Fighting Fraud and Promoting Social Equity: a Nonprofit Agenda

As the 2012 elections focus debate on the nation's priorities, it's time
for nonprofits to figure out how they can best serve a society increasingly
divided over ideology, class and financial scarcity.

The recent record has not been encouraging. Drastic cutbacks in government
aid and the stagnant growth in foundation support have hurt many
nonprofits, especially small and medium-size ones. Some groups have been
forced to close their doors, while others are trimming programs to the
bone. The largest and wealthiest nonprofits got richer, while small
charities and grassroots groups got poorer.

Many of the threats to nonprofits come from within. Fraud and embezzlement
cost nonprofits billions of dollars, while compensation packages for CEO's
of large organizations remain alarmingly large at a time when other workers
face salary freezes and layoffs. Foundation performance has remained
lackluster, as have the advocacy efforts of nonprofits in combating cuts in
social safety-net programs.

If nonprofits are to play a more vital role in society, here are five
things philanthropy and government must do together.

Eliminate theft, fraud, and other scandalous behavior. The prevalence of
crime and ethically questionable behavior at nonprofits has eroded public

Bart Bevers, who regulated nonprofits as Attorney General of Texas,
estimates that charities lose $51 billion a year to thefts from employees
and others. That represents a huge chunk of the nearly $300 billion
nonprofits collect annually from private donors.

Other experts have cited less explosive but still worrisome figures.

Nonprofit Imperative, a biweekly newsletter that collects information about
nonprofit fraud, estimates that $2.7 billion was stolen from nonprofits last

Much of the fraud goes unnoticed or is uncovered by journalists, not by the
government agencies that should be on the lookout for trouble. That's
because neither the Internal Revenue Service nor state attorneys general
have been able to muster the resources or the will to oversee and police
nonprofits aggressively.

It's time for Congress to take action and provide the regulators with the
money and authority they need to crack down on nonprofit abuses. And
nonprofits themselves must step up actions to protect their assets from

Make CEO pay more reasonable. Nonprofit chief executives continue to earn
high sums, even at organizations that have had to cut their programs, lay
off staff members, and scrap pay increases and benefits.

A typical private-college leader made 3.7 times as much as the average full
professor on his or her campus in 2009, according to The Chronicle of
Higher Education
, and more than three dozen chief executives made more than
$1 million.

This comes at a time when tuition is high and a paucity of scholarship aid
makes it impossible for many young people to afford higher education.

Nonprofit hospitals also pay their executives extraordinarily well at a
time when they do little to provide care for the poor. Local studies by
newspapers have identified scores of hospital chief executives who make
$1 million or more.

The same excessive compensation characterizes large foundations, health
charities, and big social-service organizations.

Such high salaries are in part the fault of the IRS, which has been too
vague about what level of pay is acceptable and too unwilling to penalize
organizations that pay overly generous salaries. States have shown some
interest in cracking down, and bills have been floated in several places to
cap nonprofit salaries.

But this is not just the responsibility of government. Nonprofit boards
need to stop approving such high pay at a time when money is so scarce and
seek greater equity in pay among all workers.

Encourage donors to do more for the needy. Despite the desperate need by
nonprofits to attract private aid to make up for the loss of government
funds, foundations have not responded.

Wealthy individuals are not doing much better. As The Chronicle of
's ranking of the 50 top donors of 2011 showed, most of the
superrich give to colleges, hospitals, and the arts, leaving very little
for other nonprofits.

The giving patterns of both foundations and wealthy individual donors will
continue to widen the gap between small grass-roots groups and big wealthy
organizations. Witness the closing this winter of the venerable Hull House
in Chicago, which was founded more than a century ago by Jane Addams. Not
one of the city's wealthiest residents came to the rescue of this vital
institution when it faced dire financial problems.

Nonprofit coalitions like Independent Sector and the National Council of
Nonprofits should devote more energy to putting pressure on foundations and
other donors to give more to organizations that serve people hit by hard
financial times.

Strengthen White House support. The Obama administration has given lip
service to the importance of nonprofits in a shrinking economy, but it has
done no better than to hold a few meaningless conferences and establish a
$50-million innovation fund that has proved neither innovative nor

A major part of the problem is that few White House staff members
understand the needs of nonprofits. Their primary focus has been on
entrepreneurial programs that form only a tiny segment of the nonprofit

One of the purposes of the Social Innovation Fund was to persuade more
foundations to invest in promising nonprofit programs.

If the administration had really wanted to boost philanthropic giving, it
should have used its bully pulpit to encourage foundations to spend more
and urged Congress to force greater giving by increasing the minimum share
of assets grant makers must distribute.

The recent appointment of Cecilia Munoz, former vice president for the
National Council of La Raza, as director of the White House Domestic Policy
Council is an encouraging sign of change. Putting a person who understands
grass-roots and advocacy groups in a role of power is a big step forward
for the Obama administration.

Invigorate nonprofit advocacy. Nonprofit coalitions have been fighting hard
to protect the charitable deduction despite little evidence that more than
a billion dollars might be lost by the changes President Obama has proposed.

By contrast, leading nonprofit groups have done little or nothing to
protect vital social and economic programs that have been put at great risk
as Congress grapples with ways to rein in the deficit. Many nonprofit
coalitions seemed more concerned with their narrow self-interest and greed
than in the national interest.

Progressive groups must especially take steps to be more forceful in
holding the Obama administration accountable for its social and economic
policies, but programs that help low-income people should be a priority for
all major social-service, health, environmental, and social-justice

Issues of poverty cannot be separated from cancer or heart disease, from
housing or urban development, from environmental problems or questions of
education. They are all related. Defense of the social safety net, if it is
to be successful, can only be achieved by broad coalitions working on
national issues beyond the narrow missions of their member groups.

To meet these big challenges, nonprofits need leadership.

Now that Gara LaMarche has left as chief executive of Atlantic
Philanthropies and Paul Brest has announced his retirement as head of the
William and Flora Hewlett Foundation, the foundation world has no visible
leaders who can speak to the values and needs of its institutions. The same
void in leadership can also be found at big nonprofits. Few heads of
nonprofits seem to have a vision and commitment beyond the self-interests
of their own organizations.

The shaky state of the economy and lack of funds have unsettled nonprofit
workers. A recent survey by The Chronicle found that a large majority of
nonprofit employees were unhappy with their jobs, eager to leave them to
seek new employment opportunities. As Paul Light, a scholar at New York
University, put it, "there is an anxiety in the sector that is palpable.
This is a beleaguered work force. They are wondering what the future is
going to look like, and they're right to wonder."

To meet the challenges ahead, the nonprofit world must develop the
leadership that can calm and energize its work force, forcefully lead its
advocacy and coalition activities, clean up the scandals, and hold
government and politicians accountable.

Nonprofits have the potential to meet these challenges. The big question is
whether they have the will.

Pablo Eisenberg, a regular Chronicle contributor, is a senior fellow at the
Georgetown Public Policy Institute. His e-mail address is

Cross-posted from The Chronicle of Philanthropy.