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: Wednesday, June 25, 2008

by Gary Snyder

Kudos to The Robert Wood Johnson Foundation joining the Center for Creative Leadership by launched a national program to train the next generation of nonprofit leaders. Its focus is to boost the skills and capabilities of early-to mid-level professionals working in health and health-related organizations in nine U.S. communities.

Health care is one of the largest segments in the nonprofit world. Based on Nonprofit Imperative, my monthly e-newsletter, it is certainly one sector that needs attention. As a former hospital administrator, I can attest that there are substantial weaknesses in the staffing skills, but more importantly, its governance. Healthcare institutions are very complex organizations. Reimbursement and other financial matters are very unique and require a skill set on the part of staff and board that is atypical to any other nonprofit.

Because of the heavy involvement of government in regulating the institutions, another set of unique skills is needed. Depending upon the size of the institution and the staffing complement, financial and regulatory issues could easily consume an inordinate amount staff.

Unknown to most of the general public, healthcare has a small margin in which to work. With recent changes, the revenues over expenses are increasingly narrowing. This presents problems relating to acquiring capital and maintaining cutting edge technology. It’s a tough challenge!

This new program is, hopefully, a thoughtful response to a critical need within the overall charitable world. A lack of leadership in the nonprofit sector has resulted in a growing number of abuses and poor practices.

A study reported in the New York Times showed that an estimated cost of fraud was $40 billion or 13 percent of the $300 billion donated. Other studies have similar results.

With these egregious offenders getting growing press coverage, the public’s confidence in our charitable organizations is diminishing. Harris Interactive Polls, for 2005 and 2006, have indicated that barely one-tenth of those surveyed believe that charities do a very good job spending money wisely.

There is a growing perception that all nonprofits lack accountability. Without trust, the backbone of our charitable organizations cannot be preserved, therefore compromising contributions.

In most instances, healthcare organizations have minimal standards to which they must adhere. If other nonprofits do not subscribe to a set of principles and practices that are generally acceptable to the public, the Internal Revenue Service, Congress, and state attorneys’ general will force adherence to a new regulatory code.

While I applaud the RWJ Foundation/Center for Creative Leaderships plans, the linchpin for success is going to be the content of the program and the degree to which it will change current practice.

I wish them well.

Gary Snyder is the author of Nonprofits: On the Brink (iUniverse, February, 2006) and articles in numerous publications. He is also a board member of NCRP. His email: gary.r.snyder@gmail.com; website: www.garyrsnyder.com; phone: 248.324.3700.

posted on: Monday, March 24, 2008

By Julia Craig, Program Assistant, NCRP

In this March 3 “The Insider” article in Philanthropy Journal, a “veteran foundation official who wishes to remain anonymous” takes the foundation world to task. According to the author, the large national foundation where s/he works talks out of both sides of its mouth—on one hand, it publicly embraces diversity and open grantmaking practices, while on the other it internally quibbles over how a potential grantee looks and acts and whether potential board members would ever disagree with foundation practices.

"We, in fact, live a weird dual life. We are the kings and queens holding court as people come and plead their cases.

We probably even sit in the big chair or at the end of the table when the people come to see us.

In one of my previous positions, this was particularly loaded with meaning as many of the supplicants were people of color and the foundation professionals were all white.

For grantseekers who did not look and sound like us, we constantly talked in our internal meetings about how well-spoken or well-dressed they were or were not.

And if we detected an "attitude," such as any hint of questioning that we understood their situation, it was an easy way to dismiss people for having passion about their community.

We were really, really scared of that."

When foundation staff members are knowingly complicit in grantmaking practices that discriminate based on appearances and perceptions, philanthropy is failing at its job. The numbers show that there is a dearth of funding for ethnic minorities and for civil rights work. The Insider reveals the disturbing mechanics behind such trends: discrimination is real within the foundation world and it is overt.

Foundation leaders who are more concerned with playing it safe and the weight of tradition than with achieving the foundation’s mission are doing a disservice to the public and to their own organizations. What the author implies but does not explicitly say is that foundation leaders are afraid that funding for organizations addressing systemic social problems or serving traditionally marginalized members of society might succeed, disrupting the power dynamic in this country and resulting in a redistribution of wealth. The analogy of foundation staff as “kings and queens holding court” is particularly disturbing; philanthropy should be about serving the public interest, not satisfying the egos of donors or staff of grantmaking institutions.

Foundation missions tout lofty goals, from reducing poverty and fighting injustice to stopping the spread of disease and supporting social change. Despite such inclusive goals, The Insider claims that during board meetings, leaders at the foundation where s/he works discussed a potential grantee’s dress and mannerisms as a legitimate consideration in the grantmaking process. Foundations often advocate for self-regulation. Unfortunately, in addition to anecdotal evidence from The Insider, foundation behavior shows us that self-regulation is failing. In the past, efforts have been made to develop standards for the sector, but they have fallen short of having a real impact on foundation behavior and amounted to unenforceable suggestions for grantmakers. Glaringly absent from the list of organizations and individuals who have signed on to the Principles for Good Governance, for example, are prominent foundations who are influential philanthropic leaders.

As NCRP moves forward in developing its standards for measuring Philanthropy at its Best, one of the biggest challenges we face is breaking through the traditional culture among foundations. While many foundation trustees undoubtedly have the best of intentions, it is clear that there is a deeply rooted system of discrimination at work. Whether conscious or otherwise, this is a serious barrier to foundations achieving their missions.

posted on: Monday, March 17, 2008

By Aaron Dorfman

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

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

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

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

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

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

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

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

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

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

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

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

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

posted on: Tuesday, March 04, 2008

By Gary Snyder

Public confidence is essential to America's 1.5 million charitable organizations and the 14 million–plus staff and volunteers. With the sector boasting over $3 trillion in assets, hundreds of articles and newsletters about the diminution of trust in the charitable sector have been written. This interest, in large measure, is the result of poor management of funds. These problems are not sporadic; these are systemic issues that are pervasive in all areas of philanthropy.

I worry about the confidence that clearly affects the public's willingness to donate time and money, shape the political and regulatory environment that governs charitable organizations, and the influence on morale within the charitable workforce.

Brookings Institution studies find only 11% of the public thinking that charities do a very good job of spending their money wisely. A very recent study from Ellison Research showed that 62% of the public believes that charities spend an inordinate amount of money on overhead costs (fundraising and administration).

Nonprofit Imperative, the monthly e-newsletter, finds that billions of dollars is absconded from charities, principally by those with whom we put our trust. The pilferers include top management, board members and financial staff.

So what needs to be done before the regulators---Congress and the Internal Revenue Service---tell the philanthropic sector how to run its agencies? Here are a couple of organizational tips to avoid a heart-wrenching discovery of fraud.

Executives should have some financial knowledge- nonprofit executives are surprisingly devoid of understanding of charitable finances. Frequently, they treat the books like their personal checking account. Most training financial seminars are lacking. They should give the executive the financial skills in which to conduct the financial end of the nonprofit. Based on studies of fraud, one central focus is the failure to demarcate between the financial staff and executive leadership.

Board members should have some financial knowledge-board members become glossy-eyed when the financials are discussed at meetings. Financial statements intimidate them. They prefer to talk about programming or good and welfare instead of budgets. Board members should be offered some tutorial so that they understand financials. In most instances it won’t raise their interest but will give them some idea as to what to concentrate on while reviewing the financials. For obvious reasons (one of which is control), many executives are not interested in having a board that is financial literate. As a board member, you should demand a tutorial.

Accountants should have significant knowledge about nonprofit accounting-most accountants subscribe to the theory that a business is a business. Charitable organizations are not for-profits and there are significant differences. A most obvious distinction is the degree that they have to adhere to Sarbanes-Oxley. Seek an accountant that has nonprofit experience and understands the many nuances that is integral to the charitable sector. We have experienced in our study of fraud that there should be an arms-length relationship between the charities decision-makers and the accountant.

Increase the number of independent (outside) members on the board

Establish an audit committee-an organization that has an audit committee should review if it operates within generally accepted guidelines.

Whistleblower protection-makes sure that there is a prohibition against taking punitive actions against employees who disclose information---illegal practices or violations of adopted policies---to the audit committee or any one else.

Records retention-a policy to maintain records for posterity purposes is important.

As part of updating your policies and practices, consider the following operational changes:

Four eyes-multiple views-staff should divide tasks so as to prevent illegal activity. Dividing the tasks is arguably the best defense against embezzlement.

Bank statement review-the executive should be the first to open and review bank statements, thus preempting manipulation of the documents by financial staff. In smaller organizations, reconciliation should be separated between 2 different employees or a board member.

Employee background checks-needless to say an employee background check is important for any new member of the staff. It is extremely important for those that are working in the financial area. Even though most employee thefts go unreported (because repayment and dismissal are typical), you can check to see if any prospective worker has had any problems with law. In your investigations, trust your instincts and explore and explore until you are comfortable.

Internal controls-few nonprofits have strong internal controls. Most charities have good intentions in developing them but getting around to developing them is another matter. As organizations grow, the internal controls need changing. Make sure the controls are operating at a level that will deter and detect fraud. Establish a code of conduct that will create a clear understanding of what is expected of all employees.

Watch employee’s life style-observing radical changes in employee consumption or travel may be a good tip-off to start monitoring the books.

Have a positive culture-demanding that employees stick to the internal controls and make sure that they (staff and rules) are frequently checked, will create a culture of adherence.

Purchase fidelity insurance-although having insurance will not deter embezzlement, it will cover, at least some of the losses. On the other hand, since the organization is often left whole, it may cover up any public knowledge of the misdeeds and enable the malfeasant to continue to his/her fraudulent behavior in another setting.

An overwhelming number of perpetrators of frauds do not get caught. There are hundreds and hundreds of embezzlements, thefts and larcenies at charities. As a result, there is a diminution of confidence in the charitable sector. Consequently, there is sufficient impetus to institute the abovementioned short and long-term barriers to malfeasance.

Smartness instead of indifference is the way to go. It isn’t that hard.




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

posted on: Friday, 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