Charity enforcement bill reminds you to exercise transparency

Guest Blog by Erica McGeachy Crenshaw, CEO of Execute Now! and Associate Member of Maryland Nonprofits

Read the original blog here.

The state of California recently joined only two other states, Florida and Oregon, in the fight to stop fraudulent nonprofits from misusing donations. The California Assembly unanimously approved legislation last week that it would authorize regulators to use the registration fees paid by nonprofits and professional fundraisers to crack down on charities that spend little of their money on their mission. The unanimous vote sent the measure to the state Senate.

Assemblyman Travis Allen, the bill’s sponsor, said this legislation will help regulators target groups that spend most of their money on fundraising. The state’s attorney general could create 13 staff positions to handle administrative and court proceedings related to suspect nonprofits, help unregistered charities comply with paperwork requirements, and review charities’ applications and financial reports.

“It’s unacceptable when people are tricked into giving money to one of these scam charities where only three percent of the donation goes toward helping people,” Allen said.

What we’re up against

The Association for Firefighters and Paramedics in Santa Ana is one example of the many organizations giving less than three percent to its mission. The Association spent only three percent of its donations on services for burn victims when former Attorney General Jerry Brown sued the organization in 2009. The charity agreed to a settlement in 2010, but continued to misrepresent how it directed the funding. During the following year, the amount spent on burn victims shrunk to an astonishing 1.5 percent of donated funds after the settlement.

In 2012, the Association raised their mission-designated dollars to a whopping 2.8 percent. The charity raised $1.57 million; spent nearly 90 percent on fundraising ($1.42 million); and designated just $44,060 on aid to burn victims, according to its most recent 990 forms.

The Better Business Bureau looks for charities spending at least 65 percent on core programs and services while Charity Navigator gives its highest ranking to nonprofits directing 75 percent or more to the mission. While thought leaders like Dan Pallotta argue that only 25 to 35 percent spent on overhead is unrealistically low, recommended spending on overhead is nowhere near 97 percent.

The scope of the problem

The Tampa Bay Times produced a report of America’s 50 Worst Charities earlier this month, which said these nonprofits raised $1.3 billion over 10 years – and almost $1 billion of it went straight to professional fundraisers. One culprit, the Kids Wish Network, raises millions of dollars for dying children and their families. The Network spends three cents on the dollar helping children. 

Organizations like Kids Wish Network and the Association of Firefighters and Paramedics diminish the social sector’s good name and your ability to raise funds. Even the appearance of impropriety can be as damaging as any actual infraction of ethical behavior.

Exercising transparency and diligence

Unfortunately, these betrayals against the social sector and community of donors remind us that we have to be more vigilant about protecting our philanthropic relationships. Truly ethical nonprofits have an opportunity to demonstrate their transparency by sharing their financials with donors-financials that mirror what’s reported to the IRS. On the same count, donors have an increased responsibility to attentively review the organizations they support.

At Execute Now!, we obviously endorse creating and managing sound financial systems that maintain a culture of transparency within the organizations we advise. This confidence translates to effective donor cultivation and more successful fundraising outcomes. Consult the Association of Fundraising Professionals website for their code of ethics, standards for handling gifts and donor bill of rights. Convene with your board about developing policies for solicitations and donor stewardship.

Join Maryland Nonprofits’ 2014 Annual Conference “Connecting for Impact!” November 5th at the Universities of Shady Grove in Rockville, MD.

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