Nonprofit Fraud: Watch the Watchdogs

By Gary Snyder

If you thought that there were conflicts when the financial rating agencies did not do their jobs prior to the recession consider the similar long-standing circumstance that faces the charity rating agencies.

Nonprofit Imperative has written numerous articles about charity rating conflicts. In my 2011 book, Silence: The Impending Threat To The Charitable Sector, I wrote:

"Many consumers rely on the BBB Wise Giving Alliance. Members it grades finance the BBB business model, in large part.  The only businesses that get A-plus ratings are  dues-paying BBB members, so poorly behaving members can get higher scores than honest nonmembers." I warned readers that it is a pay-to-play situation.

USA Today reminds its readers to not necessarily be assured that the Better Business Bureau's Wise Giving site is accurate. For example, The Blinded Veterans Association says its goal is to "help veterans and their families overcome the challenges of blindness," according to its website. Services include helping them take advantage of Department of Veterans Affairs services and employment training. Go to the Better Business Bureau's website and you'll feel assured the group is worthy of your donations. It is both accredited by BBB's Wise Giving Alliance charity-rating service and has the group's seal of approval. 

The American Institute of Philanthropy's CharityWatch, however, gives the group an F. The other leading charity-rating service, Charity Navigator, awards it zero stars out of four. "There are 158,000 veterans that are legally blind, but only 20% of (the association's) budget is spent on field services to help blinded vets," says CharityWatch founder and President Daniel Borochoff. "The rest was primarily used for mailings and public service announcements. Is this really how a blinded veteran, who can't find a job or even pay his gas bill on time, wants his charitable aid to be spent?"

Why the discrepancy? The up to $15,000 BBB receives annually from charities that pay to use its seal of accreditation influences its decisions. Consumers searching at BBB's Give.org for a charity would see a prominent accreditation seal if the charity paid the licensing fee to use it. Members pay a sliding scale of up to $15,000 annually for the right to display the seal on their own sites and marketing materials. The seal is a "very popular product" for charities that want to "distinguish themselves," the CEO says. But they'd have to look for the link on the homepage to learn how the charity seal program works. The CEO of BBB's Wise Giving Alliance, says its ratings are unaffected by its seal sales. If charities meet BBB's 20 standards for accountability, they are identified as being accredited on its website.

The CEO says that BBB has been working to improve its ratings and announced plans at a charity conference in October to review the truthfulness of fundraising appeal letters. BBB says it is helping consumers by looking beyond charities' financial ratios — which CharityWatch focuses on — to include issues of governance and other types of accountability

To further exacerbate the evaluation process, the three groups (BBB; CharityWatch; Charity Navigator) together rate no more than 7,500 of the 1 million charities in the U.S.

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 (2006) Silence: The Impending Threat to the Charitable Sector (2011)