Nonprofits Should Come Clean About The Way They Do Business*
Philanthropists and assorted doers of good deeds are receiving a wake-up call about the need for accountability in how their nonprofit dollars are doled out.
If they are smart - or at the very least smarter than folks like Enron's Andrew Fastow and Tyco International's Dennis Kozlowski - they'll wipe the sleep from their eyes and pay attention before Congress and the courts get involved.
"We can no longer think of ourselves as private institutions that can operate without the scrutiny of donors, the media or elected officials," wrote United Way of America CEO Brian Gallagher in an Oct. 2 letter to the editor in the Chronicle of Philanthropy. "Instead we have to think of ourselves as public charitable or philanthropic organizations that happen to carry tax-exempt status."
Gallagher's inked thoughts were echoed in his conversation with Hodding Carter III, president and CEO of the John S. and James L. Knight Foundation, during the Independent Sector's annual convention last week in San Francisco. "Increased public scrutiny was inevitable given the sector's fast growth, employee base and economic impact," Gallagher said.
By the numbers: 10.4 million Americans work in the nonprofit world; 1.8 million nonprofit organizations operate in the United States; it's a $650 billion industry that has grown at twice the rate of the business sector.
What is mind-boggling is that nonprofit officials ever expected to fly below the radar, or ever believed they were exempt from scrutiny.
On the contrary, the fact that tax-exempt status - preferential treatment on the part of government - has been extended for so long to nonprofits and philanthropic organizations is exactly why they never should have had illusions that they could operate beyond public scrutiny.
As much as it pains a professional scribe to admit this, the media are partly to blame for the belief that nonprofits aren't due the inspection that business and politics historically have received.
From the United Way to the American Red Cross to the Pew Charitable Trust to the Meadows Foundation, media have covered philanthropic and nonprofit groups as altruists, not as an industry.
The media do OK at the warm and fuzzy stories - funding research to cure the malady du jour, bringing the wonderful world of symphony to local schoolchildren, providing educational scholarships for students who otherwise might not receive advanced learning opportunities. All the better if the story can be illustrated with some heartstring-strumming photograph of faces of hope.
Journalists don't do so well at checking the books, the 990 tax forms, the audit statements, the annual reports.
The majority of the nation's altruistic organizations do incredible - and often underappreciated - work, just as the majority of America's for-profit corporations operate in a legal and ethical manner.
But it doesn't take too many bad apples falling in one industry to prompt the media and lawmakers to start looking for a diseased orchard. And there's a new reality in today's nonprofit world: One dollar in three in the budgets of nonprofits comes from federal, state or local government.
Diana Aviv, president and chief executive officer of Independent Sector, made that point clear in her opening plenary address on Monday to conference attendees.
"And among those nonprofits involved in health and human services, government's share of the budget is more than one dollar in every two," Aviv said.
"Government money" doesn't grow from special trees planted along the Washington Mall, to be harvested when it ripens. 1t comes from the hard-earned sweat equity of America's working men and women. And every dime of it should have a string attached to an accountant.
That is why philanthropists should not be surprised when the public - and lawmakers and the media - show interest in what's being done with their dollars.
The Knight Foundation's Carter said that the public assumes a certain amount of corruption in politics and business and some professions, but it doesn't think of the nonprofit world as being susceptible to it.
Alas, the days of America's innocence ended with one too many headlines about a tainted United Way chapter here, a private foundation paying exorbitant CEO compensation there.
Once upon a time, the people who operated foundations and charitable organizations were viewed as altruistic (if not always humble) philanthropists. They'd best get used to the new reality. Today, even doers of good deeds are viewed with questioning eyes.
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