The Washington Post analyzed 990s from large nonprofits and found an astounding number that had serious financial irregularities. This isn’t the category of overpaying for a copier or even overpaying a CEO (which still happens too often) this is outrageous, egregious, large-scale corruption within organizations.
The Post examined organizations that checked the box that indicated that assets had been diverted. Diverted is a polite way of saying stolen. The Post has created a database of the 1,000 organizations that reported diversions on their 990s.
From my cursory review of the organizations, here is a typical disclosure:
The story is: We had an employee or a contractor who stole money from us and we reported it to counsel and we’re done. Basically, it’s the cost of doing business for many of these organizations.
And it’s appalling. Not just the practice of it, but the lack of transparency on the part of these organizations. Of course, if they were privately owned businesses, we wouldn’t know anything about this. But, they aren’t, they’re using public funds and are accountable to the public for how those funds are used.
It comes back to board leadership – as it always does. You can just hear the conversation at the board table, “Holy cow, we had better get counsel on this thing and hope it doesn’t get out.” This is why remaking their relationships with their communities, becoming more transparent and more accountable to their publics.
Too often, we confuse bad management with the circumstances those bad practices create. For instance, when City Opera closed in New York this fall a sad lament arose about the death of cultural institutions because of generational shifts. City Opera was a horribly managed organization that should have gone out of businesses years ago. It’s demise has nothing to do societal cultural shifts.
Until the boards of these organizations are accountable for lax internal controls, bad auditing practices and too willing to sweep these kinds of activities under the rug with their fingers crossed that it won’t end up in the Washington Post (although it usually does) then these bad practices won’t end.