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: 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: 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: Thursday, August 21, 2008

by Niki Jagpal

Word: ‘Caucus’

Function: noun

Definition:

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

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

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

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

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

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

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

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

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

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

By NCRP

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

posted on: Tuesday, April 15, 2008

A Compromised Charitable Sector
By Gary R. Snyder

If anyone thought that the bright light on nonprofit misdeeds was going to fade with the change in Senate Finance Committee leadership they are grossly underestimating the festering problem. Granted the loss of Dean A. Zerbe as a principal staff point person on this matter to Ranking Member Senator Charles Grassley is a significant blow. The direction may have changed but the intense interest in setting the nonprofit sector straight has not subsided.

The Senate Finance Committee’s ongoing concern in nonprofit ineptitude was joined by the House Oversight and Government Reform Committee, which held hearings. Among the embarrassing issues was how veterans’ charities gave small proportions of revenue to veterans and their families. An article in the Chronicle of Philanthropy stated that committee members used terms such as “immoral”, “fraud” and “sickening betrayal” with a promise to have additional hearings as the issues unfold.

These terms of endearment are consistent with the donor’s diminishing confidence in the charitable sector. Heightened scrutiny has resulted in increased stories in the media with the recent study on $30-40 billion annual nonprofit fraud (Greenlee, Gordon) being unveiled in an arresting New York Times (March 29, 2008, Report Sketches Crime Costing Billions: Theft From Charities) article. The cumulative effect of the focus of the public attention on charity malfeasance is still unknown, but certainly isn’t going to play well in Congress or at the local nonprofit agency.

The problems continue to center on the abuses by the board, executive and volunteers. All have failed to be diligent in exercising their fiduciary duties. As the Independent Sector notes, few know what their responsibilities are. Even if they did understand what their role is supposed to be, few have the skills to adequacy address the misdeeds.

This is underscored by the Independent Sector’s Panel on the Nonprofit Sector request for government assistance in educating board and professional leaders because both are not aware of the expectations and requirements imposed upon them.

While tens of billions of dollars are taken from those to which it is intended, sector leaders continue to say that it is a “few bad apples”. Last year, the General Accounting Office noted that nearly 55,000 tax-exempt organizations had almost $1 billion in unpaid taxes with some owing tens of millions of dollars.

The fallout in loss in the nation’s misdeeds from charities is profound. According to the National Priorities Project----a $20 billion loss is equivalent to any of the following:

• healthcare to 7.721 million people, or
• 438,768 public safety officials, or
• 1861 new elementary school, or
• 3.1 million Head Start places for children, or
• 290,081 elementary school teachers, or
• 299,496 port container inspectors
or, $54,794,520 per day

Leadership at the local, state, and national levels is virtually nonexistent. The use of words such as transparency and accountability have become jargon—buzzwords---that fail to be meaningful without substance behind them.

The sole of the charitable world is under scrutiny. Integrity, credibility and effectiveness are proxy measures of the soundness of any organization. Without those, the sector is severely compromised


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: http://garyrsnyder.com, phone: 248.324.3700.

posted on: Friday, April 04, 2008

What happens to a dream deferred?[1]

By Niki Jagpal

On the 40th anniversary of the assassination of Dr. Martin Luther King, jr., it seems appropriate to review the progress we’ve made as a country toward achieving, or at least advancing, Dr. King’s vision as articulated in his famous “I have a dream” 1963 speech.

The Milton S. Eisenhower Foundation recently released a report called What We Can Do Together: A Forty Year Update on the National Advisory Commission on Civil Disorders. The report tracks progress in areas ranging from education, health, income and wealth to crime and poverty, and is a follow up to the informally known Kerner Commission Report of 1968, which investigated the causes of the 1967 riots in Newark, Detroit and New Brunswick, and suggested mechanisms to prevent reoccurrence.

Contrary to Johnson’s assumption that ‘militant groups’ like the Black Panthers were responsible for the ‘race riots,’ the report concluded, “Our nation is moving toward two societies, one black, one white--separate and unequal.” So 40 years later, it is fair to ask: is our nation still moving towards two societies, still separate and unequal? And what role can philanthropy play in addressing the needs of our evolving, pluralistic democracy?

Let’s compare some findings and statistics from the original report to those in the 40th anniversary report by the Eisenhower Foundation:

The criminal justice system:

“To some Negroes police have come to symbolize white power, white racism and white repression. And the fact is that many police do reflect and express these white attitudes. The atmosphere of hostility and cynicism is reinforced by a widespread belief among Negroes in the existence of police brutality and in a "double standard" of justice and protection--one for Negroes and one for whites.” – Kerner Commission Report

Today, the numbers paint a picture of little progress. According to the Eisenhower Foundation report:

• Minorities face a greater likelihood of receiving the death sentence than Whites. Minorities are also given longer sentences than Whites for the same crimes. Crack cocaine, which is used disproportionately by minorities, carries much longer sentences than those for powder cocaine, used more frequently by Whites.
• Scholars continue to find that regardless of their qualifications, some employers push minority applicants into the worst jobs. Further, many real estate agents steer minorities to less desirable locations, than Whites and fewer minority mortgage applications are accepted than White applications
• From the 1960’s to the 1980’s, school desegregation made rapid advances but was reversed dramatically by the courts.

Residential segregation and the “ghetto”

“Within the cities, Negroes have been excluded from white residential areas through discriminatory practices. Just as significant is the withdrawal of white families from, or their refusal to enter, neighborhoods where Negroes are moving or already residing. About 20 percent of the urban population of the United States changes residence every year. The refusal of whites to move into "changing" areas when vacancies occur means that most vacancies eventually are occupied by Negroes.

The result, according to a recent study, is that in 1960 the average segregation index for 207 of the largest United States cities was 86.2. In other words, to create an unsegregated population distribution, an average of over 86 percent of all Negroes would have to change their place of residence within the city.” – Kerner Commission Report

So 40 years later, how integrated are our neighborhoods?

• In the 1990s, overall residential segregation declined for African Americans but it rose for African Americans younger than 18 years of age.
• From 1980 to 2000, Hispanic residential segregation increased in several major metropolitan areas
• The overall levels of residential segregation remain disproportionately high for communities of color.

Communities of color and poverty

“Although there have been gains in Negro income nationally, and a decline in the number of Negroes below the "poverty level," the condition of Negroes ill the central city remains in a state of crisis. Between 2 and 2.5 million Negroes-16 to 20 percent of the total Negro population of all central cities live in squalor and deprivation in ghetto neighborhoods. …

In 1966, about 11.9 percent of the nation's whites and 40.6 percent of its nonwhites were below the "poverty level" defined by' the Social Security Administration (currently $3,335 per year for an urban family of four). Over 40 percent of the nonwhites below the poverty level live in the central cities.” – Kerner Commission Report

Today’s numbers on poverty rates among African Americans and Hispanics are:

• At a time when the U.S. is the richest country in history, 37 million Americans live in poverty today.
• Very poor African Americans are 3 times as likely and very poor Hispanics are twice as likely as Whites to live below half the poverty line, which is about $10,600 for a family of four.[2]

A Paradigm Shift

The Kerner Commission’s conclusion that our country was headed towards two societies, separate but unequal, seems to have borne out, despite the report’s intent for government to make policy changes to address racial inequality.

What the authors of the original report probably didn’t know was that their recommendations presaged a radically different way of analyzing racial inequality in the U.S. – structural racism. Discussions of race that focus exclusively on class obscure the impact of public and private institutions in perpetuating racial inequality. Structural racism argues that the combined impact of institutional arrangements and structures have racialized outcomes, even when these structures appear to be racially neutral, such as those affecting economic mobility.

Re-conceiving race and racism require an intellectual paradigm shift, and this has practical policy implications for addressing gaps in achievement versus gaps in opportunity. It is time for a policy paradigm shift, as Dr. Stephen Mayer recently noted. Let’s consider reframing affirmative action by adding class-based criteria to race.

What does this mean for philanthropy?

Philanthropists and private foundations can choose to invest their dollars in structural change; this isn’t ‘ivory tower’ academia inserting itself into philanthropy. It’s about focusing on the groups who are engaging in work on a daily basis that produces long-term sustainable results that benefit their communities. Foundations should seek out opportunities to invest their limited contributions in grants to local community organizations that are working on structural barriers to racial equality in the U.S.

As diversity remains a ‘hot topic’ in philanthropy, the time is right to remember Dr. King’s closing statement at the March on Washington, D.C. in 1963 through the lenses of structural barriers to racial equality, including class, gender, age, disability and, yes, public policy. Class-based affirmative action may be the first step towards allowing us to achieve Dr. King’s dream:

“And when this happens, when we allow freedom to ring, when we let it ring from every village and every hamlet, from every state and every city, we will be able to speed up that day when all of God's children, black men and white men, Jews and Gentiles, Protestants and Catholics, will be able to join hands and sing in the words of the old Negro spiritual, "Free at last! Free at last! Thank God Almighty, we are free at last!"”

Niki Jagpal is research director at NCRP.

[1] Langston Hughes (1951). Harlem, from Montage of a Dream Deferred. Quoted in the 2008 Eisenhower Foundation report
[2] 2008 HHS Poverty Guidelines

posted on: Monday, March 31, 2008

By Yna Moore

Does contemporary philanthropy benefit the needy? An increasing number from within the sector and the public don’t think so, and that’s problematic, said Susan Raymond in her speech during the 5th annual summit of OnPhilanthropy.

She implored the philanthropic community to take to heart the growing number of voices that have accused the sector of abandoning the needy, because the distrust and skepticism call into question the sector’s role in society:

“Those asking the questions are not the hairdressers of Hopkinsville or the
good old boys of the Koffee Klatch Kafe. The questions are not being asked
out of ignorance. They are being asked out of observation. … It is a
painful accusation but it is a fair question, because we hold the public trust;
we are the stewards of the societal commons. … It is a question that lies at the
heart of the reason for our very existence, the reason the people shoulder our
tax burdens. It is the essence of our compact with the American people,
the central core of their trust in us.”

NCRP has been one of the leading voices calling for change in foundation grantmaking practices for over 30 years, and it’s heartening to hear a well-regarded leader from the sector acknowledge the need to take the criticism seriously.

Her suggested rebuttal to these criticisms seems reasonable. Indeed, the concept of poverty and need has been a source of philosophical debate that predates philanthropy. There is no arguing that just as many around the world and in this country are in dire need of food for the body, there is also a human need for food for the mind and soul through the arts, religion and sciences. And it is also true that change—real systemic change—takes time, and the cause and effect of circumstances leading to change are not necessarily linear. In addition, the solutions to the problems our society faces today—such as poverty, lack of access to basic services, unemployment and environmental degradation—are as complex as the problems themselves. Consequently, there is no magic pill, no magic formula.

As Dr. Raymond dissected the arguments of critics, her rebuttal implicitly supports many of the ideas that critics have suggested to correct the philanthropic sector’s shortcomings in responding to the needy. Foundations should be more strategic in their grantmaking by using a variety of tools that more effectively respond to the needs of marginalized groups. This means that funding policy advocacy and grassroots organizing is just as important as funding direct services to address both the sources and symptoms of poverty and injustice. This means providing more flexible, multi-year support to nonprofits, not just program-specific grants for nonprofits serving the disengaged.

Finally, funding the arts and sciences is not bad at all. In fact, these are essential for people and civilizations to thrive. Although there is considerable wealth tied to philanthropic institutions, these resources are, nevertheless, scarce and limited compared to the tremendous needs in our society. As stewards of these resources, foundations must use their philanthropic dollars wisely and responsibly because at the end of the day, this all boils down to priorities.

These priorities will reflect the values of our society. What should we, as a sector, prioritize? Should people that make our work possible, i.e. the tax paying public that subsidize our sector, have a right to question how their tax dollars are being put to use? Absolutely!

If foundations don’t question their own priorities and don’t start doing more to benefit those with the least wealth and opportunity, not only will the critics grow in number, but their elected representatives might decide it’s time for the government to step in.

Anna Kristina ("Yna") Moore is communications director at NCRP.

posted on: Friday, August 17, 2007

By Gary R. Snyder

A surprise took place a week or so ago. We saw the nonprofit sector depart from its solid position of just a few years ago. Call it a 180. Call it a new awakening. Call it a reincarnation.

The Independent Sector, the presumptive nonprofit sector leader, has taken up the mantle of representing the charitable world on matters before Congress and federal regulators. IS seems to have drastically changed its position on partnering with government.

Let Us Control Our Own Destiny

Self-regulation has been a committed cause in the charitable sector for decades. But the sector has been under condemnation for years. With the 1992 United Way of America scandal and several others of high media visibility, many charitable leaders in the U.S. became concerned that the public, especially donors, would lose their confidence in the good of charitable organizations. There were outcries at the Fall, 1994 conference of the Independent Sector to clean up cheats. They feared that regulars and lawmakers would “punish all charities collectively for the transgressions of a few”. In 1997 the New Era Philanthropy Foundation took $135 million from seniors; in 1998 $78 million was diverted from the Alleghany Health, Education and Research Foundation; in 1999 Greater Ministries International absconded with $353 million; and, in 2002 the Baptist Foundation took $570 million from its trusting contributors. At all junctions where there were regulatory inquiries, the cry from the sector leadership was ‘trust us, we can regulate our own’.

Throughout the 1990s and early to mid 2000s concerns were expressed that scandals would erode the public’s trust in the critically important nonprofit sector.

The $20+ million Independent Sector was the nonprofit’s sector’s point-organization as well as the leading proponent for self-regulation. In 2005 when outsiders wanted a peek at the charitable sector, IS conducted town hall meetings in 15 locales where speakers rallied the followers around the concept of no government involvement. They spoke about the need to prevent the intrusion of government regulation and police themselves. At the Southfield Michigan meeting, speakers attributed the desire for Congress’ involvement to the 3 R’s---reelection, regulation and recompense. The approached worked and the troops rallied around the self-regulation banner.

Oop…here’s the deal

The media attention to nonprofit sector scandals in the 1990s had increased the sector’s discussion about regulation, self-regulation and transparency. Existing governmental regulation and self-regulation wasn’t effective in preventing the high profile scandals. Independent watchdog organizations were inadequate and only monitored less than 10% of the charities. As late as mid-2007, state nonprofit agencies are still proposing self-regulatory guidelines in the wake of recent scrutiny at both the state and federal level.

It was not until several of the sector’s stalwart agencies got into trouble did Congress, state attorneys general and the Internal Revenue Service say enough is enough. They saw a voluntary sector out of control. They saw the American Red Cross, the United Way, Natures Conservancy, and hundreds of others misbehaving. The headlines screamed of billions of donors’ dollars stolen or wasted and hundreds of agencies not fulfilling their charitable mandate. The abuses that caught the outsiders’ attention were principally perpetrated by the sector’s largest agencies.

With billions of the contributor’s dollars lost just last year, it continues in 2007….with the Smithsonian Institution (poor management and virtually no governance and a multitude of firings) or the EduCap ($11 million diversion of student loan funds to the executive’s husband’s ventures) or the America’s Clean Water Foundation ($25+ million embezzlement with the EPA wanting its money back).

No one wanted to go on record to condemn this malfeasance.

Wow...a marriage

In response and in lockstep, the leadership of the Senate Finance Committee, the House Ways and Means Committee, the IRS and others wanted to know what was going on. The protectionist charitable sector balked initially but soon converted and began to covet a partnership with the lawmakers and regulators. Congress gave the nonprofit leadership, through the efforts of the Independent Sector Panel on the Nonprofit Sector, the opportunity to change public opinion and work toward significant reforms by self-regulating.

The sector admitted it needed assistance from the government. In 2005 the Independent Sector produced a document; Strengthening Transparency Governance and Accountability of Charitable Organizations acknowledged that executives and boards are not aware of their ‘expectations and requirements’ without government help. It further pleaded for the government to closely collaborate with the sector in addressing a multitude of reforms.

With the increasing abuse, the sector leadership is relying on the government to jump-start regulatory measures to avoid the risk of the loss of the faith and support that the public has always given to the charitable community. The IS asked for government assistance in educating board members and professional leaders because both are not aware of the expectations and requirements imposed upon them. Further, they asked the government for sufficient resources to facilitate full implementation and new regulations to prevent abuses. They asked Congress to authorize additional resources to the IRS for overall tax enforcement and for improved oversight of charitable organizations as well as audits and investigations. The report wants the Internal Revenue Code to impose penalties on board members and other managers of charitable organizations who approve of self-dealing or excess benefit transactions, including excessive compensation, not only if they knew that the transaction was improper but also if they “should have known” that it was improper. It suggested increasing reporting requirements. It wanted a more disclosure such as travel, entertainment, gift and car expenses. It wanted board reform including size as well as additional requirements for board participation.

And now, in recent testimony, the IS President cemented the nonprofit-government relationship with a request to create the equivalent of the federal Small Business Administration to implement new stipulations put on the sector.

A flawed plan?

Some felt betrayed by the nonprofit sector’s requests for help from the government. They were troubled by its vacating its long time belief that a strong system of self-regulation and education is critical if the people making up the nonprofit community -- boards, staff, volunteers, and donors -- are to ensure that their organizations are living by the highest ethical standards.

There is very little argument that the sector needs to promote good housekeeping. Cleansing the sector to rid itself of further abuses and poor practices is critical. Finding an appropriate balance between regulation and self-regulation is essential.

A highly regulated sector has its consequences. The IS efforts represented the thinking of big foundations and nonprofits, leaving 70% of the sector---the small and midsized agencies---with potentially being encumbered with time consuming regulatory requirements. With small-medium charity executives already taxed to the limit, many are already looking to leave their charities in the next couple of years. The sector’s challenge is to maintain a quality stable of executives not chase them out.

Few disagree with the leadership of the sectors belief that board members need help in understanding their roles and responsibilities. The sector should build upon the existing, albeit somewhat disjointed, learning network, organizations rather than create another. Boards need to learn how to perform or face a policing system will be not to their liking. Similar to executive counterparts, board members are currently in very high demand. There is an acute leadership shortage. Board improvements must be delicately addressed or we could intensify the current exodus.

Hopefully the nonprofit sector will go down the road that will win the sector’s confidence and regain the public’s trust

Gary Snyder is the Managing Director of Nonprofit Imperative in West Bloomfield, MI..
He can be reached at gary.r.snyder@gmail.com