Tuesday, April 3, 2012

Who Is Paying Attention?

by Gary Snyder

As they sit in silence and denial, I sit alone in my office and watch the charity leadership on the wrong side of a serious bet.

The sector is in turmoil as few want to acknowledge. More than half of the charities that responded to a survey.1 rely on local or state government contracts. And 45 percent receive federal contracts or grants. This means charities are eating up their treasuries. Some 57 percent of the charities said their reserves would only cover three months of operations or less. Thirty-one percent, mostly small organizations, said contributions dropped in 2011, and 41% said they did not meet their funding goals.2

More than half of the nonprofits in the survey are human or social service agencies, which have been hit harder than some other organizations as a result of their reliance on state and federal contracts.

As charitable dollars diminish, we see a familiar albeit depressing story: an increasing demand for services; delays in payments, especially of government grants; waning cash reserves; and a bleak outlook for 2012. Eighty-five percent of charities said demand for help grew in 2011 and 88 percent expect even more clients in 2012.

We also see thousands of insiders lining their pockets. One estimate suggests that charity fraud has increased over 20% to $51 billion in just a few years.

There is no agency that vets nonprofits or provides oversight. In spite of these challenges the sector has not exhibited any interest in improving risk management.  Furthermore, those in positions of leadership have steadfastly held to the opinion that there should be no regulation. They believe there should only be self-regulation because a one-size-fits-all solution is a straightjacket to the sector’s failings.

There is little interest by the IRS. Based on it’s own 2011 IRS Data Book, the audit rate by the IRS is .0037%. Some say that may be overstated.

Any variance at all to that of the sector’s leaders position is smothered. I watch my colleagues, almost giddily ensconced in rhetoric about any other subject but the soft spots in the nonprofit sector, financial management, sustainability and risk management.

Almost 40 percent said their boards do not understand the basics of their charities’ expenses and cannot even discuss the organization’s financial situation knowledgeably with outsiders. In addition, 36% of the boards do not provide sufficient expertise to help a charity’s bottom line.

The era based on the government’s commitment is over. We have never seen this kind of backtrack in assistance in this nation’s history. Without that assistance, the charitable sector will be in crisis with no way to be bailed out.

The numbers add up to astonishing totals. In 2011, the IRS said that almost 400,000 agencies were lost. Our larger stalwart agencies have been more insulated from the vagaries of the sector as a whole, but the other 77% of the organizations are frightened. They are fraught with internal and external challenges. Denial and lack of leadership have given rise to a catatonic sector.

We have seen in the last 5 years that a loss in confidence is very hard to get back, if at all. Without hard choices by the sector, the trust in philanthropy will continue to fade away. 

1 Nonprofit Finance Fund
2 Nonprofit Research Collaborative
3 The Chronicle of Philanthropy, April 2, 2012

Gary Snyder is the author of Silence: The Impending Threat to the Charitable Sector.

Nonprofit Imperative gathers its information principally from public documents...some of which are directly quoted. Virtually all cited are in some phase of criminal proceedings; some have not been charged, however. Cites in various media: Featured in print, broadcast, and online media outlets, including: Vermont Public Radio, Miami Herald, National Public Radio, Huffington Post, The Sun News, Atlanta Journal Constitution, Wall Street Journal (Profile, News and Photos), FOX2, ABC Spotlight on the News, WWJ Radio, Ethics World, Aspen Philanthropy Newsletter, Harvard Business Review, Current Affairs, The Chronicle of Philanthropy, St. Petersburg Times, B, USA Today Topics, , Newsweek.com, Responsive Philanthropy Magazine, New York Times...and many more • Nonprofits: On the Brink (iUniverse, 2006)
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