Nonprofit Board Crisis

Nonprofit Whistleblowing

Whistleblowing is not an easy task for the whistleblower.  That is at least one take-away I glean from watching a few such efforts. 

Harking back to the Sarbanes-Oxley Act of 2001, the idea is that if someone speaks up about something that is "wrong" at their place of emplyment, any retalitory action taken against them should be reconciled.  

This is, in principle, a good thing.  But note the burdens placed on the whistleblower.  As I understand whistleblowing, the whistleblower must first be able to document that something "wrong" has been done and effectively, covered-up.  They also have to demonstrate that any workplace set backs were directly related to their speaking up, rather than say due to thier poor performance on the job.

The process for the whistle blower to gain relief can go on for a lengthy period of time, become expensive for the whistle blower, and even if they win, their may be negative consequences for their position, standing and relationships on the job. 

The case of a former employee in one of the Philadelphia Housing Authority's nonprofit subsidiaries is one example - a case that has been going on for at least a year and has gone through several different levels of hearings and process. 

I believe that Nonprofit Boards would do well to put in place policies and procedures that may be more supportive of those who see something and say something -- if the organization's values include integrity and concern for its employees.

Nonprofit Faces Possible Loss of Tax Exemption

A large and by some opinions, effective housing development nonprofit in Philadelphia is facing the possible loss of its tax exemption.  There is some question as to what the nonprofit's specific obligation actually is or was but most interesting to me is the statement by the former exec. who said, through his attorney in the Philadelphia Inquirer that he "took no responsibility for the failure to file with the IRS, though Greene directly ran the nonprofit, which had no regular staff. Mr. Greene's duties did not include tax matters."

So, who's purview are tax matters if not a nonprofit exec's?   One slice at the answer is another question: legally or practically?  It is my understanding that legally, tax matters fall under the purview of the nonprofit board.  It is the board's fiduciary responsibility to ensure that all tax-related compliances are met.  Filing and ensuring that the filing is complete would then fall under this operating rule. 

At the same time, while a board may have an audit committee and maybe an executive committee to prudently ensure that filings are accurate, complete and on-time, the day-to-day task of getting this accomplished is more commonly overseen if not personally addressed through the organization's "agent" i.e. its executive director.

Could Mr. Greene's duties not include tax matters?  It is very possible that these duties were delegated to the nonprofit's accountant.  Is it possible that the delegation and oversight was done directly by the board?  Possible, yes.

 

 

Nonprofit Board Approves For-Profit Activity

Payday lending is a service usually provided by private for-profits that charges a hefty fee on top of lending cash in advance of payday (and effectively using the paycheck as collateral).  Payday lending has traditionally been viewed as taking advantage of people's less than steller financial situations.

A Washington Post article notes that some credit unions, non-profits focused on helping particularly low-wealth individuals save and borrow affordably,  have been getting into the payday lending game charging some fairly high interest rates.  Such lending has proven lucrative for credit unions, and as advocates would argue, ensures that the service is available to those in need, at less than usury rates, and allows the credit unions to tap an additional source of revenue in support of other services.  Others would argue that this makes credit unions no better than the payday lenders common in low-wealth neighborhoods.

What do you think?  Good mission-centered practice by the credit union board or evil practice that contributes to not positively differentiating the benefits and role of credit unions from those "evil" payday lenders? 

Nonprofit Makes Big Money from Unrelated Venture

The College Board and ACT are nonprofits.  We mostly recognize these organizations as the folks who provide the tests and test scores required for college entrance.  Although I don't know that this service needs to be provided by a nonprofit, it is and it is one a revenue generator for these nonprofits.  Again, doesn't seem to need to be a nonprofit to do this but is.

The College Board and ACT are also nonprofits with huge incomes from a by-product of their work -- they sell the names and contact information.  And, according to the San Francisco Chronicle, this product is in high demand and pays good money.  The article's focus was not how much money these two nonprofits make or how consistent selling the contact lists are with their respective missions (they likely pay taxes on these ventures) but rather about the related privacy issues. 

Still, from a governing perspective, I might be patting myself on the back for having developed such a lucrative source of revenue while also asking what exactly am I doing that justifies being a nonprofit.

Nonprofit Board Learns Fiscal Controls Lesson

The Hartford Jazz Society is trying to celebrate its 50th year history,  And, like many nonprofits, part of the celebration includes raising some money.

What's the so-what?  The so-what is that the Jazz Society is raising money because it was robbed, not because it is celebrating.  It needs to raise this money to pay its manager and support staff who have been laid-off (although are volunteering).

As the Board President said in the Hartford Courant:  "the money was taken in a rapid fire fashion, mostly at out-of-state ATMs."  He also noted that "We have a prime suspect who was indeed a trusted employee, because he carried the debit card."

Lessons abound beginning with the question of where the Society's accountant or auditor has been all this time.  Giving out a company debit card?  Maybe....but maybe not.

Nonprofit Bites Hand That Feeds It

"Given the fact that Comcast has been a major supporter of Reel Grrls for several years now, I am frankly shocked that your organization is slamming us on Twitter. This is not the first time either. I've seen at least one other negative Tweet about Comcast," wrote Steve Kipp, a Comcast vice president of communications, in an email released by the nonprofit. "I cannot in good conscience continue to provide you with funding—especially when there are so many other deserving nonprofits in town."

According to the Wall Street Journal, this is the message that the nonprofit Reel Grrls received from Comcast after a tweet that raised, in essence, an ethical question about the behavior of a FCC Commissioner who had voted affiratively on the Comcast/NBC merger and then went to work there as a senior lobbyist.  Comcast later recanted and has assured Reel Grrls that their long-term project funding will not be cut.

While the "problem" is solved for the most part, the situation does raise some interesting policy and governance questions for the nonprofit.  I wonder for instance, has the Reel Grrls board actually had a conversation about the parameters for organizational tweeting or use of other social media?  And, one step further, does the board have a policy about taking positions that are not in the best interest of its funders?  And finally, does the board have a policy about the consequence for its board or staff acting contrary to its policies?

 

Nonprofit Financing: Grant or Contract

Is the distinction between a contract and a grant fairly simple? Yes says the Commonwealth of Virginia Attorney General (Washington Post).   Contracts are legal agreements between the State and nonprofits.  Grants are, well, free money or otherwise known as public funding of charitable organizations.  Contracts can be extensions of the public.  Grants can not.

So-what?  For Virgina nonprofits, the so-what could have been huge losses but saavy and caring legislators and state agency heads have quickly rushed to save the safety-net nonprofits.  The cultural institutions do not appear so fortunate (although I would just create a nonprofit who would be the contractor with the State and then sub out grants).

But isn't this situation really one more wake-up call for nonprofit boards to regularly have the sustainability converstation to be sure not to be dependent on any one source of income?

Nonprofit Invests In Future: Predicts End of World

The nonprofit "home" of Mr. Camping and his Board, the predictor of May 21's ending, had $104 million in assets (in 2009) of which $34 million was in stocks. Just really good governance? (From the Washington Post). 

 

Nonprofits Being Political

Nonprofits are being political.  Yes, big corporations (in particular) and wealthy can do that -- the Supreme Court says so.  But nonprofits, that's another story.  As I understand it--we don't want to be influenced by the group of institutions who are by their nature, supported by the largesse of the government (that's who gives the big tax exemption to both the institution and those who support the institution.).  Oh, and this doesn't apply to big corporations, right?

Anyway, according to the New York Times, the IRS was doing its job by looking into some individuals who made big gifts to advocacy nonprofits.  There's something illegal about the giving and receiving and the IRS is doing its job as an enforcer.  The bad news is that there are some Republican Senators who don't think the IRS is behaving correctly and they have launched their own investigation of the IRS.

Where does this really leave nonprofit boards? (When we talk about nonprofits, we really should talk about the "who" in nonprofits because the institution, while an individual under legal considerations, only succeeds thanks to the individuals.)  At minimum, nonprofit boards should appreciate these are perilous times for a variety of reasons.  Their actions will be questioned by someone and they should be prepared to respond.  That's part of what it's about to be fiduciarily responsible.

Nonprofit of ForProfit Claims Successful Outcomes

Last year I claimed that the Panera Bread experiement called Panera Cares wasn't a feasible business model.  The recent press that Panera Bread is doing promoting successful outcomes from the experiment claims otherwise.

My claim depended on the understanding that the business model of having the same menu as the for-profit Panera Bread but offering that folks could pay what they want wouldn't be sustainable.  Looks like I am correct and Panera Bread is correct. 

First, what outcomes does Panera claim?  According to its press written-up in the Christian Science Monitor:

Most patrons, it finds, drop the entire retail cost, or more, into the voluntary donation box, in essence subsidizing a meal for someone who can't pay the full amount. Panera says about 60 percent leave the suggested amount; 20 percent leave more; and 20 percent leave less. The largest single payment so far? One person paid $500 for a meal.  Few people seem to be taking unfair advantage of the system.

Next, my claim that the business model is not sustainable.  Truth is: the business model means at minimum "no profits" but more likely, philanthropic subsidy.  That of course is why Panera Bread made this hybrid a nonprofit.  Does this mean everyone's a winner?  I think so and maybe that's ok.  Yes, some nonprofits may get a bit of money to support feeding the hungry.  Patrons get "educated" and maybe make a donation.  And Panera gets great press and a healthy tax deduction.  A win-win-win.  Good for Panera but let's be honest about the reality of the business: this is not an independently sustainable business model.