Nonprofit Board Crisis

Nonprofit Embezzler Gets Jail Time and Pays Some Back

In what I believe is closer to justice (versus say Madoff or Fumo in Philadelphia), the treasurer of a British Hospital "Friends" group (not the tv show, those folks who go out and raise money for the Hospital) was sentenced to 3 years prison and has so far, paid back 1/2 of the money he stole.  The group doesn't really expect the thief to pay back more (capacity issue I imagine).

Now, let's talk about a couple of core issues.  First, yes, the man was treasurer but it appears there was no "check-and-balance" in place such that the guy signed all the organization's checks without oversight.  Tsk, tsk.  The article does suggest that the charity has learned its lesson and "tightened up" its procedures. 

The article also notes that the now former treasurer had served the organization as treasurer for some 22 years.  Here too is another learning opportunity which I hope is included in procedure tightening.  I mean really: 22 years as board member and treasurer?  It does appear that the organization lacks board term limits.

Finally, while no mention is made, perhaps liability insurance would have covered the amount of money not repaid.  Certainly worth looking into.

A Successful and Thriving Nonprofit & Grantmaker

Well, there's one nonprofit that appears to be successful and thriving: it's the folks who bring you the Golden Globe Awards.  Yes, the sponsor of the Golden Globe Awards is the Hollywood Foreign Press Association and just yesterday they announced the distribution of $1.2 million in grants to organizations related to the film industry.  You can learn much more about the Association at its web site here.

And why blog about this?  Well of course, there's the idea that some nonprofit is doing quite ok and it should be lifted up as such, especially given that this institution is all about helping other institutions that would likely not fare so well otherwise.

Then there's the question of how exactly there is some press doing well enough to support these endeavors when the American press is doing so poorly?  The answer is that the Association is not exactly generating its fees from its members but instead, according to its website, "receives substantial licensing fees for the network broadcasting rights to the Golden Globe Awards and from associated activities such as Golden Globe Awards pre-shows." 

Social entrepreneurs?  Only path to success for nonprofits these days?

Foundation Demonstrates Mission Related Investing

The Mellville Foundation is demonstrating what Mission Related Investing is all about.

The Foundation has planted itself in a neighborhood in Hartford, CT that by all standards, has residents who have needs.  Toward that end, the Foundation, dedicated to tackling homelessness, has bought an old community center and made it a place for advocacy as well as training.  Next the Foundation re-invested in an old decaying appartment complex bringing it back to life.  Then, came a farmers market and restaurant and an artists studio and a bakery and a catering program -- all of which provide employment opportunities as well.

The ventures will someday, assuming all goes ok despite the economy, pay their own way.  And, the residential facility and ventures will all contribute to helping the whole neighborhood become vibrant.

I don't know all the numbers, but, isn't this what mission related investing is about?

Go here to see the full story.

Nonprofit Board Rescinds Bonuses

The Board of the Fresno, California nonprofit Central Valley Regional Center has rescinded bonuses it approved to "adjust" the salaries of its employees.  According to the San Francisco Chronicle, the organization distributed $500,000 in bonuses to its 350 administrative employees. 

Now we aren't talking huge bonuses, about $1600 average.  But, there was such a public outcry, the Board decided to not ok the bonuses, although, many of the employees have already spent their cut.  I suppose this will then affect their salaries.

So, the good news: the nonprofit's Board took responsibility for the decision to give and then, not to give.  The bad news: maybe the Board wasn't as fully informed about the possible consequences of their "to give" action as might have been helpful.  Or maybe they were and they decided to go ahead.  Either way -- I'm sure this wasn't the outcome they wanted. 

This incident still provides some learning for a nonprofit Board -- be clear about your goals, be clear about what can affect these goals.  And, take responsibility when results don't live up to your expectations.  Kudos to the Center on this count.

For-profits can fill important societal role?

“Universities forget that they themselves are, in essence, businesses,” said C. Mason Gates, the president of Internships.com, an online placement service. “Just because they’re doing it in a nonprofit fashion doesn’t mean that those of us doing it for profit are doing it incorrectly.”

This is a quote from the New York Times story about businesses that help college students get valued internships.  These businesses, for a fairly hefty fee, help students secure internships noting that, particularly with the limitation in the number of jobs, internships have become very competitive and like most opportunities in this market driven society of ours, it always helps to have connections and this is what the firms provide.  Of course, this process does create a divide between those who can afford to "buy" connections and those who can't.  Another hallmark of our society.

Back to the quote where I began today's blog.  The purpose of the nonprofit sector is to fill the void between the for-profits (who have economic incentives to offer what they offer) and the public sector (who have public demand).  But, as we have seen of late, there are for-profits who are proving that they can both fill a void and have an incentive to do what they do.  This new sector, this double and even tripple bottom line sector, is evolving quickly and may indeed change the nature of what it means to be nonprofit.  After-all, I have many times suggested that many colleges act much more like they are for-profits than nonprofits.

Public Organization Acts Like Wall Street

The University of California Board of Regents (like a board of directors), a publicly supported organization, agreed to cut $813 million from its budget yesterday, and according to the San Francisco Chronicle, set in motion "pay cuts, layoff and campus cutbacks."  At the same time, the board approved pay raises, stipends and other benefits for more than two dozen executives. 

Does feel a bit like Wall Street but maybe only because we the public really believe that fair is everyone suffering equally, not just those not at the top.  Maybe these execs do deserve their raises or stipends -- they have a lot of responsibility for a "business" that has an annual budget of $19 billion.  But still...

cut $813 million from UC budgets - setting in motion pay cuts, layoffs and campus cutbacks

Read more: http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2009/08/07/MNSG194N2P.DTL#ixzz0NVezlVAF

cut $813 million from UC budgets - setting in motion pay cuts, layoffs and campus cutbacks

Read more: http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2009/08/07/MNSG194N2P.DTL#ixzz0NVezlVAF

cut $813 million from UC budgets - setting in motion pay cuts, layoffs and campus cutbacks

Read more: http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2009/08/07/MNSG194N2P.DTL#ixzz0NVezlVAF

Nonprofit Revenue Generating Venture a Bust

Another teachable moment arises from the experience of "Ogontz Avenue Revitalization Corp., a tax-exempt, taxpayer-supported, nonprofit group which bought a Mount Airy nightclub, bar and restaurant in March, the goal was to provide an economic boost to Northwest Philadelphia".

Well, the bottom line, the nightclub proved to be a bad idea for everyone except the original owners who "had run up $400,000 in debt, including $169,000 in back city taxes", at least according to the Philadelphia Inquirer.  All in all though, between the sale prices and money spent to upgrade North by Northwest, OARC has spent $608,966.87 on the business. With the loss of $160,000, North by Northwest has cost OARC $768,966.87.

Of course maybe OARC should have known better.  It apparently has quite a history of success with its many other ventures and a $25 million annual budget.  I guess a community development organization can't get them all right all the time.  But still, one might have thought a good business plan would have put the writing on the wall. 

According to the article:

For one, a nightclub is not necessarily an obvious tool for a community-development corporation, which more typically devotes money to such activities as rehabbing housing or providing low-interest business loans in a targeted area.

For another, North by Northwest is beyond OARC's traditional turf - West Oak Lane - and part of a rebounding commercial strip that hardly seems a logical target for help from a distant patron.

Finally, as an investment property, North by Northwest would seem a questionable bet, given its record and OARC's own admission that the business cannot succeed with its existing parking.

And yes, there does appear to be some issue with who is involved with this venture -- but that's another story.

Nonprofit: Start One Now?

Dawn Jordan is a former operations vice president at Bank of America. Her job was eliminated near the end of 2008. Previously, Ms. Jordan spent three years with the personal-insurance division of Countrywide Financial as vice president of customer retention. She lives in Laguna Beach, Calif.  She has been posting her post-lay-off considerations and explorations in the Wall Street Journal.

Her June 5, 2009 post explored whether starting a nonprofit was a good answer to what's next for her?  In considering a nonprofit, Dawn identifies some advantages for "going nonprofit" including: "Do I have customers lined up to use my service? And, do I have to invest my own capital?"  She also notes that "the high unemployment rate has created a surplus of people looking to volunteer. It also means I can gain access to some of the most savvy business people in the country who otherwise wouldn’t have time to help or talk with me."

Now, I agree that all of Dawn's points certainly have credence.  But.....what about finding a constituency of "owners" that will be the board?  And what about the donor/foundation market (which is not really THAT great right now)?  While Dawn really is very thoughtful and asking some of the right exploratory questions when considering starting a nonprofit, we all must remember that nonprofit businesses are struggling just as much as for-profit businesses and while the entry costs may be relatively low (in compariston to the for-profits), there are also many operational and long-range/sustainability questions that must be answered for the nonprofit. 

So, Dawn, I appreciate your ruminations but really want you to think twice about whether a nonprofit is the best option for you.  And of course, there is always THE most important question: what's the mission?

To follow Dawn's ruminations, check her out in the Wall Street Journal.

Nonprofit Executive Compensation

Once again there's a brouhaha forming over executive salaries.  This case is in Toledo, Ohio.  As reported in the Toledo Blade, the YMCA Exec is paid $265,000 a year and his total compensation package puts him just under $300,000. Oh, and his wife, the fund-raising director, makes $130,000 annually and, oh, his daughter-in-law who operates one of the branches, makes $85,000.

Now, as much as I want to say and do say, oh wow, that's a lot of money to be paying one guy who's operating a $30 million nonprofit with lots of buildings and lots of staff, I also want to note that, at least according to the article, the Nonprofit's board stands behind their salary decision and even point out the efforts they went through to make sure it was an appropriate decision.  And you know, this is both their right and obligation.  It's also up to them, with the help of the ED's wife (this may be a bigger issue but the article says that she does not report to him although I wonder why the position of Development Director doesn't report to the ED), to annually raise the money to pay the ED.  Now again, according to the article, that has proven more difficult and apparently what helped elevate this to a media story is the plan to close one of the branches while still paying this pretty handsome sum of money. 

So what to do?  Again, a nonprofit board has the right and obligation to determine executive pay.  For boards made up of corporate execs, compensation looks different than it might for other types of folks (think Wall Street).  The board has to make sure there's a way to pay the bills of course, but their primary obligation is to see that results occur and mission is accomplished.  If this Y-guy is making sure this is happening, maybe he's worth every penny and maybe more when compared to other Execs running similarly sized and complicated places.

Note, I first identified this story in the Chronicle of Philanthropy-Philanthropy Today.

Nonprofit Sarbanes-Oxley

I've recently had a flurry of questions raised about the application of the 2002 Sarbanes-Oxley Law (the Enron scandal reaction by the US Federal Government) so I did some research and here's what I've learned.

First, except for two provisions within the law, the law does not nor was it intended to regulate nonprofit governance.  The two provisions: a whistleblower clause (a nonprofit can't retaliate when an employee in particular, goes to an official and says something illegal is going on) and a document destruction/cover-up clause.  OTHER THAN THESE TWO CLAUSES, the Sarbanes-Oxley Law is applicable only to publicly traded companies.

With that said however, the Law contains lots of appropriate advice about how corporations, including nonprofits, should behave.  This advice has been reviewed and published best in a joint effort by the Independent Sector and Board Source.  You can retrieve a pdf copy here.

Some recommendations include:

1. Have an Independent Audit Committee that is not the Finance Committee -- someone not part of the management team and "independent" to hire, set the compensation and oversee the auditor.  Having a member of the team who is a fianncial expert is essential.  Note, this recommendation may be more difficult to apply for small nonprofits.  Also, I think this body to be more of a Task Force that has a limited scope and time-line and is reappointed annually.

2. Think twice if not alot more times about providing loans to any director or executive.  This of course is covered within the self-dealing  rules covered by Intermediate sanctions laws as well as conflict of interest policies and the basic duty of care.

3. Re Whistleblowing -- put into place policies and procedures to enable employees to report any inappropriateness with the nonprofit's financial management.  No retribution is allowed.

4. Re Document Destruction -- again, put into place policies and procedures regarding document retention and destruction.

A final thought: Sarbanes-Oxley, while generally not a law applied to nonprofits is at minimum a prescription for one element of good nonprofit governance.  Nonprofit Boards and their execs do well to review and apply what BoardSource/Independent Sector has outlined.