Monday, November 22, 2010

Be Warned: Watch Your Donations!

By Gary Snyder

The evidence is irrefutable. Charity criminality is rising…at a significant rate. So watch out before you make your donations because there is no one else watching on your behalf.

This advice is particularly important as you make decisions as to your seasonal or end of the year giving which amount to a significant amount of money that charities receive.

Donors have a false impression that watchdog agencies and government regulators are monitoring the charitable sector. Unfortunately that is not the case.

Charities are the new personal piggy bank for those close to donor money. This includes executives, fundraisers, board members and other leaders in the sector that rack up billions of dollars in fraud. In one such study in the Nonprofit and Voluntary Sector Quarterly (2007), the authors put embezzlement at $40 billion for 2006, or some 13 percent of the roughly $300 billion given to charity that year. That is at a rate almost twice that of the for profit sector.

Charity malfeasance is big business and growing. Based on data collected by Nonprofit Imperative, the twice-monthly e-newsletter that I author, last year the increase of lost revenue to malfeasance was up 50%. Based on current trends, charity fraud will increase another 25%. It is startling!

With shortage of staff, charity watchdogs and government regulators are overwhelmed by the increases and cannot keep up. There are some well-known charities that have received some recent attention.

The Oklahoma-based Christian charity, Feed the Children, is a notable example of poor governance and mismanagement. Charity Navigator, a watchdog group, said that Feed the Children spent just 21% of its cash budget on programs for the needy. It spent 55% of its contributions on fundraising. FC is a family affair. In 2007 the founder’s daughter lived in a $1.2 million house owed by FC. At the time she was paid handsomely as an employee. The founder’s son received a Feed the Children $950,000 loan for his business. Despite all of this (and more), FC continues be one of the top fundraising agencies in America.

Another food agency, the Atlanta-based Angel Food Ministries, , shared its donor’s offerings with family. A couple of years ago, Angel Food Ministries paid $2.5 million in executive and family compensation. Put in perspective, the Chronicle of Philanthropy data indicated that the compensation for this agency was many times the median for agencies its size. In addition it made loans to the family of about $1 million. The family drew a combined 40% of the nonprofit’s budget.

These are only two examples of malfeasance that is a systemic problem. There is an explosion of comparable misdeeds by stalwart organizations such as the American Red Cross, Smithsonian Institution and thousands of others. This has resulted in billions of dollars not going toward fulfilling the charitable agency’s mandates…or your wishes. Instead it is lining the pockets of an insider.

If surveys of public confidence are any indication, some 70 percent of general public thought charities wasted “a great deal” or “a fair amount.”

So be careful in making what is typically an impulsive decision. Good luck in your deliberations. Some useful websites are Charity Navagator.org, Givewell.org or the Evangelical Council for Financial Accountability. (ecfa.org)

Want to receive the entire Nonprofit Imperative, the twice monthly e-newsltter? Email gary.r.snyder@gmail.com
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