Nonprofits by the Numbers

In the wake of embarrassing revelations, high-profile scandals, and Sarbanes-Oxley, nonprofit CFOs are striving for greater transparency and accountability.

By 2001, after years of siphoning off cash at every turn, Suer had cultivated a help-yourself-and-hide-the-details culture. Some employees took reimbursements for the tax liability they accrued for personal use of United Way cars. They cashed personal checks and had the finance department hold them until they had money to cover them — a short-term loan by any name. Meanwhile, board members apparently ignored repeated signs of fraud. As early as 1986, according to auditors, at least one director was alerted that Suer had unreimbursed advances amounting to well over $500,000. Wrote the auditors: “We could not find evidence that any immediate action was taken…to alert the full Board and the giving public to the existence of these large unreimbursed advances.”

When the news broke of the scale of the fraud, donors slammed their checkbooks shut. In 2003, contributions to the UWNCA dropped by two-thirds, from $95 million to $34 million. Suer eventually pled guilty to defrauding the United Way; he was sentenced in May 2004 to 27 months in prison and ordered to pay $497,000 in restitution.

The UWNCA case was still fresh in the public’s mind when the Washington Post published its series on The Nature Conservancy. Many people were angered by the size of McCormick’s home loan, bonus, housing allowance, and salary — even if the salary was in line with those of CEOs at similar organizations. And many were troubled by news of the Conservancy’s close relations with business interests, including revelations of oil and gas drilling on a preserve in Texas. Conservancy executives might not have broken the law, but Conservancy members and supporters felt the nonprofit had broken their trust.

Others were galled by the Conservancy’s so-called conservation buyer deals. In those deals the Conservancy sold, at a discount, land that it first encumbered with development restrictions. In several cases, Conservancy insiders bought the land in deals that allowed them to build the homes they wanted. To make the Conservancy whole, the buyers wrote checks as donations — and then took tax deductions.

The Post series spurred an investigation by the Senate and added fodder to the Senate Finance Committee’s larger study of the entire charitable sector’s business practices and tax abuses. The committee held wide-reaching hearings in June 2004 and April 2005, with others in the offing. In early June, a special report on the Conservancy was issued, and a hearing on the organization was held. New legislation on nonprofit accounting, oversight, and transparency is almost assured.

Cleaning Up

With the Senate on the warpath, many nonprofits have raced to clean up their acts. Independent Sector has convened a panel to recommend reforms; its report was scheduled to be released during the third week of June. Meanwhile, in a September 2004 Grant Thornton poll of more than 700 nonprofits, 83 percent reported familiarity with Sarbanes-Oxley, up from 56 percent in 2003. Nearly half had changed policies as a result, up from 20 percent in 2003. Eighty-four percent reported having an audit committee, up from 77 percent in 2003.

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