What to do if you suspect damaging activities at a nonprofit
Summary:
How to proceed if there are rumors or other signs of mismanagement, improper payments, insider self-dealing, conflict of interest, etc., involving a nonprofit organization.
Answer:
The topic of how to deal with suspicions of wrongdoing in nonprofit organizations
comes up frequently. Here are two bits of advice on how to approach that problem:
in the first case, the question came from someone convinced
that wrongdoing was occurring; in the second, the questioner
wanted to know what advice to give to someone who thought there might be someting
amiss.
On 5/28/1998 someone wrote to NONPROFIT: "Help. I am an employee in a California
non-profit whose management is rumored
to be embezzleing money. In two years we have had over seven
CFO's/controllers; we can't be audited because our books are intentionally
divided among dozens of programs; we have a 90% yearly turn-over of managemnt
except for the top executive; the CEO blatently violates our own policies by
hiring family members to be executive assistants; the board meetings are held
in strict secrecy; the board members are personal friends of the CEO; and no
one has ever seen an agency wide budget, yearly summary, etc. In short... we
are in a mess! How does a little guy employee even begin to make a
difference/ask for some accountability from upper management? Are there
non-profit watch-dog agencies? Any body been a similar situation?"
Several people responded with helpful advice and cautions, including this summary
posted by Putnam Barber:
If you are seriously interested in taking action to change this situation
you need to treat it very carefully. As others have pointed out, there
are considerable personal risks, even if you are right that outrageous
misbehavior is occurring. The risks are, of course, greater if your
impressions turn out to be wrong, or cannot be substantiated.
As a protective policy, please be very careful about saying anything in
public that might damage the reputation of the organization or people who
work there. This includes (I should think) avoiding making the kind of
damaging remarks that are in your original post, since it is likely that
someone who knows you can infer the identity of the organization you are
talking about. If that person doesn't share your view of the situation,
you risk both personal and legal challenges that at best would be time
consuming and distracting and at worst might be personally devastating.
That said, there are still things you can do.
The first is to assemble whatever information you can get from official
sources. As others have written, registered charities must file reports
with both the federal government and local authorities.
The federal report is called Form 990. It is due each year on the 15th day
of the fifth month after the end of the organization's fiscal year
(extensions are allowed). Effective June 8, 1999, new regulations govern public
access to copies of this form. A full copy of these regulations, and much other
helpful information, is at http://www.990online.com.
Organizations are now required to provide a copy "immediately" to anyone who comes
to the administrative office and asks for it. A copying fee of $1 for the first
page and $.15 for each subsequent page may be charged. The forms for the last three
years are covered by this rule, as is the original application for recognition as an
exempt organizations (though there are certain exceptions which apply to
long-established organizations).
Note that the organization is not allowed to demand any information from the person
making the request and (of course) it is not necessary that you ask for it yourself
so you can get help for a friend who won't be known to the people at the agency in
question.
In addition to this "walk in" provision, organizations are also required to respond
to mail (including email) requests within 30 days of receiving the fee (if one is
required). The actual cost of postage may be added to the charge for copying. If
you send a written request without the fee, the organization must respond with
information on the fee within seven days.
The earlier rules are still in effect as well. These require filing organizations
to allow
public inspection of the last three years of these forms at their principal
office and at any office where there are three or more employees.
There are penalties for failing to follow these requirements, and the IRS will back
up members of the public when resistance
is reported.
You might want to get a copy of IRS Notice 88-120
to take along with you -- or give to whoever goes on your behalf to ask to
as for the forms -- to preclude argument about whether this is a public
document, etc. The Notice can be accessed, and printed, from
http://www.irs.gov/exempt/labor/display/0,,i1=3&i2=26&genericId=6886,00.html. The IRS
website also has advice about what to do if the organization refuses to
provide access to the forms at http://www.irs.gov/exempt/charitable/display/0,,i1=3&i2=18&genericId=6869,00.html.
There are state reports required as well. I don't know much about how
California does these things, but usually there are "annual reports" to
Corporations officials which provide limited information about the
operations of the organization and "campaign reports and registrations"
required by Charities regulators from any organization that does
fund-raising from the general public. These offices are in Sacramento, of
course, but there may be local branches which can help in your research.
The National Association of State Charities Officials (NASVCO) has a website (at
http://www.nasconet.org/agencies/document_view) which lists all
state charities officials, with contact information. The California Attorney General has a webpage on
nonprofits at http://caag.state.ca.us/charities/statutes.htm
I've also heard Californians mention something called the Franchise Tax
Board which presumably deals with exemptions from various state taxes;
organizations who accept such exemptions will be expected to conform to
standards about their operations, so there may be information about the
organization you're interested in that can be obtained through that Board
and/or allies at that Board who can help you call for change.
(Some California cities also require registration and reporting by
organizations doing fund-raising within their boundaries; in general I
think these requirements are more of a nuisance than they are worth, but in
your case they may be useful in helping you establish your case.)
Another source of general information about most organizations is
Philanthropic Research, Inc., and their website at
http://www.guidestar.org/ It has some information drawn from 990s and
might give you an indication of whether pursuing the original documents
would be helpful.
Your second step will be to figure out what to do next. It is unlikely
that any public reports will contain obvious evidence of misfeasance. You
will still be interested in them for two reasons. First of all, failure to
file them is itself a problem. If you find that they are incomplete or
nonexistent, it may be easier to get officials to launch an investigation
of the organization based on that fact than on any information they might
contain. Secondly, if they contain information that is easily demonstrated
to be false or misleading, that too is a good starting point for calling
for official investigation. As an insider in the organization, you may
have access to documents that are inconsistent with the filed reports.
Bringing them to the attention of regulators would be easier than trying to
document on your own the sorts of misbehavior you describe.
As another note indicated, the Attorney General's office has general
oversight responsibility over nonprofit corporations. The AG is unlikely
to be willing to intervene in an internal fight within an organization,
though. So you need to be able to demonstrate that more is at stake in
your differences with the organization than a disagreement about sound
business practices or agency direction.
Also, as others have again suggested, you need not take these steps
yourself. It may be more prudent, and more effective, to have someone who
has no direct connection to the issue work with you to collect the
information and evaluate what you find. Complaints about the behavior of
nonprofit organizations do not, I fear, rank high on the list of concerns
of state and federal officials and, as I mentioned above, they are
particularly cautious about becoming involved in internal squabbling. You
can protect yourself and bolster your case by not getting directly involved.
If the situation is less clear cut, more discussion with others directly involved
with the organization may be a good idea. Harriet Bograd, founder of the "Cyber
Accountability" email discussion group
(http://charitychannel.com/forums/cyb-acc/
), provided this advice to be given
to someone who thinks there might be a need to "blow the whistle" in response to a
query on July 1, 1998:
A first step is to advise the concerned employee to get the agency's Form 990 and
study it
carefully, and to do anything feasible to substantiate or disprove the
suspected wrongdoing. If the suspicion is not well-founded, the employee
would be better off figuring this out before making a fuss.
Beyond that, I suppose specific strategies would depend on the structure of
the organization and the people involved. I can imagine starting by
contacting the employees involved (as when they are making a
well-intentioned mistake about what is proper), their supervisors, a chief
executive or chief financial officer, an audit committee or finance
committee chair or the treasurer or the chairman of the board. Another
possibility would be to contact the group's accountants or lawyers. In
most cases, I would certainly hope that the whistleblower would start by
raising the issue directly with staff or board before going to outside
authorities like the state attorney general (or the appropriate state
charities office for that state) or the IRS - but I can imagine exceptions
to that general rule (as when there was clear evidence that the executive
staff and the board were all intentionally doing something improper).
Finally, the whistleblower can consider whether to go to the press,
politicians, or funding sources. All this could be very damaging to the
organization, so the person must think carefully about whether the
whistleblowing is justified, and what kinds of interventions are most
likely to do the most good and the least damage.
I just re-read your question, and realize I'm responding with strategies,
and you asked about "rights and responsibilities." Perhaps others will
address these issues more directly.
--Harriet Bograd, Attorney/Consultant, (hbograd@compuserve.com)
Coordinator,
Cyber-Accountability Listserv (to join, write to tlegg@fcny.org)
The
Free Management Library adds information about:
- Risk Management (
http://www.mapnp.org/library/risk_mng/risk_mng.htm)
- Crisis Management (
http://www.mapnp.org/library/crisis/crisis.htm)
- Ethics Management (
http://www.mapnp.org/library/ethics/ethics.htm)
- Getting a Lawyer (
http://www.mapnp.org/library/legal/gen_advc/gen_advc.htm)
- Insurance (
http://www.mapnp.org/library/insurnce/insurnce.htm)
Posted 7/3/98 and revised 6/15/99; 5/30/05 -- PB; revised 8/19/99 -- CM
