THE BLESSED USE OF TAINTED MONEY

Does the blessed use of tainted money purify it?


Early on in this business I learned not to question the provenance of money. Not much "old" money was generated in a saintly manner. For "new" money much the same can be said much of the time. I don't know of charities turning away donations aside from those who turn away gifts from tobacco or liquor companies. Whatever your take on the evils of rum or tobacco the makers are acting legally if not morally.


But what about "Illegal" money? The Spence School and Asia Society, two of New York's most elite institutions are fighting the government's demand that they repay funds donated to them by a man later convicted and about to be sent away for running a Ponzi scheme. This claw-back strategy became a thing when the Madoff empire collapsed.


The institutions' argument is that they accepted the funds in good faith, they had no way to know the gentleman was a crook he was not so labeled at the time. Ergo they have no obligation to return the money.


The legal issue I will leave to the lawyers. The ethical question intrigues me because if every charity had to repay every cent of ill-gotten gains that they indirectly received through a good-faith (if not purely motivated) donation I would fear for the worst.This does not appear to be a clear and imminent peril but does lend light to the illusion that the government's on it. Would I advise the Asia Society or the Spence School to give back the money? I would not. Would you?


There's the old story about the wizened preacher who was offered $1000 of tainted money to repair the church roof. "Tain't enough," he replied.

Disaster Fundraising

On NPR this morning Carrie Khan and Marisa Penaloza report that "the charitable outpouring for Haiti has been huge. To date, Americans have phoned, texted and mailed in more than $1.3 billion, according to The Chronicle Of Philanthropy. Much money was spent on immediate relief, but hundreds of millions of dollars remain in the coffers of nonprofit organizations from the American Red Cross to Oxfam."

First of all that is a tremendous outpouring of generosity illustrating once more that Americans are exceedingly generous and compassionate, second modern technology enables a lightning philanthropic response but third it is essentially impossible to move that much money through the turnstiles effectively and efficiently.

The hare's speed of dollar acquisition versus the tortoise's pace of distribution is an old story in philanthropy and it has tripped up the Red Cross - as one example - more than once. When part of the Oakland-San Francisco Bay Bridge collapsed in October 2009 and Katrina in August 4 years ago, the Red Cross was inundated with money. They sat on a lot of it, and in the Oakland case, re-distributed a portion to other disaster relief reserves. In Katrina the public outcry compelled them to assure donors their money would stay in Louisiana. Did it? How could you know?

One can argue that it is better to have it and not spend it than it is not to have it at all. Whether charities are sophisticated and efficient in handling money is not the issue. The end use of charitable funds raised in a disaster setting is always a challenge. Having worked in Haiti, India, the Philipines, Thailand and elsewhere - in non -disaster situations - what I learned is that there are really not enough troops on the ground - either nationals or imports - to oversee the good use of donations, nor enough good management for real oversight and the charities themselves are not held to strict standards of accountability by independent entities.

All that said, and allowing for the enormous challenges Haiti and other disasters pose charities must be held accountable for the stewardship of all funds - those on reserve waiting for distribution, and other funds in their possession. As the NPR report makes clear there is no real oversight of charities' finances. The Form 990 that all non-religious charities have to file annually are not fonts of information. For one thing they are often late (extensions are automatic); they are most easily accessed on Guidestar (forget the IRS directly) but those reports are, on average, at least 2 years old. Charities' annual reports are not required to show finances. Many don't, others offer condensed pie-chart types of reporting, and because there are really no rules trying to compare one charity to another is well nigh impossible. A few private sources like Charity Navigator "rate" charities but neither this group nor the few others I know of can cover all of them.

No one is going to hold out the SEC as a model of government oversight. The technical term is "yuck." But even the SEC has centralized, if weak, enforcement powers. Nothing like it exists for oversight of charities. There are state regulations and registration requirements but often no budget nor person-power to deal with charities effectively. I have long advocated an SEC-type charity, separate from the IRS, an idea that goes back to a guy named Carl Bakal who raided it in his book "Charity USA" a generation or so ago. This is of course a skunk-at-the-picnic sort of thing and I haven't picked up a lot of picnickers!

And when God's in the picture things really get mysterious. I don't mean God works in mysterious ways. I mean religious organizations don't have to file any kind of report. Thus a lot of good and maybe some not-so-good info is simply unavailable to anyone on the outside.

The takeaways are disasters raise money fast, spend it slowly and there is virtually no information on what costs were incurred, the ratio of output to retained funds, or whether they can really do what they claim to do what they say the do.Yet I gave more than once to three Haiti-relief organizations.I suppose I could disable the "send" button the computer and the cell phone. But not quite yet!

What Do Those Giving Numbers Mean?

July 1st marked the beginning of a new fiscal year for an uncountable - but huge - number of nonprofits in academia, health care, the arts and just about every other category. This start coincides with many governments' fiscal calendars. For most of us a new beginning carries the promise of brighter times and a rosier future.

But coming off a substantial drop in giving in 2009, and 2008, clouds of uncertainty are fogging the mirror. One reason for concern is that the Giving USA Foundation data - summed up here in the last blog - simply did not pass the sniff test of actual experience rather than the statistical extrapolation (on which GUSA numbers are based).

In that context Ruth McCambridge and Rick Cohen opined in a two-part takein The Nonprofit Quarterly is well worth reading. Entitles "Giving USA and You: Cognitive Dissonance Anyone?" Ruth's argument, briefly put, is a few very large foundaion grants skewed the picture. Rick's main point is aggregate corporate giving appears to have gone up because of non-cash gifts, an increasing tranche for company philanthropy.

Take a look at these two provocative essays. (www.nonprofitquarterly.org)

And if your new fiscal year just started, may you prosper.

US Giving Down 3.6% in 2009; 2nd Year of a Drop

For the second year in a row charitable giving in the USA has declined.

That matters could have been worse - and indeed that many of us in the field expected far worse - may be of some consolation. Furthermore though there is nothing but the anecdotal to go by 2010 seems to be headed north though stock market conniptions remain a continuing worry - especially in New York City and immediate environs - that account for an estimated 25-30 % of the philanthropic "handle."

Giving USA Foundation(TM) and our research partner, the Center on Philanthropy at Indiana University, said that estimated total charitable contributions from American individuals, corporations and foundations fell to $303.75 billion in 2009, down from a revised total of $315.08 billion for 2008. The 2009 drop represents a fall of 3.6 percent in current dollars.

Giving USA has reported U.S. charitable contributions since 1956. The inflation-adjusted drop of 3.2 percent for 2009 is not as severe as the decline found in 1974, when inflation-adjusted giving fell by 5.5 percent. The year 1974 was also a very difficult year of recession.

The national results from Giving USA reflect all charitable giving to all charitable organizations in the United States. The national estimates do not show changes that any one organization or any one geographical region or city might have observed; they calculate total giving by more than 75 million households across the United States, more than 1 million companies, an estimated 120,000 estates, and about 77,000 foundations. The gifts go to more than1.2 million IRS-registered charities and an estimated additional 350,000 American religious congregations.

A free executive summary of the 2010 report is available at Givingusa2010.org. If you would like the full version in PDF post a comment.

SHOULD NONPROFITS BE TAXED?

The constricted budgets of state and local governments have brought an old idea back to the table: taxing nonprofits' revenues (some already pay property and sales taxes). What about it?

Leaving aside the legislative changes that would be required to amend the IRS code what effect would taxing nonprofits have? These are some of the counter arguments I've heard over the years:

• Services might have to be curtailed.
• Smaller organizations would suffer disproportionately.
• Taxation might discourage giving.
• The theory of "contract failure" holds that nonprofits arise to provide services the government would not.

Some arguments the other way are that there are too many 501-c-3s duplicating programs and services and taxation might shrink the field; another view is that a great many charities - especially in health care and the arts - despite being established as charities don't really provide charitable services. Hospitals especially are often criticized for giving far less unreimbursed free care than the theoretical worth of their tax exemptions.

I have long thought about the practicality and desirability of a tiered system of deductions for charitable contributions - basically the larger the organization the lower the deduction - a sliding scale. This might be effected through a tax credit rather than a deduction. I don't really know - but it does suggest a parallel: perhaps it is time to look anew at both deductions and exemptions. There are over 1.6 million charities - most of them small but nonetheless drive about 10% of the economy in employment.

The sector is highly fragmented; and I don't really trust all the data. For example: Giving USA under-counts corporate giving because it cannot collect data on cause related marketing the fastest area of company "giving:" is CRM really charity? And because smaller estates don't have to file returns there are undetected bequests. Maybe more on this June 9th when GUSA's data for 2009 giving is released publicly.

Also much has been made of the multi-trillion dollar charitable wealth transfer - the Schervish/Havens model. here I am a real agnostic and hope to engineer a debate on this in December when Giving Institute meets in New York. I read not long ago that $43 trillion of wealth evaporated in the recession. Where then is the "transfer" coming from?

Despite the hullabaloo taxation of nonprofits is probably a non-starter as is my idea for tiered charitable deductions. But one never knows. Everyone once thought the world was flat. Now only a few do. They're in the other party.

Anybody's Bet

The Center on Wealth and Philanthropy in conjunction with the Association of Fundraising Professionals have just issued the following press release detailing the current state of 2009 household charitable giving. The Center reports a five percent drop from 2008 levels.

Paul G. Schervish directs the Center; Paulette Maehara is president of AFP.

In my view it may be a bit early in the game to prognosticate on what the final seven months of the year will bring. In the past major gifts have been important bellwethers of individual giving often fueled by the actuality and perception of stock market behavior. As of 10am this morning the DJIA is off 62 points from yesterday's almost 300 point jump - and that after losing 1000 points in the past several weeks.

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HOUSEHOLD CHARITABLE GIVING DOWN FIVE PERCENT FROM 2008

Totals in 2010 Projected to Rebound by 3-4 Percent

CHESTNUT HILL, Mass. (May 27, 2010) - Individual charitable giving in 2009 amounted to $217.3 billion, a decline of $11.2 billion or 4.9 percent from the estimated $228.5 billion total in 2008, according to the latest report by researchers at the Center on Wealth and Philanthropy at Boston College and published by the Association of Fundraising Professionals. This 5% decline is in addition to the 6 percent decline that the Center calculated for 2008.

For 2010, the researchers project annualized individual giving totals (also known as household giving) will range between approximately $222 billion and $227 billion, an increase between 3 and 4.5 percent over the estimated total for 2009. The projected growth is based on analysis of the first two quarters according to scenarios that assume relatively low and high economic growth.

The full report, which will be published in the July/August 2010 issue of Advancing Philanthropy, the magazine of the Association of Fundraising Professionals. The report's findings are based on estimates produced quarterly by the Individual Giving Model developed and housed at the Center on Wealth and Philanthropy. It is the nation's first model designed to estimate future and real-time charitable giving by households on a quarterly basis.

The Individual Giving Model estimates how the most recent changes in financial resources affect the aggregate level of household giving which excludes charitable giving from foundations, corporations or bequests from estates. The IGM is designed to be calibrated annually and modified every three months based on data that are released quarterly or more frequently, such as price and market indices, along with components of income and net worth.

Launched last year, the IGM was constructed by CWP Senior Research Associate John J. Havens and Director Paul G. Schervish to provide more current and potentially more accurate indicators of how charitable giving is progressing on a national basis. This is especially useful for charities and other fundraisers, which previously had to rely on annual estimates. This is the second estimate report issued based on the IGM.

For the new report, Schervish and Havens expanded and recalibrated the IGM based on information available as of April 15, 2010. The findings are based on data from the Federal Reserve, the Bureau of Economic Analysis, the Bureau of Labor Statistics, the National Association of Realtors, Standard and Poor's, Dow-Jones, and a variety of other sources of data in the public domain.

"The Individual Giving Model is still in the development and testing stage but we believe the model's estimates nevertheless provide near real-time guidance concerning the state of individual charitable giving," said Havens.

"We're very optimistic about the growth in charitable giving in 2010 predicted by the Individual Giving Model," said Paulette V. Maehara, CFRE, CAE, president and CEO of AFP. "The research developed by the Boston College Center on Wealth and Philanthropy certainly corresponds with what fundraisers experienced last year and what we're seeing so far in 2010. I believe the Giving Model will be an important tool for fundraisers, especially as it is refined even further in the future."

"I share Paulette Maehara's optimism,"said Schervish. "2010 may just turn out to be the beginning of good news for fundraisers and charities. But it may not be until 2011 that we see the amount of individual giving returning to its pre-recession 2007 purchasing power."

As Havens explained, "Our IGM shows that individual giving declined in real purchasing power an additional 5 percent in 2009 over and above the 6 percent loss in 2008. So it will be some time before we can reverse these declines. Fortunately, charitable giving in the first two quarters of 2010 seems to be on an uptick. However, growth may not continue the rest of the year if the fiscal crisis in Europe brings a second recessionary dip to the United States."

The Center on Wealth and Philanthropy (CWP) is a multidisciplinary research center specializing in the study of spirituality, wealth, philanthropy, and other aspects of cultural life in an age of affluence. Founded in 1970, CWP is a recognized authority on the relation between economic wherewithal and philanthropy, the motivations for charitable involvement, and the underlying meaning and practice of care. For more information, visit www.bc.edu/cwp or call 617-552- 4070.

The Association of Fundraising Professionals (AFP) represents over 30,000 members in 212 chapters throughout the world, working to advance philanthropy through advocacy, research, education and certification programs. The association fosters development and growth of fundraising professionals and promotes high ethical standards in the fundraising profession. For more information, go to www.afpnet.org.

The Second Lemming Over The Cliff ...

... "FOLLOWERSHIP"

Next month I'm giving a talk on board leadership in hard times. Preparing it got me thinking about "followership"; that of course led to the lemming and forgive me, nonprofit boards. ... Why - when the first adorable little lemming went over the cliff - did all the other adorable little lemmings follow? (Supposedly). I guess the first one had an instinctive, uncontrollable urge. But didn't the second one have a choice? (Probably not - but then no blog). ... The second lemming is my metaphor for followership - instinct over reason.

I have always smugly defined leadership as the ability to see things before others do and act accordingly because that's been my style. But what if you're wrong and everyone else follows? Yikes! What if the first guy in the Tour De France misses a turn (it's happened)? The photo above illustrates if you're not the leader the view never changes. When or when not to follow? Take Wall Street: During this Great Recession huge fortunes were made by betting against the herd. Oops. Many also lost.

The nonprofit board is a textbook example of second-lemming behavior. Few can be characterized as decisive in the best of times: we who serve them or serve on them know it takes forever for otherwise sharp-edged business people who in their day jobs move mountains and money to say yes or no. Plumed dukes of capital who've been shorting Greece and Portugal the last two days can't okay a five million dollar budget or whether the centerpieces at the benefit are to be yellow (ick) or red. Meanwhile management just stares into the headlights. Exceptions to second-lemming behavior oft abound in founder-dominated organizations. "FOF's" populate the boards and the founder basically does as s/he wishes. Once in awhile a founder (or strong-willed time-entrenched CEO to which this also applies) will beg for forgiveness rather than ask for permission.

So my new thought about leadership is to take away the cliffs.