The Blog

We Are Not Crooks!

It is frustrating, to be sure, to be thought of as in the same company as Senate Majority Leader Pedro Espada, but the most profound reaction I have to all this is: "how did he get away with it?"
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I've never had much sympathy for Richard Nixon, but I must say over the last few days, I identified with his "I am not a crook" pronouncement. I am the executive director of a nonprofit organization, and I know and have worked with literally hundreds of other executive directors. It is frustrating, to be sure, to be thought of as in the same company as Senate Majority Leader Pedro Espada, but the most profound reaction I have to all this is: "how did he get away with it?" From my experience, and those of my colleagues, the nonprofit sector is a highly regulated industry.

Most of our money comes from answering "requests for proposals", which is a competition that we enter into to try to convince the funding sources that we are best equipped to do what they want. In 2007, about 67% of nonprofits program service revenues came from government fees and contracts. Each of those proposals requires attachments such as board lists, board minutes, comparable executive compensation proof, extensive conflict of interest statements by all board members, and a thing called the 990 which allows the IRS and the public to evaluate nonprofits and how they operate, proof of 501(c)(3) IRS status, incorporation papers, bylaws, and more. If we do business with the City, we have to fill out VENDEX questionnaires to assist City agencies in deciding if an organization will be able to fully perform New York City contract requirements. We are required to have audits by private CPA firms, as well as separate audits from city and state agencies. One nonprofit I know goes through 50 audits a year. Then there is the A-i 33 audit, which you have to do if you have any federal money, and that requires you not only to show what you spent, but also what procedures are in place to inform your spending. Shall I go on?

There are a number of regulatory agencies who make sure we do all this: the IRS, State Charities Bureau, auditing arms of each of the city agencies, Mayor's Office of Contracting, independent organizations such as the Better Business Bureau and Guidestar - so it is not easy to ignore these things. For example, if your VENDEX form is not current and in good standing, you will not be approved for a contract.

I guess if someone started out with the intention of manipulating these systems, the first step would be to ensure that the board is both weak and beholden to the staff executive -- because for most of us, it is the board that is the first line of compliance. There are thousands of New Yorkers who every night sit at board meetings, going over the finances, plans, and strategies of nonprofit organizations. Typically this work is detail-oriented and tedious. For legal problems, there is a strong pro bono community in New York that takes requests through long standing and reliable intermediaries like Lawyers Alliance. My own organization, Community Resource Exchange, is represented on a pro bono basis by a great New York law firm, Schulte Roth & Zabel, a resource that our board takes seriously and appreciates. People who sit on nonprofit boards do not get paid. They do it to be good citizens, and most of them take it very seriously.

The way things apparently went at Soundview Healthcare Network is quite the exception -- in fact a Madoff-like effort, carefully and manipulatively played out over years. There are more than 25,000 nonprofits in New York, and I'd bet that 99.998% of them are honest.