I'm most of the way through Joel Fleischman's book on foundations, and it's clear that he and Trent Stamp are preachers in the same crusade. Their emphasis is different in some ways and they certainly don't agree on tactics, but in broad strokes they have the same message: that the nongovernmental "civic sector" is a marvelous invention of which America has every right to be proud, and that if the sector doesn't do some serious growing up it will deservedly end up in history's dustbin. (As you can probably tell, I'm with them on all points.)
Independent Sector, which Fleischman cites as an example of promising new seriousness in the non-profit sector about things like transparency and mature governance practices, has been mostly snorted at by Stamp. He's seen the group's work on a set of new "Principles for Effective Practice" as being mostly window-dressing: too weak, and unlikely to ever change the behavior of the really bad non-profits.
I haven't agreed with him on that -- I think the voluntary principles being developed are an important step and would, if widely publicized and adopted by some sector heavyweights, have meaningful influence. Certainly they would be ignored by really weak and flatly-fraudulent non-profits, but that minority is not my primary concern. Well-meaning but poorly-run groups will be increasingly punished by the marketplace of better-informed contributors; meanwhile state attorneys general and the feds are waking up to the need for more serious pursuit of actual fraud and shady fundraising practices.
I'm more concerned with the great mass of well-intended non-profits that are organized and led no better than was true on average 20 or 40 years ago, which is simply not good enough. If "they mean well" is the only standard that this sector can ever meet then the (false, in my view) idea that "a just society would not need charity" might as well be true. In that case, why have this sector at all?
Stamp has just grudgingly come around to endorsing Independent Sector's proposal, for the fairly silly reason that he doesn't like being on the same list with others who have opposed it. Well, whatever -- what matters at this stage is not so much the specifics of this specific proposal, but the overall awakening which it hopefully represents and can help shape.
Showing posts with label fraud. Show all posts
Showing posts with label fraud. Show all posts
Sunday, April 01, 2007
Monday, March 12, 2007
The Congressional spotlight is being focused
The Washington DC Examiner reported the other day that a Congressional Philanthropy Caucus is being organized in the House, co-chaired by North Carolina Republican Robin Hayes. The Democratic co-chair was not identified, and the newspaper didn't name its source for the story. Some quick poking around just now didn't turn up any denials, and the Chronicle of Philanthropy appears to believe it.
Such a move seems inevitable given the various non-profit and philanthropy related issues that have in recent years been the subject of Congressional bills or hearings, and the general increase in public awareness due to things like the Gates and Buffett philanthropies and some non-profit scandals. And it does seem clear from kludgy messes like last year's federal Pension Reform Act that a lot of Congressmen and Senators are not yet up to speed on what this sector does and how, and a defined caucus ought to help with that learning curve.
Nonetheless I can't help thinking of the prediction Joel Fleshman is going around making (out loud and in his book) about foundations: that if they don't define and adopt a new more-transparent version of the charitable-foundation social contract, Congress will eventually define it for them. I think he's right about that -- our society slowly but continuously becomes less tolerant of secrecy from all its public or civic institutions, including publicly-held companies, and there's no reason to expect foundations to be exempted from that.
And I would apply Fleishman's logic to the not-for-profit tax-exempt sector as a whole: the statute of limitations on permission to be a young industry is not yet defined but it's also not open-ended. In some ways we perform our role in society better than other sectors do and some ways we don't, at all; and we won't be allowed to avoid that fact forever.
Such a move seems inevitable given the various non-profit and philanthropy related issues that have in recent years been the subject of Congressional bills or hearings, and the general increase in public awareness due to things like the Gates and Buffett philanthropies and some non-profit scandals. And it does seem clear from kludgy messes like last year's federal Pension Reform Act that a lot of Congressmen and Senators are not yet up to speed on what this sector does and how, and a defined caucus ought to help with that learning curve.
Nonetheless I can't help thinking of the prediction Joel Fleshman is going around making (out loud and in his book) about foundations: that if they don't define and adopt a new more-transparent version of the charitable-foundation social contract, Congress will eventually define it for them. I think he's right about that -- our society slowly but continuously becomes less tolerant of secrecy from all its public or civic institutions, including publicly-held companies, and there's no reason to expect foundations to be exempted from that.
And I would apply Fleishman's logic to the not-for-profit tax-exempt sector as a whole: the statute of limitations on permission to be a young industry is not yet defined but it's also not open-ended. In some ways we perform our role in society better than other sectors do and some ways we don't, at all; and we won't be allowed to avoid that fact forever.
Wednesday, November 29, 2006
Your tax dollars at work
The U.S. government, it turns out, has been passing federal-employee personal contributions on to more than 1,200 non-profits which owe federal taxes, and has issued billions of dollars in federal grants to the same delinquent charities.
This revelation comes from the General Accounting Office, as reported by MSNBC and written about by Trent Stamp of Charity Navigator. The watchdog agency says that the true number of non-profits delinquent on payroll taxes but still receiving federal-employee donations is undoubtably even higher. That's because federal law for some bizarre reason prohibits the relevant officials from checking whether charities that are to receive employee donations are up to date on their routine federal tax returns.
The GAO picked 15 of the delinquent charities at random to check out further, and concluded that every one of them was probably acting illegally -- doing things like buying a boat for the executive director while failing to pay federal payroll taxes. (And let's keep in mind that most of what is called "payroll taxes" is actually money withheld from employee paychecks.) The GAO made up a bogus charity, applied for funding from three local offices of the federal employee-contributions system, and received funds from all three with no trouble.
Ok clearly part of the story here is serial incompetence in our federal bureaucracy. But for me the bigger issue is this: the fact that fewer and fewer Americans still think non-profits to be highly trustworthy is not simply due to "a few prominent rotten apples that have made headlines" as I keep hearing people tell each other at conferences. There is a broader problem here in this sector and it is not being faced.
This revelation comes from the General Accounting Office, as reported by MSNBC and written about by Trent Stamp of Charity Navigator. The watchdog agency says that the true number of non-profits delinquent on payroll taxes but still receiving federal-employee donations is undoubtably even higher. That's because federal law for some bizarre reason prohibits the relevant officials from checking whether charities that are to receive employee donations are up to date on their routine federal tax returns.
The GAO picked 15 of the delinquent charities at random to check out further, and concluded that every one of them was probably acting illegally -- doing things like buying a boat for the executive director while failing to pay federal payroll taxes. (And let's keep in mind that most of what is called "payroll taxes" is actually money withheld from employee paychecks.) The GAO made up a bogus charity, applied for funding from three local offices of the federal employee-contributions system, and received funds from all three with no trouble.
Ok clearly part of the story here is serial incompetence in our federal bureaucracy. But for me the bigger issue is this: the fact that fewer and fewer Americans still think non-profits to be highly trustworthy is not simply due to "a few prominent rotten apples that have made headlines" as I keep hearing people tell each other at conferences. There is a broader problem here in this sector and it is not being faced.
Friday, November 10, 2006
IKEA is a non-profit?
In yesterday's quick rogues' gallery I forgot to mention what is in dollar terms probably the largest non-profit scam in history: the fact that IKEA, the giant Scandinavian retailer, is wholly owned by a charitable foundation so as to evade taxes on its profits.
The Economist detailed this arrangement in its May 11, 2006 issue. "The parent for all IKEA companies—the operator of 207 of the 235 worldwide IKEA stores—is Ingka Holding, a private Dutch-registered company. Ingka Holding, in turn, belongs entirely to the Stichting Ingka Foundation. This is a Dutch-registered, tax-exempt, non-profit-making legal entity, which was given the shares of (IKEA founder) Ingvar Kamprad in 1982." Depending on who's doing the math, that foundation is on paper arguably the largest in the world, even bigger than the Gates Foundation's $30 billion in assets. The declared mission is to promote “innovation in the field of architectural and interior design” and “for investing long-term in order to build a reserve for securing the IKEA group, in case of any future capital requirements.”
A five-person executive committee, chaired by Kamprad, runs the foundation. "This committee appoints the boards of Ingka Holding, approves any changes to the company's statutes, and has pre-emption rights on new share issues. Mr Kamprad's wife and a Swiss lawyer have also been members of this committee..."
That sort of thing was once common in the U.S., albeit never at such a size, but was first addressed by a 1950s federal law and today couldn't be done at all because of the 1969 Tax Reform Act. But "Dutch foundations are very loosely regulated and are subject to little or no third-party oversight. They are not, for instance, legally obliged to publish their accounts [annual financials]." There is no minimum grantmaking requirement as U.S. foundations operate under, so despite receiving at least a half-billion dollars per year in IKEA dividends the foundation doesn't appear to be issuing more than a couple of million per year in grants, The Economist found. Something to think about the next time you're scoring one of those nifty $9.99 table lamps....
The Economist detailed this arrangement in its May 11, 2006 issue. "The parent for all IKEA companies—the operator of 207 of the 235 worldwide IKEA stores—is Ingka Holding, a private Dutch-registered company. Ingka Holding, in turn, belongs entirely to the Stichting Ingka Foundation. This is a Dutch-registered, tax-exempt, non-profit-making legal entity, which was given the shares of (IKEA founder) Ingvar Kamprad in 1982." Depending on who's doing the math, that foundation is on paper arguably the largest in the world, even bigger than the Gates Foundation's $30 billion in assets. The declared mission is to promote “innovation in the field of architectural and interior design” and “for investing long-term in order to build a reserve for securing the IKEA group, in case of any future capital requirements.”
A five-person executive committee, chaired by Kamprad, runs the foundation. "This committee appoints the boards of Ingka Holding, approves any changes to the company's statutes, and has pre-emption rights on new share issues. Mr Kamprad's wife and a Swiss lawyer have also been members of this committee..."
That sort of thing was once common in the U.S., albeit never at such a size, but was first addressed by a 1950s federal law and today couldn't be done at all because of the 1969 Tax Reform Act. But "Dutch foundations are very loosely regulated and are subject to little or no third-party oversight. They are not, for instance, legally obliged to publish their accounts [annual financials]." There is no minimum grantmaking requirement as U.S. foundations operate under, so despite receiving at least a half-billion dollars per year in IKEA dividends the foundation doesn't appear to be issuing more than a couple of million per year in grants, The Economist found. Something to think about the next time you're scoring one of those nifty $9.99 table lamps....
Thursday, November 09, 2006
Ewwwww
Every day the news includes some reasons to feel proud of working in the private non-profit sector -- in fact the concept of such a sector is itself arguably one of America's greatest gifts to the world -- but then there are examples like these listed by the president of Charity Navigator.
Or this wealthy asshole who used contributions to pay for his daughter's $200,000 wedding. Seriously. That article also covers the notorious case of two directors who spent years systematically stealing from the Florence E. King Foundation in Dallas; the foundation sued and a jury ordered the pair to repay $7.5 million plus pay $14 million in punitive damages.
Then there's the five politically-conservative non-profits who laundered money for Jack Abramoff. And last year five different arrests for non-profit fraud were made in a single month in Lincoln, Nebraska. (Makes you wonder what might be going on in Omaha...?)
Yecch. Something a bit more uplifting tommorrow, hopefully.
Or this wealthy asshole who used contributions to pay for his daughter's $200,000 wedding. Seriously. That article also covers the notorious case of two directors who spent years systematically stealing from the Florence E. King Foundation in Dallas; the foundation sued and a jury ordered the pair to repay $7.5 million plus pay $14 million in punitive damages.
Then there's the five politically-conservative non-profits who laundered money for Jack Abramoff. And last year five different arrests for non-profit fraud were made in a single month in Lincoln, Nebraska. (Makes you wonder what might be going on in Omaha...?)
Yecch. Something a bit more uplifting tommorrow, hopefully.
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