One Size, One Regulation, One Ratio Does Not Fit All in the Nonprofit Sector

18 Jun

one sizeBy Dr. Heather Carpenter, assistant professor, School of Public, Nonprofit and Health Administration, Grand Valley State University

This is a repost of Dr. Carpenter’s blog article titled, “America’s Worst Charities, Not! America’s Worst Attorney Generals!”

The Tampa Bay Times investigative article about “America’s Worst Charities” has caused a huge commotion that I fear will hurt the sector. People are appalled and outraged that charities could do such harm by not operating for the public good.

What the public does not realize is there are already laws in place that are meant to prevent the vast majority of abuses discussed in the article. For example, there are legal prohibitions against the many conflicts of interest of the family members behind several of the worst charities. Deceiving the public and not using the donations in the way they were promised to be used is fraud. The bigger problem is the attorneys general in each state who are supposed to be taking legal action against nonprofits that are not adhering to their exempt purpose.

An important underlying problem with how Tampa Bay Times reported the story is that watchdog organizations are using the same ratios to evaluate the effectiveness of all nonprofits. There are 1.5 million nonprofit organizations that operate in the United States that vary by mission, size, type and revenue sources; the “America’s Worst Charities” one-size-fits all metric does not in fact, fit all. Only 22% of revenue for nonprofit organizations comes from individuals, corporations and foundations. The rest comes from earned revenue and other sources. I find it appalling that the reporters use telemarketing fees to evaluate the worst charities in America, when in fact, the majority of charities don’t even do this type of fundraising.

As a nonprofit professor, I teach my students about how to run effective nonprofit organizations. This is through a variety of different financial ratios, consistently applied over time. These ratios are then compared to similar size and type organizations. To reiterate, one size, one regulation, one ratio does not fit all in the nonprofit sector.

My fear is the Times article will cause law makers to want to codify this one-size approach in more regulations on nonprofits. What is really needed is education and enforcement. Founders, board members and staff need to learn how nonprofits operate. They ALL need to understand their fiscal and legal responsibilities. Attorneys general in every state need to do due diligence to enforce the ALREADY existing laws!!

I want to thank the NEO law group for posting this article on their Facebook page, which inspired me to write this blog post!

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