that a significant number of family foundations take their obligations to the public trust seriously. One way that foundations and other charitable organizations can signal that they take seriously the need for accountability and transparency in their operations is to adopt and implement policies that support ethical behavior. These include policies on conflict of interest, whistleblowers, and executive compensation. However, the number of foundations that haven’t adopted these hallmarks of well-governed organizations is of concern, especially when conflict of interest policies and codes of ethics are so readily available.

Despite the best efforts of the field’s grantmaker associations, it would seem that many philanthropies just don’t know that this information is available or how important these policies are. NCFP surveyed a random sample of family foundations—not its members or the more accessible members of regional or national associations. Eighty-four percent of respondents were members of the donor family, and few respondents reported board members attending conferences and making use of association events and resources.

NCFP President Virginia Esposito contends that, since family members volunteered this information, it’s unlikely that the lack of certain policies is an intentional oversight.

“Given how many families took the time to fill this out with care and candor, we don’t believe that this is anything other than a lack of awareness about what these policies are and how they can enhance grantmaking process,” she says. “It’s more the product of a field that has grown so fast it has outpaced our ability to regulate or socialize it.”

Read more about ways that foundations can be more accountable and transparent in Chapter 3 of Criteria for Philanthropy at Its Best.

What do you think? Given how the field of family philanthropy has grown so large, so quickly in recent years, what can be done to spread the word regarding the need to adopt policies and practices that promote ethical behavior within organizations?



Kevin Laskowski is a Field Associate with the National Committee for Responsive Philanthropy. Kevin previously served as Program Coordinator at the National Center for Family Philanthropy and assisted in developing the survey mentioned here.

posted on: Tuesday, August 11, 2009

By Gary Snyder

Some more random thoughts:

• Just because they are nice and are considered good people, do we have to ascribe the term good leaders to them?

• Ever notice that good governance seldom gets the headlines, but bad gets all the attention?

• Which is worse…a board that does not know or care what it is going on or one that makes incredibly bad decisions, with its eyes open?

• Why does it take a recession to invigorate charitable volunteerism?

• Why does a charity fraud perpetrator express remorse only after they are caught?

• Why does a controversy frequently cause leaders to climb into their foxholes?

• Why do we often chastise those who don’t follow the flock and think on their own?

• How much will small charitable agencies tolerate before they rise up in protest?

• Why do we seek validation at the expense of improvement?

• Did you ever think that the debacles in the nonprofit sector mirror those of the for-profit, but seldom get the same attention?

Not sure what to think…


Gary R. Snyder is the author of Nonprofits: On the Brink. He is a frequent lecturer and author of articles in numerous publications and blogs. His email is http://www.gary.r.snyder@gmail.com; website: http://www.garyrsnyder, phone: 248.324.3700.

posted on: Tuesday, July 21, 2009

Gary Snyder

Much has been written about their weaknesses. I have chimed in with numerous articles about watchdog agencies in the for-profit and nonprofit sectors while trying to be balanced as to their strengths and weaknesses. I have stated unequivocally that there needs to be watchdog agencies, but current overseers need significant improvements in the guidance they provide to donors and investors for their decision-making.

After the recent economic implosion, the for-profit watchdog agencies are frequently cited as having contributed to the downslide. There have been efforts by the government and those in for-profit sector to replace the current big three watchdogs. But that effort was abandoned because the big three are so big that they fall into the category of ‘too big to fail’. Instead, several predictions now indicate that those three may have record profits for many years.

In my most recent article, I was quite critical of the watchdog agencies for the charitable sector. Ken Berger, President & Chief Executive Officer, Charity Navigator and I spoke for a protracted period of time about the contents of the article. He disabused me of some of my notions; he tempered my expectations while I shared with him some additional perceived weaknesses of all of the organizations that monitor philanthropy. I thought it was a thoughtful discussion and one that will continue as we meet at a conference later this year.

I shared with Ken my concern about one overseer that is trusted but is an apparent weak link in the arsenal of transparency and accountability. It is the silent partner that has not received much scrutiny-the accountant and auditor.

Over the past decade we have seen embarrassing headlines about for-profit scandals at Tyco, WorldCom, Enron, HealthSouth, Adelphia and many more and the complicit involvement of their accountants.

The situation in the charitable sector mirrors the for-profit problems. Few remember about a religious nonprofit, RBC
Ministries which raised more than $29 million without reporting any fund-raising expenses. Where were the auditors?

Or, the massive fraud in Roslyn, N.Y. where tens of millions of dollars were stolen along with half of the Long Island school districts. We know where the accounting/auditing firm was. It was not exercising professional care in conducting the audits and as soon as the indictments were announced, the accounting firm closed its doors similar to Arthur Anderson of Enron fame.

Another previously much touted but often forgotten scheme was at the New Era Philanthropy where a much-trusted person scammed 180 (mostly, charitable) organizations and 150 sophisticated money managers out of $400 million. It was only after a sophisticated college employee tore apart New Era’s bogusly constructed tax returns did anyone know of the swindle.

The nonprofit Baptist Foundation of Arizona is another example of lack of oversight by an accounting firm. Executives and legal counsel were found guilty of cheating 11,000 investors out of close to $590 million. The accounting firm Arthur Anderson settled for $217 million.

And more recently, the accounting profession did not tag three Ponzi-related operators that were close to the nonprofit sector in their giving. A close friend of Bernie Madoff, the recently convicted and notorious Ponzi operative, is disgraced financier J. Ezra Merkin. His accounting firm is being charged by New York Law School with using slight of hand techniques by not disclosing material matters such as where investments were made.

And an auditing firm seemingly missed the misdeeds of Thomas J. Petters a $3 billion Ponzi manager who is charged with pumping billions of dollars into a non-existent business that had no customers. Petters companies appear to have been operating without the most basic of business documents -- the certified financial statement or annual outside audit.

Madoff alone took billions of dollars out of over 100 foundations and charities, many from the Jewish community (to name a few: Hadassah, $90 million; Picower Foundation, $1 billion; Carl and Ruth Shapiro Foundation, $200 million; Chais Foundation, $175 million and Yeshiva University $100 million). Many suggest that Bernard Madoff's former outside accountant will undoubtedly plead guilty. Accounting experts say it would have been next to impossible for such a small firm to have properly audited Madoff's multibillion-dollar asset management business.

These are just a few of the more prominent (in terms of dollars) accounting oversights that have blemished philanthropy. The quiet accounting watchdogs are lurking in the background losing credibility for their own profession as well as the entire charitable sector.

We are all concerned about the charity brand image. Charity Navigator and others have a steep climb in resetting their criteria to better evaluate charities. I leave it to the charity watchdogs if they should address the veracity of their accounting/audit watchdog partner in their deliberations. Someone should. It is frequently overlooked and extremely important to the sustainability of the charitable sector.



Gary Snyder, the managing director of Nonprofit Imperative in West Bloomfield, Mich., is author of Nonprofits On the Brink and publisher of a monthly e-newsletter—Nonprofit Imperative, which focuses on the major issues affecting the philanthropic community. He can be reached at gary.r.snyder@gmail.com or at 248.324.3700.

posted on: Tuesday, June 30, 2009

Gary Snyder


In the wake of the well-documented and well-publicized increase in corruption and malfeasance in numerous charities, too few are searching for tools to identify good governance, recognize poor management or dissuade dishonesty and fraud.

Many look to watchdog agencies to assist them in making thoughtful decisions regarding their donations by avoiding those charities with bad practices. However, some question if these agencies are misdirected and inconclusive in their efforts to address the current increase in private inurement and self-dealing in organizations with a one size fits all approach.

For-profit Sector

Prior to the economic meltdown, the public trusted credit-rating watchdogs to assist them in their investment choices. Services like Moody’s Investors betrayed their trust by giving triple-A grades to some of the cancerous derivatives and, as The New York Times stated, gave Countrywide Financial high grades. These gold seals of approval have encouraged the spending spree that left both investors with large losses and homeowners struggling with foreclosures. The imperceptible arms-length relationship between the watched and the watchdog led Moody’s profit margins to skyrocket, even surpassing Exxon’s. With no competition for the three big for-profit rating firms, the days ahead look even rosier.

Both for-profit and nonprofit watchdogs alike use proxy and unsubstantiated measures to evaluate the attributes of an organization. They are typically a reflection of the past and little forward-looking signs and structure. They seem so arbitrary.

One example serves to illustrate that point. Despite being under the sleepy eye of the for-profit watchdogs, The McKinsey Quarterly, in a study, suggested that investors paid a premium (about 18%) for good structural performance such as good governance. General Motors governance guidelines were the gold standard. Obviously they failed on a number of counts with the U.S. government unwilling to let the board fire its own CEO. Ultimately the government took-over the company and it was put into bankruptcy only to be saved by the U.S. taxpayers. So those investors with confidence in the watchdogs and their standards got hit twice.

All this, as Fortune Magazine noted, happened as the confidence in financial rating services crashed by 50%.

Charitable Sector

Several years prior to the economic implosion, there had been significant dwindling in charitable confidence. To put donor’s confidence in perspective we need only to look at a Brookings Institution study where only 11% of the public thought charities do a very good job of spending money wisely and only 19% feel that charities do a very good job of running their programs and services.

It is a generally accepted myth that the nonprofit rating services, such as Charity Navigator, BBB Wise Giving Alliance and American Institute of Philanthropy, are monitoring all nonprofits. The criterion that is used by watchdog groups is wanting. Because of different criteria, the rating agencies recommendations often conflict. One even sells its seal of approval on a sliding scale. Moreover, all fail to address in any substantive manner many of the issues that have gotten the nonprofit sector in trouble—scandals and inadequate governance.

Some ratings are anachronistic. For example, to sanction to automatic failure any group that has a certain number of years of expenses in reserves is preposterous. In these troubling times, who wouldn’t have wished that they had a huge amount of reserves? One could argue that not having any operating reserve may not suit all nonprofits and that could be lethal. That, for example, applies to 28 percent of the DC area charities, as the Washington Post cited. On the other hand, because the sector is so diverse, each organization needs to analyze its own cash flow and expenses and make decisions based on the strength of grants, the vicissitudes of fundraising, the potency of the economy and the revenue stream generated from all activities. To deny that the governing body is in the best position to make such a decision is shortsighted. Without sufficient funds (and that number is growing, I am confident), nonprofits will join the 16% failure rate of existing nonprofit groups in 2000 that either disappeared or became so small that they were no longer required to file tax returns by 2006, the Urban Institute study of DC area charities showed.

The quality of submissions to watchdogs is dubious. Charity evaluators, by their own admission, believe that the reporting from the nonprofits is often inconsistent, unclear and incorrect. Some point to large amounts of chicanery in the submissions they receive.

But is all of this bad and do these watchdogs perform a much-needed service? Some say that they raise the level of debate. Others challenge the simplistic checklists and metrics that may or may not be meaningful. Some have expressed concern that some may have crossed the line from being independent raters to becoming active consultants.

Let’s look at conventional believes that have become baked into generally-accepted good practice:

• Financial board expertise needed: we have seen some of the premier charities get caught in fraud even though they had very sophisticated board members with impressive financial skills. An example: In spite of board and Congressional monitoring, the Smithsonian had hair raising abuses including virtually unlimited travel and noncompetitive contracts, little oversight in salaries and housing allowances. On its Board of Regents: Chief Justice of U.S. Supreme Court; Vice President of U.S.; an executive of Microsoft; two university presidents; prominent builder; a venture capitalist; congresspersons.

• Frequency of board of directors meetings: Over the years watchdog agencies have changed the number of board meetings that will make boards more successful. There apparently is no optimal number of meetings that puts an agency in good stead. The most important intangible is effectiveness of the deliberations of the members. On Board of United Ways: The Central Carolinas United Way had some of brightest minds but the frequency of meetings did not preclude it from making the some glowingly embarrassing mistakes. They gave the executive of a mid-sized agency the highest salary and benefits package in the entire United Way system. They tried to keep it a secret. When the press got a hold of it, they fired her and are currently being sued by her. Embarrassed, 3 board members resigned, but the agency is still withholding pertinent documents from the public. This shortsightedness has been replicated in several United Ways including Atlanta, Capital Area, and New York with many affiliates with ongoing malfeasance.

• Attendance, size, more: It is unclear that attendance, codes of conducts, board size and minimum number of board members have reasonable impact, but some watchdog agencies think that these are important. Studies in the for-profit sector are inconclusive that board size means better decision-making. Diversity, seldom considered, may prove to be a more important matrix.

• CEO importance: There are mixed reviews as to the importance of having the charities CEO on the board. We have seen the Smithsonian with its CEO on the board and the CEO at American Red Cross and United Way not on the board having similarly poor results. There is no argument as to the importance of the CEO. However, The Urban Institute study finds that a CEO serving on the board means that the board is weaker and less engaged. The CEO, coupled with board chair, is the public face of the organization. A poor face, as in the case of the Smithsonian, ended with his humiliating firing. Several poor showings at the Red Cross ended with very public dismissals. The compromised face of several of those at local United Ways cost the agency dearly with diminished contributions. One thing is clear, there needs to be a demarcation between the roles of the board (as the ultimate authority) and the CEO (carries out the boards mandates).

Some believe that watchdogs in both the for-profit and nonprofit sectors are seemingly propagating meaningless guidance. This is particularly important since in many instances there is no better outcome by adhering to the standards than not. Furthermore, the costs associated with adhering to such fungible determinants can be immense in terms of time and money, particularly for small agencies.

The strengthening of the matrices that produce organization integrity may lie in some of the intangibles. Such human dynamics such as leadership character (both board and staff), organizational values, how decisions are made, open communications --- both at board meetings as well as between staff and board---conflict management and strategic thinking (both long and short) may promise to be the difference between a successful and a compromised agency.

Such skepticism has lead to an effort currently underway---The Social Investing Rating Tool. It will try to assess the way donors evaluate whether a charity is worth their money as well as whether organizations have favorable outcomes. Some believe that is a good endeavor, but others will reserve judgment until its completion. One problem is that it is made up of prominent philanthropists and entrepreneurs some of whom have questionable issues residing within their own organizations.

All want both sectors to do well. In the future, maybe we should calculate how the watchdogs measure objective data that support board members and staff dedication and diligence to do good governance. Maybe more importantly, they should gauge how agencies are doing with empirical evidence or determine whether their work is even making any difference.


Gary Snyder, the managing director of Nonprofit Imperative in West Bloomfield, Mich., is author of Nonprofits On the Brink and publisher of a monthly e-newsletter—Nonprofit Imperative, which focuses on the major issues affecting the philanthropic community. He can be reached at gary.r.snyder@gmail.com or at 248.324.3700.

posted on: Monday, June 08, 2009

Gary Snyder

The financial and leadership crisis we face is resulting in a crumbling charitable world. If handled correctly, these troubling times will be looked upon as a terrific learning experience in years to come. We have a unique opportunity to reset our standards in a very positive way.

The most important thing that we must restore is the confidence of the general public and our contributors. Donors must believe that we are husbanding their resources in a thoughtful and competent manner. Unfortunately only a little over 20% believe that we are vigilant watchdogs of their donations.

We can earn the public’s trust by also being totally transparent, and accountable, with each agency showing that it’s governance is deliberative. The current ‘anything goes’ mindset is unacceptable to stop the sector from spinning out of control.

Those in positions of responsibility must retune our institutional and person goals and values. The focus of this endeavor lay in leadership ---national, local directors and management. The current status quo is unacceptable. The outmoded models of directorships have produced profoundly negative consequences.

There is no silver bullet to guide us out of this quagmire. All roads lead to the need for change. Our donors don’t trust us, the regulators don’t believe us, and our stakeholders doubt we are delivering the goods.

All believe that beneficence, forethought, and self-discipline of our forefathers have gone by the wayside. Part of the problem is the current dysfunctional training apparatus. It must be updated. While we should adhere to the some of the best practices of yester-year; many of the old-fashioned policies and practices must be revamped. We must encourage innovation in order for us to see our way out of this crisis and to restore trust and grow the nonprofit world. At the outset our mentors and teaching institutions must condemn self-enrichment at the expense of those we serve.

In order to avoid controversy, the sector leadership has sat on the sidelines on critical issues and failed to assist in managing the sectors destiny. That has lead to the excesses and abuse in philanthropy. Hiding behind a publicist just has not worked.

It is our responsibility to clean up our own mess and not continue to prevail on the government to regulate out us out of our bad behavior. The charitable sector went hat in hand to ask the government to clean up our house with little consideration for 70% of the sector---the small and medium agencies. With some leadership, the charitable sector is uniquely positioned to restore trust with better board oversight and vastly improved management practices, all of which will instill stakeholder confidence.

We must act swiftly. We must show that we are capable of governing on our own. We must develop our own internal audits that show that the sector leadership is attuned to the new realities. We must show that boards are no longer tone deaf and spineless and that they are attentive to the needs of those we serve.

When that is accomplished we must use our bullhorns and tell our stakeholders, regulators and Congress that we are worthy of their trust and that we have come to terms with the fact that transparency and accountability are laudable roads to travel.



Gary R. Snyder is the author of Nonprofits: On the Brink. He is a frequent lecturer and author of articles in numerous publications and blogs. His email is gary.r.snyder@gmail.com; website: www.garyrsnyder.com, phone: 248.324.3700.

posted on: Monday, February 23, 2009

By Gary Snyder

This is the forth edition of a series of articles on nonprofit fraud. This installment focuses on the embezzlement of funds slated for school children. Thefts come in various packages from schools, clubs, Parent-teacher organizations, unions, and programs. Schools range from elementary to secondary to post-secondary to vocational.

Since the problem is so massive, this article will focus on elementary and secondary schools. The crisis is equally as great at universities and vocational institutions.

As philanthropy for elementary and secondary schools has increased in excess of 100% over the past 5 years, the swelling of governance and management misdeeds have inflated in tandem.

Over the years, we have seen embezzlement, theft, forgery, racketeering, extortion, grand larceny, and falsification of records by those who we entrust our children. They have breached their fiduciary duty by self-dealing, negligent management of assets, and conflicts of interest.

We have also found misallocation, mismanagement, misappropriation, and malfeasance at an increasing rate, some on a massive scale. We have seen it locally, regionally and statewide.

Prosecutors have been unveiling misdeeds, in record numbers, by those with whom we put our faith. Schools are the new breeding ground for bad actors. Our role models involve Superintendents, Board members, presidents, chief executive officers and staff. They have benefited by breaching their fiduciary duty with self-dealing, negligent management of assets or conflicts of interests, some on a massive scale.

The overabundance of fiscal malfeasance and misdeeds has shortchanged our children by more than a billion dollars. More importantly, however, students are learning that the generosity of donors and taxpayers has been illegitimately shared with the role models that they are supposed to emulate. They have been stripped of their role models.

The number of dollars and schools is astounding. This is a snippet of educational malfeasance and mismanagement:

• In Michigan, Superintendents or Board members stole over $8 million, in five districts.
• In Arkansas, over 7 years, a secretary/data analyst stole $884,000.
• In New York, $11 million was embezzled by Superintendents in 2 school districts
• In Colorado, a Superintendent and CFO took $2.25 million
• In Missouri, a gambling-addicted Superintendent helped himself to $850,000
• In North Carolina, 2 school districts were raided for $2.2 million
• In Illinois, $1.5 was misappropriated
• In Utah, a part-time secretary and a contract pilfered $5 million
• In Hawaii, $200 million was lost in excessive compensation and poor investments
• In California, two schools had to be substantially demolished and reconstructed because no one checked to see if they
were either on an earthquake fault or on land containing cancer-causing chemicals or land saturated with methane gas
and other toxic chemicals, costing the district $300+ million.
• In Michigan, the district spent more than $26.7 million on school renovations only to tag some of them for closure.
• In Texas, a charter school defrauded the government of $6 million by inflating enrollment and lunch money.
• In Florida, a school district paid commissions on property purchased and non-compete bidding amounting to over $200
thousand.
• In Michigan, a superintendent helped himself to $400,000 over 7 years.
• In New York, a superintendent and deputy superintendent padded their paychecks, vacation and sick days in the amount
of $216,000
• In Michigan, an ex-convict was awarded a no-bid contract for $568,000 and never performed the services because he
was in jail…and no one knew.

Any school, whether private or public, should meet strict financial standards or face severe consequences. Here are 13 lucky fiscal controls that can create such a setting and stave off the embarrassment of pilfering:

1. When hiring employees, perform background checks
2. Require two signatures on every check. One should be an officer, preferably the treasurer.
3. Implement cash controls. Never leave people alone with money and do not leave money without people
4. All collections should be under the control of at least two people
5. Use tickets for cash events. Tickets make it easier to count the number of tickets vs. the amount of cash collected
6. All disbursements should be made by check and supported by documents
7. Someone other that than the person who signs the check should do the reconciliation
8. All adjustments should be approved by the executive
9. Create a Finance Committee. The Finance Committee should monitor, on a monthly basis, all transactions and review bank
statements
10. Conduct annual audits. An Audit Committee is responsible to make sure that the numbers add up; there was reconciliation
between request forms and receipts situations; and work with the auditor who checks the work
11. Actual results should be compared with budget and to prior years and should be done by management and monitored by
Finance Committee
12. Write down the rules. A one-page policies and procedures prevent people from straying. Structure makes people—Board
and staff—feel more comfortable
13. Get bond insurance. As part of the Board’s risk management program, fidelity bonds can recover some or all of the stolen
or embezzled funds.

There is a total lack of interest and concern with the astonishing prevalence of malfeasance in the schools. As we continue to document the squandering by corruption of billions of contributors’ dollars, the typical response is that it is a cost of doing business. Watchdog agencies, Board members, the media and donors alike, share that untroubled attitude.

The problem with fraud is not that it happens, but that there were no precautions put in place to thwart it. Few Board members have been forced to resign, or are fired, for failure to address this important issue in a preventative way.

While the vast majority of charities follow the law, staff and Board members should not assume that their agency falls into that category. Consider the abovementioned pre-emptive measures so that their experience with their school is a good one.

The previous articles on nonprofit fraud were on veteran, government, and accounting malfeasance. Upcoming articles will be on cultural fraud, attorney misdeeds, school theft, healthcare and nonprofit/political fraud.
Gary R. Snyder is the author of Nonprofits: On the Brink. He is a frequent lecturer and author of articles in numerous publications and blogs. His email is gary.r.snyder@gmail.com; website: www.garyrsnyder.com, phone: 248.324.3700.

posted on: Friday, February 06, 2009

By Gary Snyder

“Today we are living in a different world. As stewards of the funds entrusted to us by the people of our parishes, we have a duty to enhance controls and to . . . strictly monitor those controls.” Bishop Edward U. Kmiec, Buffalo N.Y
"Every church has the same problem of being too trusting of their priests and ministers and church workers…so they don't put in the kinds of internal controls common in the business world." Chuck Zech, co-author of the study report, "Internal Financial Controls in the U.S. Catholic Church."

This is the third in a series of articles on nonprofit fraud. The latest edition of Nonprofit Imperative points out the need for fraud prevention in the religious community. Within one week, NI found the following:

• One priest was sentenced to 13 years in prison for stealing up to $1 million from two Virginia parishes.
• Another Catholic priest, this one from Florida, faces trial for allegedly stealing one hundred thousand dollars is seeking a deal.
• Two more priests who authorities say for years misappropriated more than $8 million from the offering plate of their Palm Beach County (FL) church have pleaded guilty and are awaiting sentencing.
• A pastor of Hilltop Community Church (VA) accused of embezzling more than $100,000 from his church had been previously convicted in Virginia Beach in 1994 of at least seven felonies included embezzlement.
• A former finance director at a St. Paul (MN) church is charged with embezzling $37,000 from church deposits.
• Dallas Theological Seminary is suing its former chief financial officer, attempting to recover more than $165,000 that the school says he embezzled.
• A bookkeeper at George’s Sixes Presbyterian Church paid her mortgage and utility bills for four years and possibly some cocaine and marijuana.
• The former pastor of a North Carolina church has entered pleas to embezzling more than $298,000 from a Winston-Salem church. These thefts stemmed from his 20- years as pastor at First Baptist Church. He was sentenced to five years of probation and he has agreed to repay more than $120,000.

Almost 10 million dollars of churchgoers’ contributions are gone in such a short span and the Internal Revenue Service may have a problem investigating these misdeeds (see this) without an audit.

These offenses are shocking because such problems are not typically made public. Churches usually adopt a “trust and forgive” attitude, as the churchsolutionsmag.com indicates. They tend to be overly trusting and they are quick to forgive. Unfortunately, crooks are aware of that mindset and so churches are natural targets.

Some of the largest Ponzi schemes have occurred within the religious community. The church has sanctioned some, while others have been the result of informal communal relationships. All crises were borne out of blind trust. Take last weeks Ponzi indictment of an Arizona Christian nonprofit, Nakami Chi Group Ministries International, which promised 24 percent annual returns and where the owner was dipping into the money to make a down payment on an $800,000 home and to pay gambling debts and other personal expenses. Investors included one pastor, church elders and members of several churches.

We know that Bernard Madoff’s alleged $50 billion Ponzi scheme targeted his fellow Jews.

And then there is Minnesotan Tom Petters who was arrested and charged for his own alleged Ponzi scheme in which he took $3.5 billion from members of his own evangelical Christian faith, many of whom were pastors that lost their retirement schemes. He focused on church groups and nonprofits. He is in jail awaiting a trial.

Since most religious organizations believe that it can’t happen at their church or synagogue there are seldom proper controls put into place to effectively prevent fraud. Malfeasance is rampant. A 2006 survey at Villanova University found that 85% of Roman Catholic dioceses had discovered embezzlement of church money in the previous five years, with 11 percent reporting that more than $500,000 had been stolen.

Religious organizations need to make a commitment to openness and transparency with a strong conflict-of-interest policy. All policies must be observed with all staff having bought in to that adherence. The policies, at minimum, should have checks and balances in the handling of cash, which should include at least two people involved. The implementation should be a partnership between the religious leadership and the lay leadership with neither rubberstamping the others decisions. Both should be mindful of how volunteers perform their duties and how they stack up against the organizations policies and practices.

It’s a huge minefield that needs to be addressed forthrightly.

The previous articles on nonprofit fraud were on veteran and government malfeasance. Upcoming articles will be on cultural fraud, school fraud and nonprofit/political fraud.

Gary R. Snyder is the author of Nonprofits: On the Brink. He is a frequent lecturer and author of articles in numerous publications and blogs. His email is gary.r.snyder@gmail.com; website: www.garyrsnyder.com, phone: 248.324.3700.

posted on: Thursday, November 20, 2008

Nonprofit Crisis-A Terrible Thing to Waste
Gary Snyder

The news seems to be all bad. There is much talk about an implosion of the charitable sector. Some prognosticators believe that the heady days of the $300 billion in donations are coming to an end. Then there is the daunting data, which the New York Times cited recently:
• the Center on Philanthropy that show that households with annual income of less that $50,000 are likely to stop giving as
a result of the downturn.
• charitable funds saw contributions fall by 43%.
• with a downturn in returns on their investments, foundations payouts will drop.
• corporate donations from the largest companies will diminish.

Many want to believe that the weakening trend line is solely a result of the poor economy. Unfortunately, there has been a movement toward smaller total contributions (in absolute dollars) for several years. There are a number of reasons that have put the sector in increasing low esteem.

Study after study has indicated that the trust in the sector has been plummeting. Only about 14% of those studied believe that the sector spends its money wisely. The perception that executives are getting paid extraordinary salaries further exacerbates a poor opinion.

The explosion in the amount of embezzlements, at all sizes and types of charities, has further intensified the public’s lack of confidence. A much-touted study estimates that theft could amount to tens of billions of dollars and at a rate higher than the for-profit sector.

And the leadership, as studies have shown, has lead the lapse in ethical standards---aside from fraud---with nearly 20% of employees said that their own organization had weak ethical controls.

The nonprofit sector that has so long enjoyed a better reputation with regard to its ethics, now exhibits many of the shortcomings in its companion surveys of the public and private sectors

The good news that this is an opportunity to fix that which was gone wrong, clear up the sector’s tainted reputation and protect the charitable sector’s return to its place as a credible and transparent American institution.

Over the decades, the leadership of the charitable sector has emanated from the inner sanctum of the largest foundations and nonprofits. Many of the practices that are currently under scrutiny are an outgrowth of those carried on behind closed doors. In recent years a cloud of suspicion has grown from some close viewers, including donors, taxpayers and small and medium charities. While the elite decision makers ply their trade to protect and benefit themselves, they do so at the peril of the charity sector’s tax-exemption and oversight by the IRS and Congress.

As the culture of the charitable sector is compromised, virtually all leaders have passively sat by with no intervention. They have exercised the power of denial. Some observers believe that they don’t have a handle on what the problems are. This has been effective in contributing to the uncertainty about the future of charities. With no organization that serves the needs of the small and medium charities, there is a lack any direction in confronting the fundamental elements of needed change. Still unanswered is how or if the leadership will step up… or even if they have thought about change.

These are challenging times in all sectors. Congress has historically encouraged bad behavior. They supported the bad behavior of AIG and numerous banks, brokerage firms, and Freddie Mac and Fannie Mae. The reason for the support…they are too large to fail. Every day the line to get the government’s largess is growing.

We see a similar scenario being played out in the charitable sector. Despite ongoing fraud, poor governance and a total indifference, the Congress has given the Smithsonian and the American Red Cross in excess of $100 million. The reason for the support…they are too large to fail. Others charities that evidence poor decision-making are now holding out their hands also.

These concessions set a poor example for the medium and small agencies (or corporations) that are, in large measure acting good, but struggling.

Should the Congress be in the nonprofit bailout business? Should the cash spigot be closed until there are accountability at all levels?

There is little evidence that the government subsidization has helped. After years of tremendous scrutiny and much contrition by the American Red Cross, the eighth CEO in just twelve years showed poor judgment and was fired. This stalwart organization is still under a cloud of controversy with a court order to improve the way it collects blood handling. This has been going on for more than a decade with millions of dollars in fines. Despite a yearlong inquiry and repentance, the Smithsonian bad news continues with one former director recently reimbursing the Institution for lavish spending and more allegations of no-bid deals.

It should be the leaders that show us out of this morass. The most important task is to restore the public’s flagging confidence in our nation’s charitable sector. They need to articulate to the American people the underlying strengths of the sector. Wishful thinking needs to stop and leaders must speak to the realities on the ground. Over the past decade, charity leaders have mishandled this issue.

We should be afraid of the indecisiveness and indifference of the past. Senator Grassley and his staff should be congratulated for focusing on the weaknesses as well as the strengths of the nonprofit sector. This, however, is too important an issue for one Congressman to carry. The regulators seem to be stumbling over the for-profit sector problems and failing to give a comprehensive look at the weakness of the nonprofit sector.

Politics have hardly caused the crisis, but Congressional priorities have certainly exacerbated them. The Congressional patchwork approach has certainly not instilled confidence.

Rebuilding confidence might seem like a small matter; it is not. The denial by the charitable sector’s leadership has compromised a wonderful and magnanimous history. This country is not used to feeling bad about charities. Steering away from the current quagmire with no one steering, leaves little likelihood that it will go in the right direction. Steering the sector necessitates facing the facts and facing down the fears.

Its not just the charitable sector’s future on the line, it’s the millions of people’s lives that it serves. The objective is to have a sector that functions well for all sized charities as well as those that they serve.

Cheer up. This is a great opportunity to right the wronged ship.



Gary R. Snyder is the author of Nonprofits: On the Brink. He is a frequent lecturer and author of articles in numerous publications and blogs. His email is gary.r.snyder@gmail.com; website: www.garyrsnyder.com, phone: 248.324.3700.

posted on: Monday, November 03, 2008

By Niki Jagpal

On October 10th, the Council on Foundations posted an open letter to its members outlining three recommendations for grantmakers impacted by the global “challenges of our times.” Authored by Ralph Smith, Chair of the Board, and Steve Gunderson, the Council’s President and CEO, the letter acknowledges that “even if fully implemented, these three recommendations do not constitute a sufficient response.” The Nonprofit Quarterly offers excellent insight into the deficiencies of the recommendations and suggests an alternative approach that would help foundations take the right steps towards making their response more sufficient.

Nonprofit Quarterly speaks to many of NCRP’s longstanding core beliefs and underscores the vital role that civil society in the United States must play in supplementing government efforts to address the current global economic crisis. Now is not the time for foundations to pull back funds. Instead, it’s time for them to maximize the impact of their payout requirements, which economic turmoil isn’t going to exempt them from. The nonprofit sector must continue to receive foundation funds if grantmakers want to keep their tax-exempt status.

As noted by the Quarterly, now is the time for increase in overall grantmaking, core support grants, program-related and mission-related investments, support for nonprofit advocacy, and commitment to the nonprofit sector. Now is the time for foundations to acknowledge their reliance on their grantees to carry out their charitable purpose and help the U.S. and the world recover from this global crisis. The Quarterly wants to hear from us all – take a minute to read their excellent letter and join the discussion.

Share your ideas on how foundations can be more responsive to the needs of lower-income and other marginalized communities through support of those nonprofits that serve these groups, especially in tough economic times.

Niki Jagpal is research director of the National Committee for Responsive Philanthropy.

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.

posted on: Tuesday, July 22, 2008

By Gary Snyder


This is an article that may have consequences…bad ones. In many instances the donation that results from that telephone call that you receive from a professional fundraiser is not going to the organization to which you intended.

It seems that for-profit fundraisers can take your money with impunity. Its all legal and the Supreme Court has limited lawmakers from interfering by upholding the free-speech rights of fundraisers and charities.

Recently, public confidence has been stunned by news that for-profit fundraisers used by police ad firefighters have been little more that shells that enriched themselves and executives.

The little confidence that is left will be further shaken by an investigative story in the Los Angeles Times that found that only 54 cents of every dollar raised ended up in the charities coffers. Further, of the 5800 campaigns studied, commercial fundraisers, in many instances, do not even file the required reports. Why not? The law is not aggressively enforced because of limited staffing by California’s attorney general.

As one would expect, the fundraising business is growing. More than 300 fundraisers are registered in California alone.

Among The Times findings:

• “More than 100 charities raised $1 million or more from commercial appeals but netted less than 25 cents per dollar. Fundraisers got the rest.
• In 430 campaigns, charities got nothing: All $44 million donated went to fundraisers. In 337 of those cases, charities actually lost money, paying fees to fundraisers that exceeded the amount raised.
• In hundreds of other campaigns, charities apparently entered into contracts that limited their share of donations to less than 20%, no matter how successful the campaign.


• Groups with strong emotional or patriotic appeal---those supporting animals, children, veterans and public safety workers---often fared worse. Missing children charities received less than 15% of more than $28 million raised on their behalf.”

The questionable behavior of fundraisers is not limited to the nonprofit world. Dr. Ada Fisher doesn't have much good to say about BMW Direct, the Washington political firm that raised money on behalf of her 2006 bid for a North Carolina House seat. BMW Direct raised more than $400,000 for Fisher during the last election cycle, but only about $30,000 made it back to her to use in her campaign. That same firm raised about $731,000 for Massachusetts Republican Charles Morse. The only problem? Morse wasn't even on the ballot, and his campaign only saw 4 percent of that haul, the Boston Globe recently reported.

One charity fundraising campaign reflects the magnitude of the problem. Over a three-year period, the American Breast Cancer Foundation raised $5.8 million from its donors. It netted only $700,000. In 2006, just 2.5% of its budget went to research and 10.5% to mammograms or other services unrelated to fundraising. In all of its promotional material it listed research as a priority. An interesting twist: the charity founder’s son and two of his friends were paid an average of almost $3 million annually for the fundraising. That’s not illegal but violates conflict of interest policies used by many large agencies. The agency was rated poorly by two watchdog agencies.

With the pervasiveness of these fundraising firms and with all the big charity money on the charitable table, one would hope that board members and executives would stop giving hard-earned dollars to these shady scoundrels and stop compromising the charity’s hard-won reputations.


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.

posted on: Monday, July 21, 2008

By Aaron Dorfman

A couple of weeks ago, the New York Times revealed in a piece by Stephanie Strom that the Association of Community Organizations for Reform Now (ACORN) kept secret for eight years the embezzlement of nearly $1 million .The embezzler was Dale Rathke, the brother of ACORN founder Wade Rathke.

As an outrageous breach of the public’s trust, ACORN’s case is a textbook example of horrendously weak governance combined with extremely poor judgment. While the National Committee for Responsive Philanthropy (NCRP) serves primarily as a watchdog of foundations and other grantmaking institutions (not of all nonprofits), this case is certainly worthy of comment due to the scope of the issues involved.

In the interest of full disclosure, I should point out that ACORN is a member of NCRP, that I worked for the organization from 1992 to 1997, that a senior ACORN executive served previously on NCRP’s Board of Directors, and that current NCRP board members are executives with foundations that fund extensively ACORN and its affiliates. Additionally, NCRP is currently working on new research that documents the positive impact of policy advocacy, community organizing, and civic engagement, and ACORN’s work will be included in that research.

Despite these connections between ACORN and NCRP, it is important to stress that no organization should be arrogantly allowed to take the public’s trust for granted.

ACORN’s first mistake in weak governance and poor judgment came in allowing the brother of the organization’s founder to be in charge of finances for so many years. What were they thinking? The board should never have allowed that kind of arrangement to go on for so long. Nepotism never serves nonprofits well. In spite of the fact that dozens of staff members regularly objected to the arrangement, Wade Rathke insisted on keeping his brother running the finances for decades and the board never forced him to do otherwise.

The second mistake, related to the first, was the board’s consistent failure to exercise its fiduciary responsibility and engage in sufficiently rigorous oversight. From my understanding, the board did not have an audit committee and the auditors were answering to Wade Rathke, not to the organization’s board. This is absolutely inexcusable for a nonprofit whose annual budget, when combined with its affiliate organizations, was more than $40 million in 2000.

Once the theft was uncovered, there were several acts that were clearly unethical and just plain boneheaded. First, the auditors followed Wade’s instruction to record the theft as a “loan,” which may make them criminally negligent in this matter. The staff who allowed Wade to keep the matter a secret bears a significant amount of blame too. These are people who show a tremendous amount of backbone everyday in their campaigns against injustice but who lacked spinal fortitude at precisely the moment when it was needed the most to protect the long-term interests of their organization and its constituency. As difficult as it would have been to stand up to the organization’s founder, they should have insisted on full transparency and accountability eight years ago.

While Wade’s argument for protecting the organization from those that would like to harm it has some merit, no organization should think it can operate outside of the basic principles of integrity and transparency. Every time a nonprofit is involved in this kind of wrongdoing, it hurts the entire sector; we cannot take the public’s trust for granted.

ACORN’s funders have made it clear they are willing to continue supporting the organization if ACORN overhauls its management and governance structures. In fact, some funders were pushing ACORN to address these internal issues long before news of the embezzlement leaked. While a foundation should not be in the business of telling nonprofits how to run their organization, it’s proper and necessary for funders to push the issue when basic accountability and governance are lacking.

ACORN does some fantastic work locally and nationally. [For a full description of that work, along with some insightful analysis of the current crisis, please read Peter Dreier’s recent piece in the Huffington Post.] But the fact that they do some great work doesn’t excuse how they handled this situation. All nonprofits need to function with the highest standards of integrity. To their credit, ACORN’s board acted quickly and decisively in removing both Rathkes from their posts once the story became known to them. Additionally, Bertha Lewis has now been named interim chief organizer and seems absolutely dedicated to fixing the underlying governance issues, not just in glossing over the public relations nightmare it has caused.

Out of this crisis comes an opportunity for ACORN to improve its operations. If they get it right, I expect that the organization will thrive in the coming years, that donors will maintain or increase their support of ACORN and its affiliates, and that the public will benefit as a result. If they don’t take this opportunity to improve their operations, I expect that their fundraising will suffer. Other nonprofits should use this case to examine their own commitment to accountability and transparency. Proper governance goes a long way to preventing abuses in our sector.

Aaron Dorfman is the executive director of the National Committee for Responsive Philanthropy (NCRP).

posted on: Thursday, July 03, 2008

By Niki Jagpal

The issue of appropriate levels of compensation for nonprofit executives and CEOs is making headlines once again after investigative reports by WCNC-TV and The Charlotte Observer. The United Way of Central Carolinas’ (UWCC) president and CEO Gloria Pace King will receive more than $1.2 million, following the addition of $822,507 to her retirement plan. As the two media outlets have noted, the increase in Pace King’s benefits package places her level of compensation above that of many other United Way executives in different parts of the country.

UWCC board chair Graham Denton defended Ms. Pace King’s compensation, saying she deserved the package given to her.

The Chronicle of Philanthropy’s 2007 survey of executive compensation, however, shows that among the various chapters of the United Way, Pace King’s compensation relative to her organization’s fundraising is significantly higher than that of her counterparts in similar-sized United Way chapters. The Charlotte Observer provides the following examples of other United Way CEO salaries compared to their annual fundraising in FY 2007:

• UWCC raised a record $44 million and Pace King’s salary was $365,000 (excluding benefits).
• In metropolitan Atlanta, the United Way chapter raised nearly $79 million; their outgoing CEO was paid a lump sum of nearly $1.6 million when he retired, on top of a salary of $352,611.[1]
• The United Way of Greater St. Louis raised close to $69 million; the CEO was paid $254,487.

The Observer also highlights a 2002 study it conducted in which the newspaper’s investigations revealed that Pace King was the fifth-highest paid executive of the 50 chapters they analyzed. Her current compensation package places her third among the nation’s 42 United Way chapters as noted by WCNC. These figures raise many questions, including to what extent should the level of fundraising be tied to CEO compensation? And if Denton defends Pace King’s salary on the basis of her fundraising, why is there no consistency in the pay rates of other UW CEOs who out-fundraised her?

So, what are the appropriate ratios to determine a ‘fair’ level of compensation for nonprofit executives? NCRP received a note defending UWCC, highlighting the small percentage of the UWCC budget that comprises Pace King’s compensation. Based on the organization’s 2006 990 form, according to the note, Pace King’s salary was 1.25 percent of her organization’s total operating budget. The writer compared this figure to NCRP’s 2006 990, which showed its executive director’s salary at 15.47 percent.

S/he raised a valid point for consideration in the discussion of what constitutes an appropriate level of compensation and what factors are considered to determine it. For example, while a CEO’s salary may only account for a fraction of an organization’s total budget, is there an absolute figure after which this statistic becomes irrelevant? What of the nonprofit operating with a very small budget that employs only one person who has the title of ‘CEO’? Surely this person’s compensation would comprise a significant proportion of her or his budget, perhaps even 50 percent, give the “multiple hats” the CEO wears in this scenario. In short, is the CEO’s salary as a percentage of the overall budget a valid measure to determine appropriate levels of compensation?

The author of the comment also pointed out that NCRP’s overhead costs in 2006 (17.1 percent) were higher than UWCC’s (13.6 percent). The rate and what constitutes overhead or administrative costs[2] that keep an organization functional vary from organization to organization. It can cover not just staff salaries and benefits but also other costs that enable an organization to work and thrive, such as rent, technology infrastructure, staff training and unplanned program expenses. Moreover, the transaction costs of conducting business in different parts of the country make the local context far too important to ignore. Keeping a small nonprofit in the greater DC metropolitan area functional, paying employees competitive wages based on the local market and cost of living will affect a nonprofit’s overhead.

Finally, the comparison of NCRP with the UWCC assumes that a nonprofit that depends largely on foundation grants should have the same metrics for reasonable compensation as an organization that receives majority of its income from individual donors through workplace giving programs. If this is the case, then what about private foundations, which receive minimal, if any, contributions from individuals?

So how do we select the criteria that ought to determine appropriate levels of executive compensation? Is it realistic to expect foundations to account for local and regional variability in the costs of living when determining how much money to allocate for compensation? Is it fair for a nonprofit executive of an organization funded largely by individual as opposed to institutional grantmakers to disclose how much of the public’s contribution will go toward compensation versus the actual business of the nonprofit? The answers to all the above questions will certainly vary by organization, mission, strategy and personal values. If nothing else, the UWCC case highlights the need to discuss these difficult issues to ensure philanthropy serves the public good and not private interests.

[1] The salary figure was taken from the Chronicle of Philanthropy's 2007 survey.
[2] NCRP recognizes the importance of providing nonprofits with adequate general operating dollars to be truly effective in achieving their organizational missions. It has been urging foundations to increase funding general operations and provide more funding for administrative overhead costs in programmatic grants.

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

posted on: Thursday, June 12, 2008

by NCRP

Two new reports highlight important work undertaken by research director Niki Jagpal and senior research associate Lisa Ranghelli prior to joining NCRP's research team. The methods and results of these research efforts will inform NCRP's own work to promote philanthropy at its best.

The Solidago Fund recently released a report quantifying the community benefits achieved by its grantees and the return on investment of its funding for community organizing. Lisa Ranghelli worked with Jeff Rosen and other Solidago staff to develop the methodology and gather and analyze data for the report. She had previously worked with the Needmor fund to do a similar analysis of its community organizing grantmaking (see below). In calculating community benefits, the Solidago methodology allowed for differentiation between shared and full credit for grantee accomplishments. It also determined the foundation’s contribution to these accomplishments by calculating each grant as a proportion of the group’s budget. The report concluded that collaborative strategies yielded the greatest impact and found a return on investment for Solidago of $1 to $59. [Link]

In 2003, Lisa worked with the Needmor Fund, a small family foundation focused on social justice, to collect grantee data on organizational development. Lisa’s work found that the 18 surveyed grantees had collectively grown their membership by more than 30% and their leadership by 53% over four years. The most striking thing she found was that the aggregate dollar amount of their accomplishments during the four year time horizon was more than $1.37 billion. This meant that Needmor’s investment of $2,688,500 effectively generated a return of $1 to $512. [Link]

These two reports, which were preceded by independent research from the Jewish Funds for Justice, provide some of the framework for NCRP’s impact of advocacy and organizing work. For foundations seeking to maximize impact, NCRP wants to show the social and monetary value of investing in community organizing as a way to achieve lasting social change.

Meanwhile, research director Niki Jagpal did extensive post-Katrina research with Jim Carr, former Senior Vice President for Financial Innovation, Planning, and Research for the Fannie Mae Foundation who currently serves as Chief Operating Officer at the National Community Reinvestment Coalition. Her work focused on the disparate impact on lower-income and African American communities in New Orleans both immediately after the storm and following the one-year anniversary. The Joint Center for Political and Economic Studies recently announced the publication of a series of reports calling for a new model of disaster response, one that considers “historic patterns of discrimination and inequality.” Niki’s work is featured in one of the reports, “In the Wake of Katrina: The Continuing Saga of Housing and Rebuilding in New Orleans.” [Link]

Niki’s previous work addressing the distinct impact of Katrina and the subsequent recovery efforts on traditionally marginalized communities sets the backdrop for NCRP’s work on developing criteria for Philanthropy at its Best (PAIB). Promoting philanthropy that explicitly identifies and seeks to remedy structural barriers to equality are integral components of PAIB

posted on: Wednesday, May 14, 2008

by Gary Snyder


In my spare time, I occasionally check out the agencies that I contribute to on the Charity Navigator website. I find the site to be extremely well organized. If I need further information, I sometimes go to the GuideStar website to delve deeply into the latest financials. Since I love financial analysis, the time goes by fast-frequently killing 3 hours.

In my exploration the other day I noticed some agencies that further the need for self-regulation or self-regulation of the charitable sector. The matter of regulation has become a hot topic recently. The Internal Revenue Service, the Congress and a few attorneys general have focused in on abhorrent practices at charities.

A few caught my eye as I scrutinized the charitable listings. The issue was fundraising expenses. There are a number of charities that spend more than 50% of their budget paying for-profit fundraising professionals to solicit.

Many of us have heard that the ‘badge’ charities use these fundraising techniques. I was surprised to see that The Committee for Missing Children headed the list of charities that overpay for fundraising. That agency spent over 86% of its income in fundraising fees. They were only able to commit 11.2% to programming. Others were only able to use small amounts for their mission: 3.7% (Junior Police Academy); 6.6% (Coalition of Police and Sheriffs) and 6.4% (American Veteran Relief Foundation) and 10% for the Children’s Charity Fund and the Foundation for Children with Cancer.

The National Children’s Leukemia Foundation spends almost 80% for fundraising and only about 15% for the children. The agency isn’t small with an annual budget of over $2.2 million. Needless to say, the National Children’s Leukemia Foundation received the Charity Navigator’s lowest rating.

The Youth Development Fund is a $3.3 million agency. Its fundraising amounts to 83% of its expenses with only 13% going to children’s education. The Youth Development Fund also received the Charity Navigator’s lowest rating.

Granted, these are just a few organizations that make it incredibly hard to defend that the charitable world that it doesn’t need some intervention. Yes, these are just a few, but as charitable donors get wind of these it only supports the notion that the nonprofit sector can’t or won’t reign in its own.



Gary R. Snyder is the author of "Nonprofits: On the Brink" and a member of NCRP's board of directors. He is a frequent lecturer and author of articles in numerous publications and blogs. His email is http://gary.r.snyder@gmail.com; website: www.garyrsnyder.com, phone: 248.324.3700.

posted on: Friday, April 25, 2008

by Niki Jagpal

This week Project Streamline, a joint effort of grantmaking and receiving organizations to improve reporting and application procedures, released a new report Drowning in Paperwork, Distracted From Purpose. The report identifies ten ways that current application and reporting systems inhibit nonprofit effectiveness including insufficient net grants and lack of trust between nonprofits and funders. The report makes four recommendations for grantmakers based on the study’s findings.

Project Streamline’s report comes at an opportune time; a recent article in the Chronicle of Philanthropy (subscription required) highlights efforts by the Internal Revenue System (IRS) to increase the effectiveness and efficiency of charitable organizations. Steven T. Miller is the current commissioner of the IRS’s tax-exempt and government-entities division. As the Chronicle notes, he made a series of remarks at a conference on tax-exempt organizations convened by Georgetown University Law Center Continuing Legal Education Department this week. One strategy Miller suggests is for the IRS to “create and enforce a standard to ensure that organizations spend in line with their resources.” While monitoring is not currently the purview of the IRS, Miller said that the IRS would be “more aggressive” in keeping a watch over the “efficiency and effectiveness” of charitable organizations.

If nonprofits are to be truly empowered to achieve their missions by focusing on effectiveness and efficiency, it is clear that cumbersome application and reporting procedures have to be addressed. But the process of grant applications and reports is only part of the solution; as Miller states “[…] every charity should be make responsible and appropriate use of its resources to achieve its charitable purposes. That is what the tax-exempt subsidy is for.” [emphasis added]

Moreover, while the Chronicle article and Miller’s remarks discuss revisions to the IRS’s 990 form, the publicly available informational tax returns filed by nonprofit grant recipients, the same standard of effectiveness and efficiency ought to apply to the form 990-PF, the IRS’s tax form filed by private foundations. While efforts to include “efficiency indicators” in the revised 990 forms failed, the new forms will include questions about nonprofit governance and management policies. Miller sees the link between increased transparency and enforcement: “the question is no longer whether the IRS has a role to play in [governance] but rather what that role will be.”

Project Streamline’s work is commendable and adds value to sector-wide attempts to improve the grantmaker-grantee relationship. Now, imagine what the charitable sector would look like if we had simple criteria on the 990 PF forms for measuring philanthropic management and governance to support Miller’s vision of more effective and efficient charitable organizations?

Niki Jagpal is the research director at NCRP.

posted on: Monday, March 17, 2008

By Lisa Ranghelli, Senior Research Associate, NCRP

Last weekend’s Sunday New York Times Magazine (3/9/08) was devoted to philanthropy and charitable giving. I’d like to comment on two interesting articles on current philanthropic thinking about how to best measure the impact of grants and how to determine which strategies are most likely to effect desired change.

Jon Gertner’s article, “For Good, Measure,” raises some important questions about the extent to which funders should seek a ‘return on investment’ for their grants, and how much money they should spend evaluating and measuring impact. The article focused primarily on big fish in philanthropy like the Bill and Melinda Gates Foundation and the Rockefeller Foundation. After all, they have the kind of resources purported to be needed to have an impact on entrenched problems like poverty.

Yet there are thousands of small and mid-size foundations across this country that might not have the resources to conduct major evaluations, but they should also be thinking about their impact. In fact, these funders could be making a much more significant difference—and some are—by realizing that investing in effective grassroots organizing and advocacy can help achieve long-term systemic change on issues they care about, from housing and homelessness to workforce development and education. Speaking of education…

In “How Many Billionaires Does It Take to Fix a School System?” Times Magazine editor Paul Tough brought together a group of ‘interested parties’--two funders, the NYC schools chancellor, a charter schools CEO, and someone from a conservative think tank-- to participate in a roundtable discussion about changes in education philanthropy. He asked the group to advise a hypothetical wealthy donor as to how he should spend $2 billion to make a difference in the field of education. Much of the discussion centered on identifying visionary chancellors and fostering competition through charter schools, with some attention to infrastructure and human resource development. Perhaps this should not be surprising, given who was having the conversation.

There were no teachers, students, parents, or other community members represented around that table. Yet these are the people most affected by schools issues and often the ones in the best position to make change happen through effective organizing and advocacy. For years foundations have used the argument that “organizing and advocacy are hard to evaluate, and it’s hard to measure their impact” as a reason (excuse?) to not fund such strategies. Yet more and more information is coming to light that challenges this claim.

A great example is the forthcoming Annenberg Institute for School Reform report commissioned by the Mott Foundation, which assesses the impact of organizing groups on education reform and student outcomes in seven cities. (Full disclosure: one of the groups studied was People Acting for Community Together in Miami, formerly run by NCRP Executive Director Aaron Dorfman.) Anyone who doubts that the impacts of organizing can be quantified, measured, and linked to specific performance indicators should plan to check out this report when it is released on March 26th here. It is notable that two of the cities included in the report are New York City and Los Angeles, two places held up for their innovations in the Times’ roundtable discussion. The Annenberg report should offer a very different perspective on ways to improve outcomes for students in those two cities, as well as the five other sites.

In fairness to the Times roundtable participants, their conversation eventually touched on issues of nonprofit capacity and the role of policy advocacy. Vanessa Kirsch, who runs a venture philanthropy firm, talked about the need to provide multi-year support to non-profits run by “social entrepreneurs,” so they have time to build their capacity and bring their innovative ideas to scale. Who are these social entrepreneurs? Low-income community leaders and organizers do not seem to be included in this group, but why not? Grassroots community organizing is about building social capital to achieve systemic change. Chris Doby, program officer at the Mott Foundation, made the case that post-Katrina organizers were in fact social entrepreneurs here.

Perhaps organizing groups need to rebrand themselves to fit in with the new lingo of philanthropy. The phrase “community organizing” causes many foundation trustees to cringe in horror, as they imagine Saul Alinsky rising from the dead and banging down their door in the middle of the night. This visceral feeling about organizing prevents trustees from supporting good work on the issues they care most about. It works against their own self interest. Would they feel better knowing that they were investing in social entrepreneurs who can offer them a quantifiable return on their investment?

To what extent do we buy into the business-oriented language sweeping across the philanthropic sector, and to what extent do we push back?

By Aaron Dorfman

Last week, six hundred foundation leaders from across the nation were in San Francisco, Calif. for a conference on grantmaker practices that improve nonprofit results while a major controversy involving foundations continues to brew in the California Legislature.

The conference marked the tenth anniversary of Grantmakers for Effective Organizations (GEO), a coalition of funders focused on maximizing the impact of their grants. GEO is the place where foundation leaders come together to share resources and ideas that help them most effectively contribute to the success of their grantee organizations. When the grantees achieve their missions, the foundations also achieve theirs.

The legislative controversy is about AB 624, a bill that would require the largest California foundations to disclose diversity data about their boards, staffs, grantees and vendors. The bill passed the California Assembly and is making its way through the Senate. Assembly Member Joe Coto introduced the bill because he feels that foundations aren’t meeting the needs of his constituents and other communities of color in California.

With any rigorous review of the available data, it is clear that communities of color benefit from institutional philanthropy at rates far lower than one would expect. Nationally, less than nine percent of grant dollars are classified as intending to benefit racial or ethnic minorities. As a percentage of total grants, that figure has been declining over time. And while the available evidence suggests that foundations have been making real progress diversifying their staffs at the middle levels of seniority, chief executives and trustees of foundations remain overwhelmingly white.

But foundations exist for the purpose of having impact on the issues and causes they were founded to address, not to provide grants or hire staff based on race or ethnicity. Opponents of AB 624 argue that they make their funding decisions based solely on which grantees are most likely to achieve maximum impact and that race shouldn’t enter into the equation.

So are we at an impasse? Must grantmakers choose between being effective or embracing racial equity and diversity? Not at all.

Improving the societal impact of foundations and improving their support for diverse communities need not be mutually exclusive propositions. In fact, there is growing evidence that diversity and effectiveness go hand in hand.

A recent book, The Difference: How the Power of Diversity Creates Better Groups, Firms, Schools and Societies, by University of Michigan professor Scott E. Page shows convincingly that diverse organizations actually outperform more homogenous ones. “Diverse boards of directors make better decisions, the most innovative companies are diverse,” he states in an interview with the New York Times.

Foundation leaders who want results should consider seriously Page’s research. Grantmakers should embrace both diversity and effectiveness, and they should persistently seek to improve on both fronts. They need to go beyond race/gender/sexual orientation and should also include class to ensure that elites of different races aren’t the only voices listened to in philanthropy.

For the past decade, foundations have been advancing their ability to measure the impact of their work and that of their grantees. They’re getting better at knowing whether or not they’re making a difference. They should continue their efforts on this front.

But we also need better data on diversity in philanthropy. Improving diversity will help foundations increase their impact, but we won’t be able to tell if they’re making progress if they don’t measure and report on key diversity metrics. When the only diversity data that is available clearly shows that communities of color are getting shortchanged, elected officials can and should start raising questions. After all, foundations’ tax exempt status means these grantmakers are spending quasi-public dollars.

There are flaws with AB 624, but there is no question that foundations should embrace both diversity and effectiveness to ensure maximum public benefit from the valuable and limited resources that are entrusted to them.

Aaron Dorfman is the executive director of the National Committee for Responsive Philanthropy.