Giving money ain't what it used to be. Why nonprofit/charity organizations need more oversight

It must have been one hell of a crossing. The Arbella, flagship of the Winthrop fleet, headed out from the Isle of Wight in April of 1630 bound for the Massachusetts Bay Colony, with 10,000 gallons of wine on hand for the six-week cruise. There might have been 70 or 80 passengers and crew, so each person had to make do with 125 gallons of wine – barely three gallons a day.

Fortunately, there was entertainment. Governor John Winthrop, a pioneer of the Great Migration, was on board to write and deliver a memorable sermon. “A Model of Christian Charity” sets out what Winthrop (a wealthy Puritan elitist) believed was God’s will: “some men are supposed to be rich, some poor. . .the rich are supposed to give gifts to the poor. . .the poor are supposed to be grateful. . .and if all goes according to this plan, God will be pleased.”

Winthrop and his passengers staggered ashore at Salem. Other ships arrived and other settlers joined the growing villages and towns. The rest, as we know, is our history – more colonies, growing British unhappiness with the state of affairs, ringing declarations, tea, shots heard round the world, and finally an American “city on the hill.”

That’s what happened to the New World and its voyagers. What happened to Winthrop’s model? Like so many other elements of the New World, our approach to charitable giving has mutated, expanded, become nearly unrecognizable from the way it was when it began. Some of this is the simple geometry of the country’s 400-year growth spurt. Winthrop’s colony was about 50,000 people. We’re at 320 million and counting. Some of this is the evolution of what “poor” is supposed to mean (it was a beggar in rags, now it’s a struggling experimental dance company).

And a lot of this has spawned an interconnected, interdependent web of donors and recipients that has become an economic engine for the players, without much attention paid to whether or not benefits flow to end-users (clients). Total charitable giving was about $336 billion a year ago – does it seem like our society is $336 billion better off as a result? Where did all that money go? Who keeps track of the intended outcome and results? Other than the occasional flagrant fraud that sometimes plagues charity, does anybody measure, monitor, evaluate or even recognize the impact of nonprofits and their funders?

Sandra Minuitti, a vice president of Charity Navigator (a nonprofit that evaluates nonprofits) says “There’s no central, powerful oversight of nonprofits in America.” She means governmental oversight, principally the IRS. The focus of the IRS, naturally, is on collecting taxes. Policing wayward or delinquent nonprofits isn’t likely to bring in much money, so Ms. Minuitti is probably right, even taking into account her own organization.

I have spent most of my professional career working for the nonprofit sector. My work has been as a volunteer, consultant, development officer, senior staff member, board member, board chair. I’ve written proposals to foundations, corporations, government agencies. I’ve given money to nonprofits (as an individual and as a corporate giving officer). Lately I’ve taken to wondering about the industry that has employed me. I do not think everything is OK. In fact, I think there is a lot wrong. If there are cracks in the system “that’s how the light gets in,” Leonard Cohen reminds us.

Here are the major cracks in our nonprofit/industrial complex:

Major funders don’t do a very good job of determining whether or not their grants have the impact they’re supposed to have. Maybe they are understaffed, or lack good tools for measurement, or are not rewarded for that part of the job.

Individual donors, by and large, don’t give a rat’s ass about impact or effectiveness, but instead make giving a part of their social dance. As donors we like the “feeling” of the nonprofit and the “sense” of the cause. Deeper than that we do not often dive.

Nonprofit leadership has become organizational survivorship, with a constant search for operating support no matter what might have changed. Once an organization has been created, it’s necessary to raise the funds to keep it going, even if there has been mission creep and even if 10 other organizations have stepped up to do the work.

New nonprofits have sprung up like weeds, far in excess of the demonstrated need or evidence of an underserved population. There are some 1.5 million nonprofits, many won’t survive, but all jump into the scrum for charitable donations.

It serves major donors (and large nonprofits) to preserve the status quo. Donors and institutions get comfortable with relationships and year after year the same nonprofits wind up on the list. Not much due diligence required, not much rigorous reporting.

An enormous slice of the charitable pie goes to support organizations that should rightly be market-based, nonprofits that should sink or swim as regular for-profit businesses. Many, many nonprofits should probably have been incorporated as regular commercial small businesses, because the “charitable” intent is sketchy and the market base is available.

And finally, to Sandra Minuitti’s point: until and unless we come up with “central, powerful oversight” of nonprofits, not much will change and a lot of money will be wasted. It is probably time for an activist donor movement, where concerned donors show up at meetings, demand accountability, challenge management and do the other things that might shake up the system.

Winthrop would have said that God is the central, powerful authority to bring this about, but she’s busy with the playoffs.

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