January 13, 2016

Charity Leaders Need to Oust the Scoundrels

As most charities were mired in year-end fundraising for their good works, donors in New York and elsewhere were getting a very different picture of how nonprofits work. They read one headline after another suggesting that government and charity officials were engaged in cozy deals that seemed more about acquiring personal wealth and power than focusing on the common good.

They saw William Rapfogel, former head of New York’s Metropolitan Council on Jewish Poverty, leave prison for a work-release facility in Harlem just 14 months after he was sentenced for looting nearly $9 million from the charity he ran. Meanwhile, his wife was serving as chief of staff to Sheldon Silver, New York State’s assembly speaker — until he was convicted of using his political might for private gain. During the trial, we learned that he doled out millions in grants through a process that involved no applications from charities, no review, and the intentional suppression of this information from the public record. He just picked the groups himself, and as the prosecution proved, his selection criteria mainly involved casting an eye on how their leaders could help him advance his personal political ambitions and acquire personal wealth.

Though New York legislators show evidence of outshining their peers in corruption, they’re not alone — and it’s time for nonprofits to start taking action to speak out against the politicians and charity leaders who participate in all this bad behavior.

Examples of corruption abound. According to the Florida Times-Union, two former Florida state senators repeatedly directed state funds to a struggling group on whose board they sat, apparently not a violation of state law.

In Philadelphia, a local charity had its state funding frozen when a state audit found no-show jobs worth hundreds of thousands of dollars given to a pastor and his aide at the direction of a state lawmaker. Illinois, Ohio, and South Carolina all have seen similarly close ties between certain legislators and charities they helped fund.

Several problems uncovered by journalists led to criminal charges of theft and fraud, but other incidents appear to be perfectly legal: public officials are simply tipping the scales in favor of groups they are associated with or where family members work.

Even existing laws and regulations don’t seem to help.

A Washington Post analysis of filings from 2008 to 2012 found that more than 1,000 nonprofit organizations checked a box on their federal informational tax returns indicating that they had discovered a "significant diversion" of assets, disclosing losses attributed to theft, investment fraud, embezzlement, and other unauthorized uses of funds. But The Washington Post report also noted that nonprofits routinely omitted important details from their public filings, leaving the public to guess what had happened — even though federal disclosure instructions direct nonprofit groups to explain the circumstances.

In his thoughtful 2014 article titled "Follow the Money", Steven Malanga, senior editor of City Journal, calls nonprofit corruption a "disease." We agree. It is a disease that if untreated will seriously erode our sector’s support and overall efficacy.

Persistent reports of nonprofit leaders engaged in quid pro quo with government and the outright theft by nonprofit leaders must be discussed openly in the nonprofit world. Unfortunately, we don’t see that happening. In spite of all the evidence, many leaders within the sector, continue to insist such problems are rare.

So what can we do about all of this?

As Diana Aviv told The Chronicle when stepping down last fall as the head of Independent Sector, we need to speak bluntly about the wrongdoers in the nonprofit world. The burden falls to us, as leaders, and to our boards of directors to make transparency a priority.

Simply abiding by IRS regulations and checking off boxes on tax forms is inadequate. It is a cop-out. Most of the time when a nonprofit gets embroiled in a scandal, there’s very limited personal accountability by leaders and the boards of directors. And when wrongdoers are protected by powerful political allies, the ability to ferret out even the tiniest aspect of truth is complicated or even stifled.

Often, when nonprofits eventually share information, they intentionally obfuscate the facts or blame the government. We believe that government oversight alone will never be enough — and it’s especially hard to imagine in our gridlocked political system that tough new laws to tamp down corruption and funds for increased enforcement will ever be passed.

Efforts by nonprofits to police themselves should be expanded, but however well intentioned, it’s unlikely that self-regulation will do more than focus on the basics of ethics and legal compliance. That’s why we need independent watchdogs, journalists, and others to hold nonprofits accountable. But it’s also up to all of us who care about nonprofits to think of every possible way we can act in the coming months to get rid of the scoundrels and thieves among us.

Ken Berger, former head of Charity Navigator, is managing director of Algorhythm, a company that builds tools to help charities evaluate their work. Jeremy Kohomban is president of the Children’s Village in New York.