Masquerading Nonprofits

Posted by Laura Otten, Ph.D., Director on September 4th, 2020 in Thoughts & Commentary

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I’ve never been a fan of Halloween, but I might have insider information on the hot costume for 2020. Since top costumes tend to mirror what is happening in society, your first thought might be a coronavirus costume. That might turn out to be true, but my idea of a hot costume is the nonprofit sector masquerading as itself.  

As you well know, there are two parts to our sector:  the public charities and the philanthropists. But neither of these parts is always as it seems, nor, and more importantly, what it should be. Let’s start with the public charities.

By definition, a nonprofit is supposed to work on behalf of the public good. A public charity is the vehicle that does the actual work—delivers the product/service to the client that produces the public good. A phenomenon that I have seen throughout the decades seems recently to be gaining ground. Of late, a number of reporters have brought to me instances of organizations that claim to be nonprofits who are abusing or taking advantage of that status. These are organizations with nonprofit status who, instead of working on behalf of the  public good, are working on behalf of the private good—the good of those pulling the strings of the organizations.  

Reporters frequently ask me to review the 990s of organizations and tell them “what I see.”  I love that the media is investigating nonprofits, looking into suspicions of abuse of a system that is intended to do good and that, when not hijacked by the wrong people does tremendous good.  

Often, it isn’t hard to see some of the abuse, which makes one wonder how they are allowed to continue their sham. Examples:  an organization that gets $20 million in government contracts but has no employees?  One that sends all of those contractual dollars to a for-profit company, which has a similar arrangement with a number of other “nonprofit profits?”  One that says it lobbies but has no lobbying fees. Or that pays board members enviable salaries for several hours of work a month.

You don’t need to have an intimate relationship with 990s to gather this data. Consider the nonprofit that has an endowment in the billions and essentially funds its operating budget with its investment income. Or the one that pays its board members six figures, again for several hours of “work” a month?  Or that covers the cost for travel companions and initiation fees and costs for health and social clubs?  

These may be extreme examples, but since they exist in at least three states, you can extrapolate that they exist in all 50.  And if they exist in the extreme forms, they certainly exist in “milder” forms, as well throughout the country. Clearly, the IRS isn’t looking out for them, and most attorneys general offices aren’t looking for them. 

These are public charities that are behind the oft repeated statement people apparently love to tell me:  “Nonprofits are always trying to get away with something.”  And while I cannot argue that there are those in the nonprofit sector who do try to get away with making as much money as they possibly can for themselves and/or companies, that is not the way of the vast majority. But every greedy organization that masquerades as a nonprofit—with the IRS’ and their state’s attorney general’s tacit or direct approval—assaults that statement and the very essence of this part of our sector.

Philanthropy, the other half of the nonprofit sector duo, is also, by definition, supposed to work on behalf of others, not on behalf of individual philanthropists and philanthropic organizations. And yet, that is exactly what has happened.  

Tax deductions for philanthropic gifts disproportionately benefits the donor and the wealthy. The mandate for foundations to spend just 5% of its assets each year, benefits the foundations, as they can spend that 5% on their operating costs, something too few still allow nonprofits to do, and use the remainder on grants.  

If you‘ve never compared the offices of foundations and most nonprofits, you definitely should. 

Donor Advised Funds, the dark money of philanthropy, are all about helping would-be philanthropists and not about helping the public. And the fact that too many foundations and major donors, who do not know the needs of a community nor understand the nature of the problems the way staff of the public charities do, likely control the dialogue and dictate the purpose of money as a feel good for them rather than a benefit to those who need.

Recently, an audience member at a panel on which I served, posed this question:  if my foundation is going to give more money away, should we give it to our current grantees or to additional grantees? While the other panelists said give to new ones led by people of color, I disagreed. My disagreement was not with idea of giving to organizations led by people of color but more about spreading the “goodness” around. Some folks and foundations feel better if the list of recipients of their philanthropic largesse is longer than shorter, so lots get smaller gifts. Do they help?  Sure; they help the organization; but do they ultimately help the client? Maybe they provide a much needed band aid. To society? If the problem continues to exist, then perhaps the answer is no.

Philanthropy is supposed to be about helping others, not helping ourselves to feel good.  But how do we best help?  Not long ago, HUD said it would cost $40 billion to end homelessness in the US. I would bet that across the country over the years we have spent at least that much on the those with no permanent housing, yet we certainly have not ended homelessness. Is that because HUD was wrong or because it was spent as the donors wanted it, rather than how it should best be spent to both provide an immediately band aid and work on eradicating the causes of homelessness?  

For too long, too few of those with power—be they attorneys general, the wealthy, politicians, the media, etc.—have not taken the time to really look, to really see and think about what is going on. It isn’t hard to differentiate the nonprofit in costume versus the one that is the real thing, the philanthropists who want the pat on the back and glory rather than those who deeply care about making an important difference.  

The opinions expressed in Nonprofit University Blog are those of writer and do not necessarily reflect the opinion of La Salle University or any other institution or individual.