posted on: Monday, March 15, 2010

By Aaron Dorfman

“If I were running the country, I would …” We’ve all thought of this phrase at least once in our lives.

On Tuesday and Wednesday, hundreds of grantmakers will converge on our nation’s capital to educate Members of Congress and their staffs on the critical role that philanthropy plays in our society, and to advocate on key issues that affect the sector. The Foundations on the Hill (FOTH) event is organized by the Council on Foundations and the Forum of Regional Associations of Grantmakers.

I hope that legislators and their staffers will use this opportunity to learn what they can about the important and varied ways that philanthropy is serving communities across the country. There is, no doubt, some great philanthropy being practiced: some funders are creatively supporting direct services during the recession, others are investing in research to solve important problems, and still others are building nonprofit capacity so organizations can be more effective at meeting the needs of our communities.

But we all know that there are many ways that foundations fall short of their potential, too. So FOTH got me thinking: If I were a legislator or Hill staffer meeting grantmakers from my district or state, what questions would I ask?

I invited several colleagues to share their questions.

From Akaya Windwood, president and CEO of Rockwood Leadership Institute, a nonprofit that provides training on leadership and collaboration to individuals, organizations and networks for social change:

• Legislators have feedback mechanisms called elections. If politicians don't meet the needs and expectations of their constituencies, they tend to lose their jobs. What are the feedback mechanisms by which foundations insure that the needs and expectations of their consituencies are met?


• If philanthropists are the venture capitalists of the social sectors, what are ways in which foundations can become bold and nimble enough to support risky but potentially breakthrough ideas?

From Daniel Dodd, executive director of Step Up Savannah, a collaborative of organizations, businesses, and government agencies that seeks to move families toward economic self sufficiency:

• How are foundations working to ensure that grantees are involving low income individuals and minorities into the decision making process when developing poverty reduction strategies or programs?
  
• How are foundations ensuring that funds are being allocated evenly geographically across the country? (It has been our experience that the South is particularly overlooked.)

From Steven Mayer, director of Effectiveness Communities LLC, and architect of Justphilanthropy.org, a website that presents six pathways for philanthropy to be more intentional in its support of racial and social justice:

• Using a metaphor to present an opportunity for exploring the role of philanthropy… If it’s raining cats and dogs and you discover that society’s roof is leaking, do you believe foundations and nonprofits have a role in fixing the roof, or should they be concerned only with cleaning up the mess? Should they (or shouldn’t they) partner with local or national government in their response?
  
• What percentage of a foundation’s or nonprofit’s endowment should be invested in ways consistent with its charitable purposes? (or at least not inconsistent with it)?

From Bill Watanabe, executive director of the Little Tokyo Service Center, a neighborhood-based social service nonprofit that serves Asians and Pacific Islanders of L.A. County:

• How do you define success in the effective use of your foundation grant dollars? Some foundations seem to think that funding systemic change is the ultimate success and direct services is only "band-aid."

From Jan Masaoka, editor of Blue Avocado, an online magazine for community nonprofits:

• Why is that you foundations always talk about all the public good you do in the world, but the main thing that gets you riled up with Congress is when we talk about changing estate taxes, charitable contribution taxes, and other things that would basically tax the rich people that control foundations? Are you more about the public good you say you do, or the private good that you actually advocate for?

These terrific questions speak to the concerns that many of us have on the critical role that philanthropy plays in our society. The points raised by Akaya, Jan, Bill, Daniel and Steven allude to the critical rights and responsibilities of foundations and other institutional funders, and the difficult but necessary task of striking a balance between the two when developing grantmaking strategies.

Bill’s question on the value of direct services, juxtaposed with Steven’s question about fixing the roof, serves as an important reminder that foundations need to look at ways to meet the immediate needs of vulnerable communities while also working towards more lasting solutions to complex social problems.

Both of Daniel’s questions give voice to the frustration felt by those who get left out, and who aren’t often the beneficiaries of philanthropic giving.

Jan’s question speaks to the real frustration that many have with how foundations position themselves when advocating on the Hill.

Here are 3 questions I would add:

• How has your foundations responded to the economic crisis? Did you maintain a steady grants payout, or did you increase or decrease your giving? Why?
  
• How do you think about diversity at your institution? How diverse is your board and staff?
  
• Do you provide your grantees multiyear and general operating support? Why or why not?

What do you think of the questions posed in this commentary?

If you were a legislator or congressional staffer meeting with foundation executives, what questions would you ask?

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

Photo by Danilo Rizzuti/Freedigitalphotos.net

posted on: Tuesday, February 09, 2010

By Aaron Dorfman

I’ve been trapped in my house since Friday night due to the recent blizzard here in the national capital region. And even with all the time spent shoveling and playing in the snow, I managed to make time to catch up on some philanthropy-related items.

Ten days ago, the Foundation Center launched an important new initiative meant to encourage greater transparency among foundations, and one thing I did while snowed in was play around on the site. In a blog post announcing the project, Foundation Center President Brad Smith wrote:

“With the launch of a new public Web portal, www.glasspockets.org, the Foundation Center reaches back to its founding values. We believe strongly in philanthropic freedom, the kind of independence that allows foundations to be innovative, take risks, and work on long-term solutions to some of the world’s most vexing problems. But the best way to preserve philanthropic freedom is not to hide behind it; rather, foundations increasingly need to tell the story of what they do, why they do it, and what difference it makes.

“Why transparency? Foundations use private wealth to serve the public good for which they receive a tax exemption in return. While some have argued that the tax exemption does not legally compel foundations to behave in any particular way, foundations' challenges are more perceptual than legal. No sector -- government, church, business, or charitable -- gets a free pass in the world of 24/7 media, blogs, YouTube, Twitter, crowdsourcing, and digital everything. Why should foundations? Collectively, America's foundations control more than $500 billion in assets, spend some $46 billion a year in grants and on programs, and, in some localities and on some issues, are the major players. And as foundations strive to become more strategic and effective, their impact and influence will grow -- as will the curiosity, praise, criticism, and scrutiny they attract.”

The site provides a clear assessment of whether or not individual foundations make certain information available to the public. For example: does the foundation make available on its website its 990PF return? Does the foundation provide information about its diversity practices? Does the foundation have a mechanism in place to get feedback from grantees? In all, the site tracks 22 difference practices and provides direct links to the information on the foundation’s website.

I found the site fascinating, and I am hopeful that it will create additional pressure for foundations to adopt some of these practices and become more transparent. In perusing the site, I found myself wondering about a few notable philanthropic giants:

Why doesn’t the Hewlett foundation provide information about its diversity practices? Surely they must be sensitive to how they are regarded on issues of race, considering the often contentious debate over AB 624 in California. Why not proactively communicate about these issues with the community?

Why doesn’t the Ford Foundation have any way to get feedback from grantees? Considering the major overhaul they gave to their grantmaking programs recently, one would think the foundation would want to have a way to systematically get feedback from its nonprofit partners.

Why doesn’t the Gates Foundation share information about its executive compensation process? Their new CEO earns nearly one million dollars per year, yet he was already extremely wealthy before taking the job as head of the foundation. The former Gates Foundation CEO took only $1 in annual compensation. Wouldn’t it be a good idea for the foundation to explain publicly the process it uses to set executive compensation?

In writing this blog post, I wanted to spread the word and encourage others to explore the GLASSPOCKETS site. And I also wanted to find out what readers of NCRP’s blog think. Will the site put additional pressure on foundations to adopt some of these practices? If so, why – and is that a good thing? If not, why not?

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

Photo credit: Suat Eman / FreeDigitalPhotos.net

posted on: Friday, October 02, 2009

By Niki Jagpal

A few days ago, we received a thoughtful response from Michaelon Wright regarding Criteria for Philanthropy at Its Best. He raised some really important issues,

“I read your publication and the first thing that comes to mind when I think of Philanthropy at its Best is delivering sustainable, desirable outcomes, replicatable outcomes. Using methods for measuring an organizations (non-profits) effectiveness in delivering the outcome. Holding the non-profit accountable for how funds are spent, keeping overhead in check and delivering services effectively and efficiently. We as a philanthropic community have been literally throwing our money away on organizations that enable behavior contrary to becomming a responsible, productive member of society and organizations that are overhead intensive and employ staff not sufficiently trained or motivated to deliver results. The problem has not been not enough money thrown at societies ills, it is that there has been little to no accountability for results. Continous funding of an organization for a period of years does not necessarily make that organization more effective. Funding needs to be strictly based on results achieved. Frankly I do not think any of your criteria will improve the ability of Philanthropy to make a difference in the communities they serve. The focus for too long has been on increasing giving and unfortunately not on attaining the desired results.”

I very much appreciated his feedback. Different perspectives and opinions that lead to constructive and informed debates are an important way for us to find common ground and work together to strengthen our sector as a whole. It’s exactly this kind of discussion we all need at this critical time. As Gara LaMarche, president and CEO of the Atlantic Philanthropies and one of our board members said when we released the book:

“What [Criteria] does, in my view, very usefully, is engage in a debate that's been going on in philanthropy for the last several years-that is a debate about philanthropic impact and effectiveness. And that debate, in my view, has for the most part been somewhat sterile and technocratic. ... What it needs to do is have more content, which connects the question of effectiveness to the change you are trying to make in the world. I think [Criteria] makes an enormous contribution to that. ...”

I don’t disagree with Michaelon that grantee organizations ought to be evaluated based on outcomes. But I think it’s equally important that grantmakers be held to the same accountability measures – an emphasis on the outcomes and impact that an institution has on the issues related to its mission and donor intent. As we note in Criteria, just as profit is the bottom line for gauging impact in the private sector, impact is the best measure for our sector’s effectiveness.

When foundations provide core support and multi-year grants, nonprofits are better able to focus on outcomes and results achieved than when they have grants that restrict them to specific programmatic activities. We believe that grantmakers can provide these types of grants and hold their nonprofit grantees responsible, and we provided examples of funders in the book who’ve seen real impact by partnering with grantees in this way.

He’s right that multi-year funding doesn’t guarantee effectiveness. But effectiveness is influenced by a grantees’ ability to respond to the communities it serves. And often, one can’t predetermine what the results of a given intervention will be, nor if other more urgent issues or opportunities to achieve results that benefit our communities might arise. Would you agree that the impact on communities is the best measure of how effective grantee and grantmaking institutions are?

For far too long, most members of our sector have worked in silos, with many notable exceptions. Now’s the time for us to move beyond that approach, to see each others as partners in pursuit of the common good and to truly rethink the grantee-funder relationship.

I’d like to thank Michaelon for sharing his thoughts and invite others to join in this conversation so we can continue this long-overdue discussion about what really matters to make the civic sector the best complement to public and private sectors’ work for the betterment of our society.

PS – I encourage everyone to review this page on Criteria where we address many misperceptions of this book and its intent.

Niki Jagpal is research & policy director of the National Committee for Responsive Philanthropy (NCRP).

posted on: Tuesday, September 29, 2009

According to recent survey data from The Chronicle of Philanthropy, the median pay increase for charity executives in 2008 was seven percent. This information comes with a host of caveats: nearly one-third of respondents indicated that executives accepted pay cuts, and many of the salaries were set before the full force of the current recession was anticipated. Nonetheless, the data on foundation executive salaries bears examining, particularly given that many foundations are informing their nonprofit partners that the state of the economy is forcing grantmaking cutbacks.

As noted above, the median pay increase in 2008 among large charities and foundations was seven percent. In 2008, inflation averaged 3.8 percent over the course of the year; a full percentage point higher than the average in 2007. In this way, it doesn’t seem that charity leaders were necessarily putting their own interests above their charitable missions. Yet, given the intractable socioeconomic problems that the recession has exacerbated, now more than ever foundations must commit themselves to their missions and invest in their nonprofit partners. Of the 29 percent (57 of 195) of the set that indicated they either received no increase or took a pay cut, the median amount of the cut was ten percent. Most foundations on the list of those taking no salary increase or pay cuts were community foundations. Several nonprofits and foundations also made cuts affecting staff other than the CEO. The median CEO salary for the 148 foundations in the set was $458,461. A handful of large foundation executives earned upwards of $1 million. Additionally, 30 large nonprofit top staff – mostly hospital, university and arts organizations - earned between $1 and $4.7 million.

In the Ethics chapter of Criteria for Philanthropy at its Best, NCRP states that foundations should adopt policies and practices that support ethical behavior, including establishing reasonable, not excessive compensation. Many factors are important when determining appropriate compensation, including the size of the organization, the scope of the executive’s duties, remaining competitive with the private sector, the geographic location of the work, and so forth. However, the new information from the Chronicle’s survey seems to indicate that despite the need to scale back grantmaking at nearly every foundation in the country, many executives are not personally feeling the effects of endowment losses. Even the perception that executives are overpaid leads to the loss of public trust: a crucial element of foundation and nonprofit success.

The pieces related to the data published by The Chronicle indicate that most in the sector expect more pay cuts and fewer raises in the coming year, given that foundations are still reeling from endowment losses sometimes topping 35 percent. Earlier this year, NCRP board member Pablo Eisenberg wrote in The Chronicle about rising nonprofit executive pay. He suggested caps on nonprofit executive pay; not an outrageous idea, considering recent agreement at the G20 summit to regulate pay at financial institutions to prevent abuse.

Are you concerned that foundation and nonprofit executives are risking the public trust with their behavior? How do we determine reasonable, not excessive compensation, given all of the factors described above? I’d love to hear your thoughts in the comments.

Julia Craig is research assistant at the National Committee for Responsive Philanthropy

posted on: Tuesday, September 15, 2009

Gary Snyder

As the confidence in the charitable sector sinks, where are its leaders with lifeboats? Are the leaders indifferent or just out of synch? Who is going to lead us out of this precarious path of mistrust and disengagement?

There is no silver bullet to guide us out of the quagmire that philanthropy faces. However, 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. The sector must take a hard turn and reflect on the way it is conducting its business.

Some believe that the entrenched incumbency has become a major obstacle to a better course. We have seen several examples of a head-in-sand mentality.

We saw one example of it when the National Committee for Responsive Philanthropy (NCRP) report, “Philanthropy at Its Best,” suggesting, yes suggesting, that the sector look at another approach to grant makers. No mandates, just consideration. Those with deep-rooted aversion to change obviously saw it as a threat and started to attack. The attacks came from those seeking to maintain the status quo, one of which was the Wall Street Journal, whose opinion was published without even seeing the final recommendations.

Gara LaMarche of Atlantic Philanthropies noted that the NCRP suggestions were merely aspirational and nothing more. It was intended to be a basis for discussions, but some apparently thought that it was an assault on their privileged positions.

Whether or not if you liked their positions, one must respect those that at least defended their positions. Some leaders didn’t even comment on the NCRP document. Being silent must have been a surprise to many of the 120 funders that backed the NCRP principles and supported the leaders organizations.

Sitting on the sidelines on critical issues is no way to direct the sector’s destiny. Such denial has led to excesses in government intervention as well as abuse.

We have seen this silence in the past and at the expense of a large part of the charitable sector. In negotiations with the Senate Finance Committee, charity representatives quietly rolled over and asked for vigorous oversight and increased resources for oversight and education “for the many nonprofits that have no idea that there are a set of expectations.” This was done without ever taking the lead and addressing the problems themselves.

Many small and medium agencies, as a consequence, which were not represented at the table, have been subjected to government fiats. They believe that the standard-bearers’ priorities do not comport with the calling of good leadership. Many think that keeping their jobs seemed to be more important than finding tough solutions.

This lack of action is in stark contrast to the Council on Foundations approach. When it was challenged as philanthropic resources were down 40%, the Council of Foundations didn’t duck the problem and became proactive. That activist approach should be at the top of any leader’s job description.

Moreover, nonprofit leaders failed to take a position on President Obama’s proposal to limit charitable deductions…a most important piece of legislation facing the charitable sector. It failed to do so because it was “Solomon’s choice” between benefits to charities or healthcare.

Another essential trait of leaders is to have the courage to call things as they truly are, with no sugarcoating. Unfortunately, despite all evidence to the contrary, philanthropic leaders seem to believe that the annual multi-billion dollar nonprofit fraud is limited to ‘a few bad apples.” That position contradicts all other indicators in which nonprofit fraud, as a percentage, exceeds that of the for-profit and government sectors by considerable measure. Such dismissive mischaracterizations do not serve the sector well.

Nonprofit fraud is one matter that has failed to be adequately addressed. As a result, many believe that trust indicators in the sector are moving in the wrong direction. Some blame the decline in contributions and confidence on the economy. That is too easy. The trend line was established at the height of the economy.

Many believe that the sector would be stronger had it been more proactive. All of the aforementioned point to the need of charity leaders to critically look at the need for change. Reform may make a real difference, but the change metric must be first acknowledged; then addressed. Doing nothing will not stop the smoldering of the charitable sectors fate. Leaders must be sensitive and attentive to the needs that they serve. With outside pressures and new realities mounting, the current status quo, wait-and see leadership is unacceptable.

So, who is going to step up and take the mantle?

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://gary.r.snyder@gmail.com; website: www.garyrsnyder.com, phone: 248.324.3700. He is a member of the board of the National Committee for Responsive Philanthropy.

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: Thursday, July 30, 2009

Gary Snyder

I guess I am confused.

The ink is hardly dry on the Principles for Good Governance and Ethical Practice Workbook issued this month and now Independent Sector is seeking to strengthen charities with its StrategicLab Conference in Colorado Springs.

The Principles were not without controversy. It cost the IS and its contributors hundreds of thousands of dollars to turn out. IS president, Diana Aviv, readily acknowledged to the Chronicle of Philanthropy that the implementation of the changes in the Principles could cost the government hundreds of millions of dollars.

Also, there is still some question as to any systemic positive change that has resulted as an outgrowth of the document. Some have concerns about the lack of follow through on the Principles before embarking on other important issues. What is the status of the IS Advisory Committee on Self-Regulation of the Charitable Sector that was an outgrowth of the Principles? What ever happened to self-regulation and taking advantage of well-developed infrastructure currently existing within the sector?

The Principles have had some effect, however. Compromising on its call for self-regulation, the document cried out for government intervention into the sector. As a result, small and medium sized agencies are choking on Internal Revenue Service mandates. Furthermore, IS has called for increased federal government involvement by seeking an agency similar to the Small Business Administration. Obviously the call for such an agency must have been without insight because the SBA is considered to be one of the least respected agencies in the federal government and replete with incompetence.

So here we are at another forum that IS has convened. The StrategicLab meeting is contentious also. The Internet is replete with criticism that there are few Generation Y leaders asked to join in the deliberations. This is similar to the call for more diversity in the development of the Principles. Some then questioned the outcomes given the lack of diversity of viewpoints and now others are suggesting that The StrategicLab is another meeting at which an exclusive group is deliberating on behalf of the entire sector.

Should we be afraid of the consequences or that this is another false start?


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://gary.r.snyder@gmail.com; website: www.garyrsnyder.com, 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, July 14, 2009

Gary Snyder

Some random thoughts:

• Is the sacred self-regulation mantra gone forever in favor of the endorsement of the charity sector leadership endorsing stronger government intervention?

• Are the “accountability and transparency” efforts of GuideStar now being picked up by the IRS?

• Why is the IRS monitoring and giving training programs to charities when there is a large network of organizations (IS, Board Source, state associations, more) that are doing the same?

• Is the IRS being “helpful” and “watchful” going to eliminate the taint on charitable sector?

• In view of record malfeasance, why are the state regulatory bodies’ efforts being so poorly funded?

• Where are the efforts to instill confidence to a sector that has diminishing trust by donors?

• Has the upsurge in charitable organization applications for tax-exempt status served the sector well?

• Has the vast amount of money spent on board training shown any benefit?

• Why does the IRS say that no regulation fits all organizations, but proposes regulations that are to fit all charities?

• Why does everyone embrace empirical evidence but so few are gathering it?

• Why does everyone talk about dialog within philanthropic sector and large sections are not at the negotiating table or even consulted?

• Is the federal government’s belief that an active and independent board is the best defense against the misuse of charitable assets as well as bad press valid? What is the staff’s role in that regard?

• Why is there such an uproar when there are suggestions about how old and tired approaches should be changed?

• Is strategic planning a good activity, or expenditure, when the results frequently sit on the shelf?

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://gary.r.snyder@gmail.com; website: http://www.garyrsnyder.com/, phone: 248.324.3700.

posted on: Thursday, June 11, 2009

By Julia Craig

Jeff Raikes, the new CEO of the Bill & Melinda Gates Foundation, gave the Associated Press an interview last week in which he acknowledged the importance of experimentation and innovation in philanthropy.

For eight years, the foundation invested $2 billion in the U.S. to test the theory that smaller schools would produce higher graduation rates. Many of the foundation-supported schools did see an increase in graduation rates; however, overall student achievement and college readiness remained about the same. Following a study on the L.A. Unified School District that found a teacher having a certificate did not impact student achievement, the foundation shifted course and is now focusing on individual teacher quality.

Raikes highlighted this as an example of the foundation’s willingness to experiment and adapt. “Almost by definition, good philanthropy means we're going to have to do some risky things, some speculative things to try and see what works and what doesn't,” he told the AP.

The Gates Foundation has been criticized for its heavy reliance on technological solutions in the developing world in healthcare and agriculture. However, the willingness of the foundation to acknowledge and learn from mistakes is crucial; doing so helps build the knowledge and experience of the philanthropic sector as a whole. As Raikes noted in his interview, social innovation is largely the purview of the nonprofit sector. “We're going to try some things and I'm quite confident that some things will succeed and I'm quite confident that some things will fail,” he said.

Given the complexity of the challenges of education, health, development, and so forth, foundations being willing to experiment and take risks is a key to finding innovative solutions. Do you think the Bill and Melinda Gates Foundation has been sufficiently willing to take risks and to learn from their mistakes? If you ran the foundation, what new approaches would you want to test out?

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: Tuesday, May 26, 2009

Gary Snyder

In these times of considerable financial pressure, we are seeing some troubling signs in charities’ ability to keep their nonprofits afloat. One major, but often ignored, area of concern is charitable fraud…and by all measures it is growing. Desperate employees and board members are doing desperate things at an alarming rate.

A little over a year ago, a New York Times article, “Report Sketches Crime Costing Billions: Theft From Charities”, caused considerable discussion about the cost of fraud in the charitable sector. It highlighted a 2006 study that put the estimated cost of theft at $40 billion of the roughly $300 billion given to charity.

After that study’s results were published, many believed that brakes were being put in place to slow down the contagion of philanthropic crime. Some thought that it would be harder to hide fraud with the increased scrutiny with the submission of the revised IRS tax Form 990 which added questions regarding theft, embezzlement or other fraud in the previous year. Others held that the increased federal examination would lead to more exposure by newspapers and dampen the incidents of such crime. Still others believed that some provisions in the Sarbanes-Oxley Act would take hold and rein in fraud.

Even with the IRS becoming more aggressive in pursuing nonprofit fraud, the major federal investigative force in fraud--- the Federal Bureau of Investigation---and other enforcement agencies have shifted their focus to other matters such as counterterrorism and the explosion of banking and insurance misdeeds.

Peppered with optimism things have not worked out as envisioned. There have been some mitigating factors that most never anticipated. In the intervening year since the study results were released, the economy has tanked and the newspaper industry is in doldrums.

A recently released survey by the Association of Certified Fraud Examiners has shown that the economic crisis has led to an increase in fraud. The ACFE report “Occupational Fraud: A Study of the Impact of an Economic Recession” pointed out a sobering issue. Those organizations that had been most effected by the poor economy which resulted in layoffs during the past year were the ones that eliminated internal controls (35%). Only 3.2 percent of those surveyed increased controls. This trend is consistent with Nonprofit Imperative, my newsletter that tracks nonprofit fraud, data collection, which indicates that there is an increasingly widespread lack of internal controls in place in nonprofits.

As a result of less internal oversight, more than half (55.4 percent) of the ACFE respondents indicated that the level of fraud has increased in the previous 12 months compared to the level of fraud they investigated or observed in prior years. The largest reason for committing the crime was greater financial pressure caused by the depressed economy.

The magnitude of fraud in the nonprofit sector is considerably larger than all organizations in general. In the 2006 ACFE study, U.S. companies, on average, lost 7% of their annual revenue to fraud. This is in contrast to 13% that was published in the Nonprofit and Voluntary Sector Quarterly in 2007.

Although the revised Form 990 is still being phased in, Nonprofit Imperative had its largest amount of misdeeds ever in March 2009. NI showed an increase of 63 percent in nonprofit fraud from the past March 2008. That closely mirrors the 48.3% ACFE survey boost in corporate embezzlement during the past year.

Few--- only 2 percent--- in the ACFE survey expect a decline in the level of fraud.

The focus should be on the perpetrators. They are typically those in power and have direct responsibility/access to the money. The earlier ACFE study said that accounting personnel, followed by executive and upper management, commit the largest number of thefts. With little or no deterrents in place employees and board members can have a run on the money. With fewer charities having fraud-prevention policies in place, it becomes harder for auditors to help identify problems and set up counter-measures to keep deceit in check.

The dismissive response on the part of nonprofit leadership to this most important problem is puzzling. Their reliance on the government to weed out what they say is “a few bad apples” has resulted in a firestorm of criminality. The apparent boredom by agency boards is equally puzzling How many studies and how much evidence does it take to get their attention?

The facts are irrefutable. Organizations that had well-implemented policies have much smaller misconduct. Increasingly, fraud has become big business, with $15 trillion at stake, and fewer obstacles to getting caught. With every proxy measurement---endowments, contributions and trust--- on the wane what better time than now to address the fraud issue. Absent an unrelenting and unyielding thrust to rid the nonprofits of this scourge, the confidence in philanthropy will continue to spiral downward and so will the support that keeps the agencies that do so much good sustainable.



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://gary.r.snyder.com; website: www.garyrsnyder.com, phone: 248.324.3700.

posted on: Tuesday, April 07, 2009

In Criteria for Philanthropy at Its Best, NCRP makes the case that, in light of the tax exemption that foundations receive, foundation dollars should be viewed as “partially public” dollars.

One interesting response has been to point out that a 401(k) is tax-exempt and we get deductions on mortgages, but that doesn’t mean NCRP gets a say in your retirement portfolio and your wallpaper.

All of this is true. Unfortunately, critics conveniently forget the reasons behind these exemptions and deductions, at which point the argument falls apart. Foundation trustees commit to furthering some sort of charitable purpose when they create a foundation. I do no such thing when I open a 401(k) or purchase a home.

This isn’t the fringe viewpoint of some radical organization. It’s the law. From the IRS’ web site:

"To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes set forth in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual."

401(k) plans and mortgages are created for private benefit. The earnings of foundations, on the other hand, cannot inure to any private shareholder or individual, and we have adopted many rules and regulations over the years in order to insure that the nation’s foundations serve the public purposes for which they’re created.

For example, you don’t have to tell me how your 401(k) did this year, but you do have to tell people how your foundation did this year. Forms 990-PF are filed annually and subject to public inspection. I can’t tell you that your son can’t come back home and live in the room over the garage, but I can tell you that a family reunion can’t be paid for with family foundation dollars. There are rules against self-dealing.

Critics rightly ask, “I take tax deductions all the time. Why is this one any different?”

It’s an argument we hear often, and it’s easily answered: your 401(k) plan and your mortgage aren’t organized for public purposes; foundations are. The public has a say in how that tax exemption is used, and we all have an interest in seeing it used well for the benefit of as many as possible.

posted on: Thursday, March 12, 2009

By Gary Snyder

I received a call from a student in a Master’s program in journalism at a prestigious university. She saw several articles that I had written. They peaked her interest. We spent a protracted period of time discussing my background, her interests and her needs to complete her project on investigative journalism. I sent her some background material.

Her call was similar to many that I have received from students, journalists and other media, over the years. Many resulted in inaction. Most were dissuaded or stopped in their attempt to tackle the unlawful acts in the charitable sector.I suggested that her professor would probably not let her engage in a topic that was as controversial as nonprofit malfeasance.

A journalist future career is plagued by uncertainty in the face of the declining readership. She is faced with personal obstacles as well as the challenges of the current climate of nonprofit investigative journalism.

For decades we have taken newspaper investigations as a way of life. Large newspapers such as the Washington Post and the New York Times have exposed major corruption in the charitable world. Regional and smaller newspapers like the San Jose Mercury News, Palm Beach Post, The Sun News (South Carolina), Atlanta Journal Constitution, Philadelphia Inquirer, The Virgin Islands Daily News, St. Petersburg Times are just a few gutsy newspapers that I have worked with that are willing to stand up against considerable pressure and publish stories that that have resulted in indictments and convictions.

Newspapers are in danger. Our flagships dailies---New York Times and the Washington Post--- are in trouble. The Tribune Co. (Chicago Tribune, Los Angeles Times, Baltimore Sun) is cutting staff. The growing list of papers shutting down, or about to, are the Rocky Mountain News, San Francisco Chronicle, Seattle Post-Intelligencer, Minneapolis Star Tribune and the Miami Herald. Unfortunately, these are just the tip of the iceberg.

With the U.S. newspaper industry has entered a period of precipitous decline, the public good is going to suffer. With the retrenchment at the newspapers comes the reduction of journalists that are assigned to charitable investigative reporting. Fewer journalists have the unique skills to plow through the piles of documents to decipher nonprofit corruption. With the loss of the reporters, sources that enable journalist to break great stories are gone

An article in the New York Times highlighted the corruption in the charitable world and generated national and provocative responses. With denial from the nonprofit leadership there was virtually no follow-up, which precluded thoughtful and substantive debate. With the shrinkage of hard media journalists this creates an environment rife for charitable abuse.

Pablo Eisenberg of Georgetown University has suggested buying and stabilizing newspapers as a “contribution to the health of our democratic society.” Others have suggested that capital from philanthropists or foundations pay for the training and salaries may be the answer.

Without courageous newspapers and journalists and the alarms that they generate, charity misbehaving will increasingly become the norm.



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://gary.r.snyder@gmail.com; website: http://garyrsnyder.com, phone: 248.324.3700.

posted on: Monday, March 09, 2009

NCRP’s new Criteria for Philanthropy at Its Best has sparked lively (and sometimes heated) discussions in philanthropic circles since we released it last week.

Criteria is a set of guidelines for grantmakers so they can operate more ethically and increase their impact on the world today.

According to Criteria, a foundation serves the public good by …

Criterion 1: Values
… contributing to a strong, participatory democracy that engages all communities.

a. Provides at least 50 percent of its grant dollars to benefit lower-income communities, communities of color and other marginalized groups

b. Provides at least 25 percent of its grant dollars to advocacy, organizing and civic engagement to promote equity, opportunity and justice in our society

Criterion 2: Effectiveness
… investing in the health, growth and effectiveness of its nonprofits.

a. Provides at least 50 percent of its grant dollars for general operating support

b. Provides at least 50 percent of its grant dollars as multi-year grants

c. Ensures that the time to apply for and report on the grant is commensurate with grant size

Criterion 3: Ethics
… demonstrating accountability and transparency to the public, its grantees and constituents.

a. Maintains an engaged board of at least five people who include among them a diversity of perspectives—including the communities it serves—and who serves without compensation

b. Maintains policies and practices that support ethical behavior

c. Discloses information freely

Criterion 4: Commitment
… engaging a substantial portion of its financial assets in support of its mission.

a. Pays out at last 6 percent of its assets annually in all grants

b. Invests at least 25 percent of its assets in ways that support its mission

You can view the full report, individual chapters, and executive summary for free at http://www.ncrp.org/paib.

Join the conversation—we’d love to hear from you! Tell us what you think about Criteria.

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: Wednesday, October 22, 2008

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.

posted on: Wednesday, September 24, 2008

By Aaron Dorfman

It’s time for funders to resume funding ACORN, and to consider major new investments in the organization in the coming year. In times like these, the country needs ACORN back at full strength.

I wrote a critical blog posting about ACORN’s embezzlement scandal a few months ago, and I’ve been following the situation ever since. I’ve been extremely impressed with the openness and leadership of Bertha Lewis, their new Interim Chief Organizer and I am convinced that ACORN is systematically addressing the problems that led it into such trouble.

Has ACORN fixed everything in 90 days that needed fixing? Of course not. But it’s clear that the organization is committed to solving the problems and they are well on their way to doing so.

The most important development is that the organization’s board is much more engaged than it ever was under the leadership of Wade Rathke. When they finally learned about what happened, they took decisive action, and they are now attempting to fulfill their proper roles of governance and oversight. They’ve identified their weaknesses and are seeking training in the areas where they need help. There is still some controversy on the board, and it’s going to be a messy process, to be sure. But my overall assessment is that funders should have confidence that the board is now properly engaged and that the ship is sailing in the right direction.

Another important development is that mid-level staff – the ones who really make the campaigns happen at ground level – are excited and hopeful about the future of the organization under Ms. Lewis’ leadership. She has been sharing information openly with staff of all levels, which is a welcome culture change for the organization.

The country needs ACORN back at full strength as soon as possible, and that will require serious investment by foundations. The financial markets are in turmoil, and ACORN’s track record shows that it can be one of the most effective voices for ensuring that the interests of those most at risk in any economic downturn, including the hundreds of thousands of low and middle-income homeowners caught up in the foreclosure crisis and financial market meltdown, are protected in bailout discussions. Most importantly, a new administration will take office in January, and the American people need ACORN at the table fighting for communities that so often get left out. They have the capacity to have major impact, but they’ll need funding to make it happen.

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

posted on: Thursday, August 21, 2008

by Niki Jagpal

Word: ‘Caucus’

Function: noun

Definition:

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

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

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

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

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

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

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

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

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

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

posted on: Wednesday, August 13, 2008

by Gary Snyder


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

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

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

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

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

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

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

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

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

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


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



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

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.