News and analysis
July 24, 2015

Some Nonprofits Misuse Contracts to Hide Activities, Say Experts

Rodrigo Ordonez/American Red Cross

The American Red Cross says its contracts prohibit it from releasing detailed information about its work in Haiti, a practice that some nonprofit leaders say is a good way to block disclosure.

A claim by the American Red Cross that it was contractually prohibited from releasing information about some of its activities in Haiti drew fire from some nonprofit leaders, who say such contracts are a handy way to block disclosure without good cause.

And the practice, which involves including nondisclosure language in contracts for services between nonprofits, isn’t unique to the Red Cross, they say.

“Hiding basic information about international grants and distributions has unfortunately become part of the culture of the nonprofit field,” said Daniel Borochoff, president of the watchdog group CharityWatch.

Earlier this month, Sen. Charles Grassley requested detailed information from the Red Cross about its work in Haiti in response to media critiques about how it spent the more than $487 million it raised after the 2010 earthquake there. The Red Cross complied – but stated that “our contracts with the great majority of our partners, while permitting us to disclose this information to Congress, do not permit us to disclose the information to the media or donors.”

While nonprofits frequently protect the identities of individuals who benefit from their services, it’s rarer for them to refuse to share information about their partners or grantees.  

“I’ve never heard of that,” said Richard Walden, president of international development nonprofit Operation USA. “I’ve never heard of an anonymous recipient unless it’s an individual with HIV/AIDS. It’s tacky.”

But the practice has become more prevalent since 2008, when changes to nonprofit reporting rules eliminated the requirement that organizations disclose the recipients of international grants, Mr. Borochoff said. He’s heard a few explanations for why the rule was changed, including that charities were concerned about terrorists targeting their grantees — a concern he called illegitimate.

“That’s why the Red Cross is feeling emboldened to not disclose this information,” he said.

Heated Questions

Senator Grassley also questioned why the Red Cross would enter into non-disclosure agreements in the first place.

 “Who’s driving the lack of disclosure, the Red Cross or the grant recipients?” he said in a statement.

That line of inquiry resonated with Mr. Borochoff, who argued that as an organization providing money to other groups, the Red Cross has the power to decline any requests partners might make for nondisclosure agreements.

“Who has the leverage when a grant is being made?” he said. “I would think in most cases they were the ones who could call the shots.”

However, the concept of contractual confidentiality seems reasonable in general to Jacob Harold, president of GuideStar, an organization that provides information about charities.

“There are very good reasons to keep some contractual data private,” he said.

Mr. Harold said he could not comment on the Red Cross’s particular situation.  

One possible scenario he proposed was that a nonprofit might make a deal with a vendor that would hurt the vendor’s relationships with other customers if it were made public.

But he also said that such contracts should be rare.

“I think that’s something you want to minimize; that shouldn’t be a standard practice,” he said.

Mr. Borochoff said he has encountered nonprofits that invoke the words “proprietary” and “confidential” to “confuse the situation so people think it has to do with privacy of individuals,” he said, when in reality, they’d just prefer not to share certain information.

He thinks this might be a similar situation.

“I don’t buy the Red Cross saying this is a contract,” he said.

Transparency and Trust

Although sympathetic to the notion of nondisclosure, Mr. Harold said  nonprofits need to keep in mind the importance of transparency in building and maintaining the public’s trust.

“The broader issue is: Can we have faith in nonprofit managers to manage the best they can and be willing to hand over some of that control to nonprofit managers while still holding them accountable for ethical behavior?” he said.

Mr. Borochoff hopes Senator Grassley applies his skepticism to more nonprofits.

“I wish Grassley would take this broader and not just be focusing on the Red Cross but focusing on all international aid and development groups and require they disclose who their grantees are,” he said. “It’s basic information that donors ought to have access to.”

The Red Cross declined to comment for this article.

Send an email to Rebecca Koenig.