A whistleblower complaint to an Inspector General is the spark that ignited the current US impeachment inquiry. Watching the conflagration has had me considering how instances of fraud, waste, and abuse are handled within the nonprofit sector. More than once, I have seen people who worked at nonprofit organizations act in ways that I found unethical or illegal. As the Association of Fundraising Professionals celebrated #EthicsAwarenessMonth in October and online discussion boards lit up with discussions of ethical issues, I saw that many others, like me, have seen nonprofit board members and staff engage in fraud, waste, and abuse.
I have found myself wondering if the nonprofit sector needs inspector generals.
I confess that before the commencement of the Trump impeachment hearings, I have never thought much about inspector generals despite the fact that I have three degrees in political science. But then, for a couple of days, as the whistleblower complaint was withheld from Congress, the role of the Inspector General for the intelligence office became central to the discussion. President Trump attempted to assert control over the release of the whistleblower complaint. The attorney general’s office weighed-in as did the Council of the Inspectors General on Integrity and Efficiency. Pundits debated the inspector general’s conclusions that the matter was both credible and urgent. Finally, whether the inspector general for intelligence even had a role to play in this particular Ukranian diplomatic conversation was disputed. Suddenly, a bureaucratic role that I had never paid a lot of attention to became a preoccupation.
As I thought about the role of an inspector general – to investigate allegations of waste, fraud, and abuse in the government sector – I found myself thinking “that’s not a bad idea for the nonprofit sector.” When there is waste, fraud, or abuse in the nonprofit sector in the administration of a federal grant, nonprofit employees (or others) can report to the inspector general of whatever agency is involved in the distribution and control of the grant funds. Yet, there are instances of waste, fraud, and/or abuse which don’t involve government grant money and aren’t, therefore, appropriate to report to any existing inspector general.
Of course, the first line of defense against waste, fraud, and abuse in the nonprofit sector is supposed to be the board of directors. However, nonprofit boards are often poorly trained or asleep on the job. Further, sometimes board members are the problem.
Beyond the board, the control and regulation of nonprofit organizations is largely conducted at the state level through the offices of the various states’ secretaries of state in which charities are registered, fundraise, and operate. Nonprofits are also accountable to the IRS which, of course, determines and can revoke tax-exempt charitable status.
But neither states nor the IRS are staffed for the task of oversight of a diverse sector which employs more than 10% of the US workforce–fifteen times the number of workers that are in the US mining industry (a sector whose workers featured prominently in the political debate of the last presidential election) and ten times the number of workers in agriculture.
Many argue that the nonprofit sector has a pretty good history of policing itself. There are charity watchdogs which play a role in accountability and transparency—Charity Watch, Charity Navigator, the Better Business Bureau’s Wise Giving Alliance, Guidestar/Candid, for examples—but the sector is so large and these nonprofit watchdogs are far too poorly resourced to function in the ways that an inspector general functions.
As the late Rick Cohen of NPQ reviews, when Sarbanes Oxley was passed more than a decade ago, ripples of concern spread through the sector which ultimately resulted in the Principles of Good Governance and Ethical Practice. This document delineates a fairly wide-spread consensus that has evolved around best practices in nonprofit governance.
Even so, as I re-read the Principles of Good Governance document, I can identify multiple organizations I have worked with in recent years that don’t follow the practices outlined. I know that I have seen significant room for improvement within the sector.
The latest Better Business Bureau Wise Giving survey results released this week reveal that my perception is not unique. Less than one in five (19%) of the American public “highly trusts” charities. Yet, this same survey indicated that an overwhelming majority of people report trust as essential before they donate. The low levels of trust exposed in this survey do not foretell strong future giving.
I don’t know that there is a single answer or solution to waste, fraud, abuse, and public lack of confidence in the sector. There are probably many answers including better board training, but it does occur to me that something akin to the inspector general system might be valuable for nonprofit sector.
Inspector generals are employed to strengthen public trust in the use of public funds. The funds with which nonprofit organizations operate, like the funds that government employees control, are, to use a slang term, “other people’s money.”
How a system of inspector generals might be created, designed, implemented and paid for might make it impractical to realize as a solution, but at the current rate of erosion of public trust, we’re at risk of putting ourselves out of business and not because we’ve cured society’s ills.
mage Source: Bigstock.com/Tupungato – Used with permission.