Nonprofit Board Crisis

Operating Manual for Abusing a Nonprofit

The trial of former Pennslvania State Senator is nearly over.  The Senator is being tried for effectively creating and using a nonprofit as a pass-through to meet his own needs. 

The Senator's alleged actions and the trial effectively provide an operating manual for abusing a nonprofit organization.  For instance, a prosecutor presented that the acused "deliberately kept board members in the dark and lied to reporters, their own accountants and Uncle Sam about how the organization spent its money."

Well, I certainly would question the competency of the board members for compliance but there are other interesting lessons for how to use a nonprofit illicitly.  This trial transcript could be a must read for board members to help them better think about their duty of care.

For more, check out Philly.com.

Embezzlement Can Happen to Any Sized Nonprofit

A report in the Hartford Courant reminds us that checks and balances matter no matter the size of a nonprofit.  Good governance ensures checks and balances.  Last summer, ACORN, a huge organization, lost $1 million from a staff person's embezzling.  The Courant story focuses on the embezzlement of funds by a city alderman.

According to the Courant, the alderman "stole $4,650 while serving as treasurer for the Norwich Little League and took more than $10,500 from a veterans organization raising funds for a Korean War memorial." 

For shame, for shame, for shame to both the alderman and the respective nonprofit boards!  Trust must first be placed in good systems and processes - then people.

Nonprofit "Deflowered"

Ok, it's not really funny that the Massachusetts Horticultural Society and sponsor of the New England Spring Flower Show (a huge event) is nearly out of business. 

The nonprofit has been running a deficit and is in trouble thanks to a number of circumstances and the "shifting priorities of our traditional philanthropic constituencies including 'fading local corporate support and the rising cost of energy, diminishing returns from the Flower Show, poor hiring and bad press.' "

I of course am not on the inside but when I read the signs, it looks to me like mismanagement and possibly bad governance are the big causes of failure.  A bad economy doesn't help, but when you have a membership of 8,000, a really popular annual event and a host of corporate sponsors, it's on the nonprofit to mess-up, not the economy.

Perhaps the show will spring to life in the future but clearly not without some serious soul-searching and re-righting of the ship.

I found this story in the San Francisco Chronicle.

Taxation of Nonprofits

I missed this the first time but the Philanthropy Journal caught the item in the Philadelphia Inquirer that the city of Philadelphia is proposing an amendment to Philadelphia's tax regulations that will allow the city to tax an array of activities that they have always assumed were exempt.  The focus of the city is on what are traditionally referred to as "unrelated business activities."  Note that these activties, depending on the circumstances, are already often taxable by the federal government.

This is not a new move for cities and should serve to remind the nonprofit sector that in tough times, cities may get tough.  Becasuse a nonprofit has found a way to offset full dependency on grant income and maybe also serve their customers doesn't mean they will not be taxed when they create businesses that generate profits. 

Nonprofits beware!  Also, remember this is the reason for Association membership.  Certainly State Associations can be helpful.  So too might be the Social Enterprise Alliance, a member organization of folks who have earned income ventures.

Army Emergency Relief: Could be Worse

Curious article in the Chicago Tribune about the Army Emergency Relief.

The Army Emergency Relief is, as its name suggests, a financial relief resource to address the emergency relief issues that arise for its military personnel.  Often times relief comes in the form of an interest-free loan, not a gift.

The article suggests that all is not as it should be with the AER (as it is referred to).  With assets of $345 million it is "tax-exempt and legally separate from the military, AER projects a facade of independence but really operates under close Army control. The massive nonprofit — funded predominantly by troops — allows superiors to squeeze soldiers for contributions; forces struggling soldiers to repay loans — sometimes delaying transfers and promotions; and too often violates its own rules by rewarding donors, such as giving free passes from physical training."  The AER has also collected a huge amount of reserves and, according to the article gives proportionately less than its courterpart Navy and Air Force funds.

For sure, the AER does not appear to be truly violating any charity rules.  It can get its money like it does and distribute it as it does including saving a bunch for really bad days (like now).  That it exerts pressures on soldiers to give (kinda like corporations and their employees with the United Way) and payback certainly doesn't constitute anything illegal, just distasteful.  Of course in the "real" world, folks might stop giving but it sounds like this isn't the preferred behavior given the consequence. 

I'd certainly like to be one to say the AER is bad.  I can't deny that I always prefer better behaviors, especially as encouraging donations go. But until the Congress says foundations have to give away a bigger portion of their savings (which I believe they should), I'm having a hard time being hypercritical with the AER. 

Maybe this press will help make some less than good-taste behaviors change but come-on folks, this is the Army and in reality this nonprofit is still doing good and still keeping some money with which to do good and it doesn't seem to be stealing or having outrageous expenses.  All-in-all, not so bad in comparison with how it could be.

 

Bankruptcy: A result not a sign of woes for Nonprofit Boards

Interesting article in the New York Times telling of the partial to full demise of a number of nonprofits that have decided to declare bankruptcy.

I hope nonprofit boards are paying attention to the factors that have led to these bankruptcy filings.  One point not specifically identified in the article: nonprofit bankruptcies don't happen overnight - they are the result of a succession of internal decisions and external occurences. 

Nonprofit boards and their execs should heed the warning signs, and there are warning signs - cash flow crises are certainly an indicator.  Failure to pay payroll taxes (and this one comes back to each board member).  Contributions declining at a higher and consistent rate.  Attendance failures....all to name just a few of the signs.  

Now is a good time for a nonprofit board that thinks some of the signs might be present to assign a task force to verify that trouble is on the way and begin to strategize what steps to take.  It is not a certainty that bankruptcy has to come.  Note, strong nonprofit boards already have in place a "dashboard" that allows it to monitor key indicators that can point to troubling times ahead.

His (nonprofit) ran into its own roadblocks......"

His (nonprofit) ran into its own roadblocks and still isn’t off the ground. But it did provide a legal framework and a way to handle contributions......

A recent New York Times article told the story of one physician's efforts to re-establish a clinic in New York to provide health care to immigrants and others.  To me the saga is a typical nonprofit story with many external money and political woes. 

But the story should also remind folks in the sector that external challenges aren't the only elements a nonprofit faces in pursuing its mission.  We don't know the specifics but my experience tells me that often-times the internal challenges, be they normal stage of development issues, personalities or capacity issues, may be more demanding than the simple elements like money or politics. 

Nonprofit Fraud without Guilt

"Oldaker-Tedrow said Tuesday in a telephone interview that she was unaware of the auditor's report and that she'd done nothing wrong.

"I do work at another hospital and was working at Monticello Ambulance Service and we did a lot of 24 hour shifts in a row for many years," she said. "I was paid as a salaried employee so when I worked weekends I considered it a wash. We were working 12 straight days out of 14 then."

She said the city administrator never asked her about the matter.

"If anything, maybe the city owes us for the time we put into the service that we never got paid for," she said.

This is the statement from an employee who worked for a nonprofit ambulance service while working another job and charging for both and spending the organization's money on non-agency items.   The proof was documented by a city-hired private investigator.  And still, the employee claims no guilt.

Of course the real problem is the nonprofit's lack of controls.  The nonprofit is now inactive and its services are now being managed by the city.  But you gotta love the employee.....

Check the Chicago Tribune for more details.

Execs' Pay Cuts Mean Cut in Donations

The plan, now part of the stimulus package, to limit executive compensation could have an even more negative impact on the number and size of donations according to the Wall Street Journal.

I agree that for sure, when folks have less money they give less.  On the other hand, I thought there were other statistics out there that said things like "rich people tend to give a smaller percentage of their income to charity than say, the middle class and even the poor" although a "rich" person's gift is clearly larger and could conceivably have a bigger impact on a charity, at least as a one-time gift. 

And then there's the thought that if the wealth were more evenly distributed, there wouldn't be as big a need for charity, at least in the human services area, as there is now and has been as long as the distribution of wealth has been so unevenly distributed.

I must admit having a hard time feeling bad for execs having their salary levels frozen at $500,000.  I must also say I have never fully understood how folks making in the millions annually even manage to spend all their money.  I actually believe that $500,000 is not so bad of an annual income - one that should afford to address basic needs, comfort needs and charitable giving.  My hope: Maybe this ceiling will result in a greater portion of the have's spending a greater portion of their income on charity.

New Age of Transparency for Churches and Nonprofits

As we "celebrated" Presidents Day, I found an interesting article focused on increasing financial transparency by Churches and nonprofits. (Well, it is a bit ironic -- Presidents and transparency).

The article effectively said that donors were now calling on churches in particular to "show me your books" to increase their confidence that donated funds were going to be spent on what donors believed to be important. 

The article further noted that "most churches are not required to file the same kinds of IRS forms as some nonprofits, but said churches and nonprofits should be releasing revenue, expenses, assets and liabilities.  In tight economic times when donors are hurting financially and they're stretching their dollars to give to churches and charities, they're just simply more concerned about their dollars making a difference," he said."

Excellent points and I'm glad to at least hear a conversation on this matter.  The age of nonprofit and church financial transparency may be upon us. I think the new 990 will certainly contribute toward this.  And, of course we may have to help churches and prospective donors understand what they are reading.  I think Guidestar could take a step in that direction.

I found my version of this article in the Hartford Courant.