Nonprofit Theft – “A Few Bad Apples” or the Invisible Reality?

The nonprofit news the past several weeks has focused on ACORN, a grassroots community organization around the country. ACORN has been in the press again concerning alleged fraud and corruption involving federal funds. Earlier press during the Presidential election in 2008 was about voter registration fraud. Nonprofit organizations and faith-based houses of worship make the headlines almost weekly about theft of funds, embezzlement, corruption, fraud, health/safety violations and misconduct. Nonprofit groups use grant funding for inappropriate activities. This article will review the latest press reports about nonprofit crime, several case studies from discovery to recovery in nonprofits, ideas for preventing and reporting nonprofit crimes and resources available for nonprofit employers and employees in confronting crime in a nonprofit. Nonprofit leaders tend to shrug off such cases as evidence of “just a few bad apples.” But a 2008 report, trying to identify the scope of such thefts for the first time, suggests otherwise. The authors put the loss in nonprofits from theft, embezzlement, corruption and fraud at $40 billion for 2006, or some 13 percent of the roughly $300 billion given to charity that year. Most of these crimes are not caught through an audit. Add to this the invisible act of wasting money many people believe we do, and we have a track record that needs cleaning up.

The nonprofit world has not found a clear way to minimize theft of funds, embezzlement, corruption, fraud, health/safety violations and misconduct. I think it is because we are afraid to. We are a trusting lot working with trustable people. The governance of nonprofits is not built to stop crime. “Best practices” may be helpful but they have not really had an impact. I suggest there are two critical decisions nonprofit leaders have to make:

Trust no one when it comes to the money. Not a board member, not a staff member, not the founder, not yourself, not me.

If a crime has been committed, prosecute the criminal. Do not hide it from the public and do not hide it from yourselves. Failing to prosecute is to assist others in contemplating a theft – they think nothing really bad will happen.

Does this surprise or shock you? Does it sound as though I am attacking leaders and dreamers? Am I challenging the core belief of nonprofits that it is good people doing good things? That is precisely what I am doing. We have to do a better job of protecting the organization. Every headline about one nonprofit alleged crime affects all nonprofits – and yet it has to go public. We are dealing with public gifts and grants. We have a higher standard like it or not. It is a higher standard that is being exercised with lower protections. Improved oversight, written policies, procedures, forms and recordkeeping and audits help. They are not always enough. We must stop the phony “better than thou” attitude that we trust everyone and we must stop the fear of prosecuting a thief.

It will start with a new mind set – trust no one, assure full prosecution and go from there.

We may not end nonprofit crime but we can minimize it starting with that premise – trust no one. Create whatever you have to with clear oversight of the money and do not apologize for the inconvenience of checking everything out. It is not personal, it’s business. .

• LATEST PRESS COVERAGE
• TWO CASE STUDIES OF NONPROFIT FRAUD
• PREVENTION AND REPORTING
• RESOURCES

LATEST PRESS COVERAGE

SAMPLE CASES PENDING – These are recent headlines from around the country of theft from nonprofit organizations Remember, in this country people are innocent until proven guilty. Nevertheless these headlines burn holes in readers brains about the trustworthiness of nonprofit leaders and organizations. One organization had to lay off staff, another close its doors, another has stopped work until a full study is made and another filed for bankruptcy. These are not “Mom and Pop” nonprofits. They are substantial groups including nationally known organizations. Crimes against nonprofits can include theft of funds, embezzlement, corruption, fraud, health/safety violations and misconduct: The next section will list the stories of recent convictions of such crimes. One man pleaded guilty of theft from two nonprofit organizations

ACORN scaling back or shutting down in many cities By P.J. Huffstutter and Kate Linthicum, September 19, 2009 Los Angeles Times - The community activist group is taking no new clients while it investigates its operations, which have been dragged down by the poor economy and recent scandals. http://www.nypost.com/p/news/local/li_pharaoh_phraudster_6M0V9X3dvSWivSV8PuWcpL

· LI's Pharaoh 'Phraudster' Ex-museum big nailed in Egypt-art theft By KATI CORNELL and JOE MOLLICA September 16, 2009 New York Post - The ousted director of Long Island University's Hillwood Museum stole Egyptian artifacts from the collection and peddled the precious antiquities through Christie's auction house, the feds charged yesterday. The auction house's records show eight of the pieces, including bronze and limestone statues, sold this year for a total of $51,500. The artifacts were sold at two antiquities auctions at Rockefeller Center on Dec. 9 and June 3. Museum employees caught wind of the theft when Christie's faxed them a purchase offer on the one remaining artifact in June of this year. http://www.nypost.com/p/news/local/li_pharaoh_phraudster_6M0V9X3dvSWivSV8PuWcpL

· Logan man accused of bilking child-care nonprofit of $400,000 By DANA DiFILIPPO April 4, 2009 Philadelphia Daily News - Day-care provider Tyron Ali told the state he needed taxpayer money to feed needy kids nutritious meals and snacks. Instead, the Logan man used it to feed his greed, allegedly using more than $400,000 in state funds to buy himself jewelry, designer clothes and shoes; to dine at upscale eateries; to buy Amtrak tickets, and to take Caribbean cruises, according to state Attorney General Tom Corbett. Ali, 35…also allegedly used public money to make car and insurance payments and to pay $1,500 in city parking tickets, Corbett added. He was arrested Thursday on 371 counts of forgery, tampering with public records and related offenses stemming from the fraud scheme which lasted from 2004 to 2007. http://www.philly.com/philly/hp/news_update/20090404_Logan_man_accused_of_bilking_child-care_nonprofit_of__400_000.html

· Man indicted in theft of $780K from Harvard nonprofit By Charlie Breitrose/Daily News staff July 7, 2009 Cambridge Chronicle - A Middlesex County grand jury indicted a 58-year-old Framingham man Thursday for allegedly stealing nearly $780,000 from a Jewish nonprofit organization connected to Harvard University, for which he worked as an accountant. William O'Brien, 58, of Framingham, is charged with 11 counts of larceny over $250, two counts of larceny by continuous scheme, five counts of failure to file income tax returns, and one count each of forgery and uttering [the act of offering a forged document], according to Attorney General Martha Coakley's office. http://www.wickedlocal.com/cambridge/news/x135742054/Man-indicted-in-theft-of-780K-from-Harvard-nonprofit

· Judge won't toss theft charges against nonprofit ex-chief Woman accused of illegally paying boyfriend as well as making personal credit card purchases By JENNIFER GOLSON STAR-LEDGER STAFF Publication: The Star-Ledger (Newark, New Jersey) July 22 2009 A Superior Court judge refused to dismiss charges against the former executive director of a Tewksbury-based nonprofit organization and her then-boyfriend for the no-show job she allegedly gave him. Hilary Garzillo, 38, was the co-executive director for the Work-Family Connection, an agency that provides before- and after-school programs. Erik Marquardt's duties included office work and teaching. An eight-count indictment charges Garzillo and Marquardt, now her husband, of second- and third-degree theft by deception. Marquardt, 27, was charged with fourth-degree unsworn falsification to authorities in incidents that occurred between 2004 and 2006. http://www.allbusiness.com/legal/trial-procedure-judges/12570881-1.html

· Alaska man sought in $100,000 theft from nonprofit The Associated Press July 6, 2009 Police are searching for an Anchorage man suspected of stealing more than $100,000 from the nonprofit Alaska Marine Conservation Council. Anchorage police Lt. Dave Parker says it's believed 36-year-old Travis Robinson committed the crimes against his former employer by using company credit cards, company accounts and false reimbursements. The thefts forced the nonprofit to put all paid employees on furlough, and several workers lost their jobs. http://www.newsminer.com/news/2009/jul/06/alaska-man-sought-100000-theft-nonprofit/

· Nonprofit volunteer charged: 62 felony counts Documents say coffee shop owner got workers from nonprofit but didn’t pay for them JEREMY PAWLOSKI The Olympian September 10, 2009 - The woman who owns the downtown Olympia coffee shop Java Flow has been charged with 27 counts of first-degree theft and 35 counts of second-degree theft for allegedly embezzling about $89,000 from an Olympia nonprofit group where she volunteered. Stephenie Patricia Jekel, 35, will be arraigned on the 62 felony counts Sept. 22 in Thurston County Superior Court. Reached by telephone Wednesday, Jekel said she had no comment on the criminal charges. Her father, Chris Jekel, who was working Wednesday at Java Flow, across from the Intercity Transit center, said his daughter is innocent. The group that Jekel is accused of stealing from, the Washington Cooperative Support Center or WCSC, formerly provided temporary labor and services to businesses in Thurston County, founder Bruce Palm said. It went bankrupt in 2006 because of losses it incurred as a result of the alleged thefts, Palm said. http://www.theolympian.com/112/story/965832.html?storylink=omni_popular

· Pair charged in $110K theft from Mukilteo nonprofit By Diana Hefley Herald Writer February 24, 2009 - The president and the finance director of a nonprofit Mukilteo company that assists disabled workers have been fired from those jobs and are now facing felony theft charges. Prosecutors recently charged Kenneth Storkel and Sandra Adams Ball with first-degree theft. The pair is accused of stealing more than $110,000 from Diversified Industrial Services, a nonprofit company that provides skills training and employment support for disabled clients, according to court records. The amount of money involved prompted prosecutors to file the case as a "major economic offense," raising the possibility for extra punishment. http://www.heraldnet.com/article/20090224/NEWS01/702249874

· Former Trustee Indicted for Alleged $6 Million Theft from NonProfit Law Professor Law Blog June 30, 2008 - The Chicago Tribune reports that the federal government has indicted Dr. Robert Weinstein for conspiring to steal millions from the Northshore Supporting Organization, a charity formed ostensibly to support the Rosalind Franklin University of Medicine and Science in North Chicago. Dr. Weinstein served as a trustee of both organizations and allegedly worked with Stuart Levine, the government's star witness in its case against Illinois political fundraiser and insider Antoin "Tony" Rezko, to divert $6 million from the Supporting Organization using a Scandinavian accomplice, fake contributions to the University, and sealed promissory notes. According to the U.S. Attorney's press release and the indictment, Weinstein and Levine caused the Supporting Organization to transfer $3 million each to them in return for promissory notes that neither of them intended to repay. They managed to buy back the notes for only $1 million through a complicated scheme involving the University, an intermediary, and sealed envelopes holding the notes but which the University was not permitted to open. According to the indictment a third charity, identified only as IDDRS, was allegedly the original source of the $6 million ultimately diverted from the Supporting Organization, and Dr. Weinstein was the president and sole director of IDDRS. http://lawprofessors.typepad.com/nonprofit/2008/06/former-charity.html

· Woman Charged In Connection With Theft From Nonprofit Laconia Nonprofit Discovers $17,000 Missing From Accounts WMUR (NH) July 27, 2009 - A former employee of a Laconia nonprofit has been charged with theft after the group discovered thousands of dollars missing from its accounts. Police said Ozanam Place discovered that money was missing from its accounts and conducted an audit. The audit revealed that $17,000 was missing. Police investigated and arrested Maria Street, 41, of Moultonborough, N.H. Street had worked for Ozanam Place for about two years until spring 2009. The President of Ozanam Place, Bill Johnson, tells News 9 his organization was barely making it before and that the theft exacerbates its financial concerns. Ozanam Place helps single mothers find homes. http://www.wmur.com/news/20193200/detail.html

· Local nonprofit's ex-CEO faces theft charges May 7, 2009 from Coalition to End Family Violence Ventura CA $50,000 A judge has found there is enough evidence for a Newbury Park woman to be held for trial on charges that she embezzled more than $50,000 from the Coalition to End Family Violence. The prosecutor, Wendy Macfarlane, said the criminal complaint against Duval has been amended to include five felony counts plus a special allegation that the theft exceeded $50,000. It includes three counts of theft, charging three different ways that Duval, 42, allegedly stole, said Macfarlane. “One was excess compensation, another was she got reimbursed for expenses that shouldn’t have been reimbursed for, and charges on the Coalition’s (credit) card that were not authorized,” said Macfarlane. In addition, there are two criminal charges stemming from the unauthorized uses of the signature stamp of the organization’s board chairman, said Macfarlane. http://www.venturacountystar.com/news/2009/may/07/local-nonprofits-ex-ceo-faces-theft-charges/

· Ex-director of NYC nonprofit charged in food theft By Carly J. Rothman NJ.com November 13, 2008 - The former director of a Brooklyn nonprofit is accused of stealing more than a half million dollars in federal aid that was intended to pay for food for meals and snacks for poor children. Andre A. Lewis is charged with defrauding the U.S. Department of Agriculture's National Child Food Program of more than $500,000 while he was the executive director of the Better Brooklyn Community Center. The nonprofit received the funds from the federal agency as part of a 2005-2006 contract with the city's health department to serve meals and snacks to children at its centers. http://www.nj.com/helpinghands/index.ssf/2008/11/exdirector_of_nyc_nonprofit_ch.html

· Two Accused of Embezzling $200,000 From South Bronx Nonprofit Group They Headed By RAY RIVERA June 10, 2009 - Two people were charged Wednesday with embezzling $200,000 from a Bronx nonprofit group and using the money pay for a lavish lifestyle for themselves and for political favors for two elected officials that included Caribbean trips and campaign donations. Richard Izquierdo Arroyo and Margarita Villegas were accused of stealing the money from SBCC Management Corporation, a nonprofit group that receives city and federal money to manage low-income buildings in the Bronx. (Snip) The complaint says that between 2005 and 2009, Mr. Izquierdo Arroyo and Ms. Villegas charged $15,000 worth of clothes and shoes from Tommy Hilfiger, Coach and Polo Ralph Lauren to the group’s American Express account. They are also accused of spending $66,000 on meals at restaurants like Ruth’s Chris Steak House and Tavern on the Green, and $48,000 on hotels and airfare. http://www.nytimes.com/2009/06/11/nyregion/11embezzle.html?_r=2

CONVICTIONS OF NONPROFIT EMPLOYEES

These are samples of recent headlines of convictions of former nonprofit employees. It is interesting to see the length of time from the criminal act to the conviction.

· Woman Admits Theft From Nonprofit: Former Treasurer of Group Gambled Away $265,000 3 June 2006, from Asian Women United of Minnesota St. Paul, Minn. $265,000 Pa Paulette Vang pleaded guilty to felony theft by swindle in Ramsey County District Court. Judge James Clark will sentence Vang on Aug. 1. The 34-year-old St. Paul woman stole an estimated $265,000 by secretly opening four bank accounts in the name of the nonprofit and transferring money from the primary accounts of the organization into the accounts she opened. She was able to access the money without oversight, according to a criminal complaint. An auditor retained by the organization found $265,864 in questionable transactions between May 2004 and December 2004. http://www.redorbit.com/news/business/525663/woman_admits_theft_from_nonprofit_former_treasurer_of_group_gambled/index.html

· Former finance director of child abuse nonprofit admits stealing payroll checks May 5th, 2009 from National Children’s Alliance, Washington DC over $15,800 Sharon Martin admitted she stole eight payroll paychecks totaling more than $15,800. The alliance, based in Washington, has more than 500 Children’s Advocacy Centers across the country devoted to helping victims of child abuse. It’s funded in large part by grants from the Justice Department. Martin was the alliance’s finance and senior staff director from 1994 to 2007. http://blog.taragana.com/n/former-finance-director-of-child-abuse-nonprofit-admits-stealing-payroll-checks-53455/

· Former accountant pleads guilty to nonprofit theft June 3, 2009 embezzled $425,000 Washington DC from the American Society for International Law from 2004 to 2008 and $150,000 from the American Bakers Association. A former accountant has pleaded guilty to stealing more than $500,000 from two D.C.-based nonprofit groups. Thirty-four-year-old Charles Clifton of Stafford County, Va., pleaded guilty Tuesday to wire fraud and theft in an embezzlement scheme. Clifton, who held financial jobs at both groups, embezzled $425,000 from the American Society for International Law from 2004 to 2008 and $150,000 from the American Bakers Association between 1998 and 2004. http://content.usatoday.net/dist/custom/gci/InsidePage.aspx?cId=indystar&sParam=30889801.story

TWO CASE STUDIES OF NONPROFIT FRAUD

1. A Case Study - The Case of Free Street Theater in Chicago

This is the story of one nonprofit’s experience, Free Street Theater in Chicago, a nonprofit organization involved in the arts and theater. Their mission - Free Street Theater teaches acting and writing skills to youth so they can open their potential to be creative, active participants in their own lives.

In July of 2005 Free Street’s board and staff discovered that our then Managing Director had been taking organization funds for personal use. Our Story ….

And Why We Believe it is Important to Tell it Publicly:

In July of 2005 Free Street’s board and staff discovered that our then Managing Director had been taking organization funds for personal use. Before we share the details of our story, and share what we have learned through our trials and tribulations, we want to explain why we think it is important to be public about a subject that is typically hushed.

1. We want others to benefit from our experience so they do not have to learn the hard way as we did.

2. We believe silencing crime aids criminals. Our auditor told us that nonprofits tend not to prosecute because they fear a myriad of potential consequences. Our auditor has seen thieves get caught at one organization and easily move on to another organization. We think being active in stopping that trend is worth the risk of being publicly vocal. We hope that through our example, we can help other organizations confidently prosecute when necessary, and ultimately lessen the vulnerability for all nonprofits.

3. Free Street is a nonprofit organization and as such exists to serve the community. The community deserves a transparent, open understanding of our work. This includes our pitfalls as well as our successes.

4. We could not have pulled Free Street out of this crisis without the overwhelming outpouring of support from the community. We want to be able to share our gratitude. Ultimately we have emerged as a stronger organization. Sometimes it takes being faced with the question “Why should you exist?” to really discover why your existence matters. We are proud to exist, evolve and thrive.

(Skip)

Major Lessons We Learned:

1. Nonprofits are vulnerable because they are mission driven. Everyone is working based on the belief that the mission is important and everyone in the organization is passionately working for the cause. No matter how deeply you are engaged in your mission, how much you hate dealing with the money, or how short staffed you are, never ever entrust one person to handle all the money matters. (Of course, we didn’t think we were doing that. Read lesson number 2.)

2. Checks and balances need to be effective. We had a bookkeeper, an auditor, and a board who had roles in examining our financial information. There are a surprising number of places in general operating systems that are vulnerable to manipulation if someone aims to harm your organization. Unfortunately, if someone is presenting misleading information to the financial overseers, the assumed checks and balances are rendered ineffectual. (See “What We Do Differently”)

3. Financial matters are the bones supporting the body of programming. Learning to be interested in the financial practices is essential. We came to the conclusion that as artists who are passionate about Free Street, we are the best caretakers of the organization. We accept the challenge of learning the financial management skills we need to be able to support the organization to the best ideals of our mission. The three full time artists who comprise our core staff have worked together for ten years. We have evolved a management style that uniquely contours to our strengths, and we have built a stronger board. We have learned a great deal about creating better accounting practices for our organization through lessons from the Nonprofit Financial Center, private consultations, and public resources. (See “Resources”)

4. Ask for help when you know you need it. There is no way we could have pulled through this crisis alone. Thank you Lawyers for the Creative Arts, Reclamation Committee, Chicago Police Financial Crimes Detective Sergeant Lucky, State’s Attorney William Merritt, Pro-bono legal counsel from Robert Zimmerman and the team of Edward Green, Karl Von Drathen and Karen Kawashima at Foley and Lardner, Chicago funding community, James Mitchell of the Abbey Woods Fund, and all our friends.

Preventing Nonprofit Theft

This is a subject we wish we knew nothing about. Unfortunately we have learned a tremendous amount about the ways nonprofits are particularly vulnerable to criminal financial manipulation.

Overview of What We Do Differently Now

We have a detailed fiscal controls policy that includes:

1. All financial duties are shared between two staff members.
2. A board member opens the bank statements and reconciles our computer records.
3. We have developed a more experienced board.
4. We have a payroll service issue checks for the staff and pay the required taxes.
5. Bryn Magnus and Anita Evans have taken part in many financial training sessions to continually deepen their understanding of accounting practices, budgeting, and recommended checks & balances.

http://www.freestreet.org/prevent.html

http://www.freestreet.org/

2. Report Sketches Crime Costing Billions: Theft From Charities By STEPHANIE STROM Published: March 29, 2008, NY Times

To support the allegations in the headlines, the Times refers to a report prepared by four professors. Their study concluded the following:

· The volunteer treasurer of the Madison County Humane Society in Indiana was charged this month with using $65,000 of the charity’s money to buy jewelry and makeup. In San Francisco, the chief financial officer of the Music Concourse Community Partnership was fired after he was accused of taking $3.6 million of the organization’s money to play the stock market.

· The typical theft from a charity was committed by a female employee with no criminal record who earned less than $50,000 a year and had worked for the nonprofit at least three years.

· The amount she stole was less than $40,000.

· The most costly cases, the study found, involved male executives earning $100,000 to $149,000 a year. The thieves in such cases had typically been with the organization the longest.

· The report’s estimate of the overall cost, which the authors put at $40 billion for 2006, or some 13 percent of the roughly $300 billion given to charity that year.

· Government, for-profit or nonprofit, “lose on average 6 percent of their revenue to fraud every year.” Applying that percentage to nonprofits’ total 2006 revenue of $665 billion — donations, government payments and other income — the authors came up with the $40 billion estimate.

· Losses to fraud among the 58 cases reported to the fraud examiners association in a random survey of nonprofits ranged from $200 to $17 million, with the median fraud costing $100,000.

· Most of these things are not caught by routine audits

· They’re usually done by someone in the financial area — the treasurer, the bookkeeper, the signer of checks — who knows how to avoid getting caught.

· Almost 95 percent of the reported frauds entailed loss of cash, and a majority of those involved false or inflated invoices, billing for expenses that were never incurred and check tampering.

· Failure of organizations to punish those who steal from them was perhaps one of the biggest reasons for fraud in the sector.

Asked about his favorite example of nonprofit fraud, Mr. (Gary) Snyder was initially stumped.

“There are so many,” he said.

He eventually settled on the embezzlement of some $25 million from Goodwill Industries of Santa Clara County in California.

It started in the 1970s and continued until one of the participants blew the whistle in 1998. Merchandise donated to the organization was sold outside the Goodwill shops by the perpetrators, who kept the proceeds. One of the embezzlers committed suicide before arrest, and six others, all related, pleaded guilty, were fined and, in some cases, were sent to prison.

The thieves had given more than $800,000 to the organization’s president and chief executive, who parked the money in accounts in Switzerland, in Austria and on the Isle of Man and then escaped to Guatemala as investigators closed in, according to the authorities. Guatemala sent him home in 2003, but he ultimately pleaded guilty to only one charge — of tax evasion unrelated to the scandal at Santa Clara Goodwill — and walked out of the courtroom.

“I like that one,” Mr. Snyder said, “because it’s an extreme example of something typical: that no one gets in trouble for this.”

http://www.nytimes.com/2008/03/29/us/29fraud.html

PREVENTION AND REPORTING

How does the board of trustees and staff leadership prevent theft of funds, embezzlement, corruption, fraud, health/safety violations and misconduct? That may not be possible. There is no full-proof prevention available. There are however many things that can and should be done to minimize crimes against a nonprofit organization. The organization needs to take appropriate steps to minimize the theft of funds, embezzlement, corruption, fraud, health/safety violations and misconduct and to minimize the effect of the crime on the mission and obligations of the organization.

Nonprofit organizations should have written policies, procedures, forms and recordkeeping separating financial duties between officers and employees. For instance the duties of opening envelopes with checks, registering the checks, preparing bank deposits and accounting for funds are different duties that should be shared by various board officers or employees. Talk with your accountant and attorney to develop these written policies, procedures, forms and recordkeeping to increase accountability and transparency

Steps to minimize theft of funds, embezzlement, corruption, fraud, health/safety violations and misconduct:

• Trust no one when it comes to the money and assets. Not the board, not the staff, not the founder.
• Prosecute crimes against the organization.
• Be honest and moral in your actions with the nonprofit organization, whatever your position
• Create checks and balances for handling the receipt of cash and checks, the review of all accounts receivable and payable, a policy requiring two signatures on all checks, neither of whom perform the other duties.
• Develop written clear and appropriate internal controls and monitoring procedures that are vigorously enforced including finances, unethical behavior, and policies such as sexual harassment, discrimination and so on.
• Assess the potential for conflict of interest, both real and perceived; never have the CEO serve on the board of trustees even as an ex-officio (this has nothing to do with the attendance of the CEO at board meetings, however, which she/he should); take care that relatives do not control the organization or supervise one another; have written policy concerning conflict of interest in the bylaws and personnel manual
• Follow and perform the tasks and activities in the written policies, procedures, forms and recordkeeping
• Protect employees from retaliation for reporting alleged theft, embezzlement, corruption, fraud, health/safety violations or misconduct
• Conduct an annual inventory of equipment owned by the organization
• The board of directors performs its duties of oversight for the organization and the public good
• Budget for and provide appropriate training for board and key employees on performing their duties, management, accounting, transparency and understanding financial and audit reports
• Trust without verification will produce at best shoddy accounting and at worst hidden theft, embezzlement, corruption, fraud, health/safety violations or misconduct
• Develop, adopt, and disclose a formal process to deal with complaints and prevent retaliation.
• Be receptive to any employee and volunteer complaints, investigate the situation, and report or fix any problems or justify why corrections are not necessary.
• Perform background checks in hiring or in assigning people to financial responsibilities
• Have the leadership conduct a risk assessment for the organization concerning activities, building conditions, legal policies, finances and more
• Develop a process for recording all incidents related to alleged criminal and inappropriate actions involving finances and waste

• Assure the organization has an annual audit, whether by a committee of the board or a certified public accountant
• Assure the organization cooperates with the auditor to review all relevant and requested records
• Create a safe policy and process for employees to feel they can be whistleblowers if they believe they have seen inappropriate action or failure to perform action by responsible employees or volunteers (There are state and federal laws concerning the protection of employees for acting as a whistleblower; employees need to know when those protections are triggered. Posters in the workplace are required.).
• The organization purchases appropriate and adequate insurance and keeps it current reflecting business changes

There are many great articles offering ideas, sample policies, procedures, forms, recordkeeping and so on linked below.

See - The Most Common Financial, Management Risks Facing Nonprofits. Alliance for Nonprofit Management 2008 This resource discusses and provides examples of possible financial risks that a nonprofit organization may encounter. Nonprofit grantees may find this resource useful in identifying potential risks within their organization. The risks in financial management are any actions that result in the reduction in value or loss of any of the organization's financial assets. http://www.eclkc.ohs.acf.hhs.gov/hslc/Program%20Design%20and%20Management/Fiscal/Program%20Management/Risk%20Management/TheMostCommonF.htm

A new temptation for theft of funds, embezzlement, corruption, fraud, health/safety violations and misconduct is the Recovery Act (ARRA) stimulus funding, a pot of $787 billion. Although most of that money is not going to nonprofits, some of the money is. One of the elements of the ARRA is the section on whistleblowing, a variation of other federal and state laws on employees’ protection for blowing the whistle on crime in the workplace.

See - Corruption Alert - Potential Economic Stimulus Fraud by Right Side News (an online newspaper, publishing accurate information about threats against Western civilization) 17 September 2009

The ARRA, signed into law earlier this year, will inject $787 billion into the U.S. economy, providing jobs and other resources for states and local communities. While most of those receiving the funding are honest and dedicated individuals, experience tells us that there's a good chance that some of the money could end up in the hands of a few unscrupulous government officials and others seeking to line their own pockets

(Snip)

Based on the areas that the ARRA funding is targeting, we've pinpointed specific programs that could be the most vulnerable. They include:

• Transportation and infrastructure: Schemes historically involve bribery of contracting officers and inspectors and fraudulent billing for inferior materials or work not performed.
• Education: Funding and contracts for public schools are typically conducted by an independent board with full spending authority and little or no oversight.
• Energy/Environment: The increased popularity of renewable or alternative forms of energy-coupled with stimulus efforts to promote environmentally-friendly energy sources and create "green jobs"-will result in more projects and more opportunities for corruption and fraud.
• Housing: Funding to redevelop foreclosed or abandoned homes will be provided to state and local governments via grants, providing opportunities for public officials or grant recipients to manipulate the program for personal gain.

http://www.rightsidenews.com/200909176475/homeland-security/corruption-alert-potential-economic-stimulus-fraud.html

See - Legal Alert: Whistleblower Provisions in American Recovery and Reinvestment Act May Impact Employers from Ford and Harrison LLC

The recently enacted American Recovery and Reinvestment Act (ARRA) contains whistleblower provisions that apply to non-federal employers who will receive funds under the ARRA. These provisions prohibit the employers from discharging, demoting, or discriminating against an employee for disclosing, to a covered entity,

1) gross mismanagement of an agency contract or grant relating to covered funds;

2) a gross waste of covered funds;

3) a substantial and specific danger to public health or safety related to the implementation or use of covered funds;

4) an abuse of authority related to the implementation or use of covered funds; or

5) a violation of law, rule, or regulation related to an agency contract (including the competition for or negotiation of a contract) or grant, awarded or issued relating to covered funds. All qualified employers are required to post notice of the rights and remedies provided under this section.

http://www.fordharrison.com/shownews.aspx?show=4557

RESOURCES

It is not clear whether the new IRS 990 family of forms will assist in preventing or discovering nonprofit crimes. Other potential protections are certain provisions of the Sarbanes-Oxley Act that apply to nonprofits and whistleblowing, ARRA laws, contract compliance sections, state and local laws.

IKnow is Interactive Knowledge for Nonprofit Organizations Worldwide - http://www.iknow.org/Main.cfm?Main=14

Evangelical Council for Financial Accountability Standards and Best Practices - http://www.ecfa.org/Content.aspx?PageName=ECFABestPractices

The Basic Guide to Nonprofit Financial Management by Carter McNamara at http://www.mapnp.org/library/finance/np_fnce/np_fnce.htm

Policies for Financial Accountability at Idealist/Action Without Borders http://www.idealist.org/if/i/en/faq/56-25/50-5

Foundation Center Tutorial, Proposal Budgeting Basics - http://foundationcenter.org/getstarted/tutorials/prop_budgt/

Whistleblower Protections Under the Recovery Act - http://www.recovery.gov/?q=content/whistleblower-information

Federal and State Laws Protect Whistleblowers - http://whistleblowerlaws.com/index.php?option=com_content&task=view&id=141&Itemid=54

The Sarbanes-Oxley Act and Implications for Nonprofit Organizations (one section affecting nonprofits is the provision on whistleblowing) – http://www.independentsector.org/issues/sarbanesoxley.html

Compendium of Standards, Codes, and Principles of Nonprofit and Philanthropic Organizations - http://www.independentsector.org/issues/accountability/standards2.html

Audit Committee Toolkit - http://www.aicpa.org/Audcommctr/toolkitsnpo/homepage.htm

Checklist for Accountability - http://www.independentsector.org/issues/accountability/Checklist/index.html

American Institute of Certified Public Accountants How Fraud Hurts You and Your Organization http://www.cpa2biz.com/AST/Main/CPA2BIZ_Primary/FraudDetectionandPrevention/PRDOVR~PC-056513HS/PC-056513HS.jsp

Kathryn M. Vanden Berk has two very helpful articles; one has tips on minimizing risk of loss and the other an internal control checklist.

Preventing Employee Theft - Tips to minimize your risk of loss

Author: Kathryn M. Vanden Berk Issue 3 – 2009 Alliance for Families and Children Magazine

http://mag.allianceinfo.org/content/nonprofitlaw/issue3-09/preventing-employee-theft

Internal Control Checklist

http://mag.allianceinfo.org/content/issue3-09/internal-control-checklist

One Phase of Nonprofit Organizational Readiness for Grant Funding: Recordkeeping

http://dongriesmannsnonprofitblog.blogspot.com/2008/11/one-phase-of-nonprofit-organizational.html

Background Checks The following online companies offer background check services, public record information and pre-employment screening to businesses and organizations. Check your state web site for such services approved in your state.

http://www.bestbackgroundchecks.com/general.html

Sample written policy, Illinois University Policy for Background Checks

http://www.indiana.edu/~uhrs/policies/uwide/bkg_check.html

Employment Background Checks: A Jobseeker's Guide

http://www.privacyrights.org/fs/fs16-bck.htm

How to Find a Lawyer for Your Nonprofit Organization -

http://stepbystepfundraising.com/how-to-find-a-lawyer-nonprofit/

The Stories of Nonprofits Dying

This article will look at two levels of information about what is happening to nonprofit organizations around the U.S. as the result of the recession. The first part will be news headlines and brief synopsis of the news article with links. This is a sampling of the articles I have read across the country. All have the same message. The second part will be the listing of studies and survey results nationally and locally with links that have been published about what is happening economically to giving and support of nonprofit organization. The first study by Giving USA 2009 had national attention for a 2% drop in giving. There are other studies that did not get the same national splash that indicate the drop is 40% or higher. Each part will be in chronological order from June into August, 2009. I have placed a few final remarks at the end – lessons I have learned from all this. I am very passionate about the mission and work that nonprofits can and do perform and these are sad moments. We will see what the the resilience of the third sector is in the next 15-24 months.

Within two days after this blog was posted two new studies show a worsening position for nonprofit organizations. First, volunteers are reducing the time they spend doing that work. Second the number of wealthy giving of $1M + gifts have significantly dropped in 2009, another sign of reduced support. These stories follow - .

Volunteering Waning in Recession, Report Says By STEPHANIE STROM Published: August 26, 2009

As the recession took hold, most Americans cut back on volunteer work and other civic activities, according to a survey conducted for the National Conference on Citizenship.

That finding undercuts anecdotal reports of volunteers’ flooding nonprofit groups as unemployment has increased and suggests the challenges faced by the Obama administration, Congress and foundations working to encourage greater volunteer service and civic participation.
“They’re not saying they’ve stopped volunteering, but they are cutting back on the time spent on volunteering and civic engagement,” said David Smith, executive director of the National Conference on Citizenship, which conducted the survey as part of a study titled America’s Civic Health Index,

(Snip)

The decline in volunteerism is not good news for nonprofits, which are relying on volunteers to help offset declining revenues. In a study by the Listening Post Project, affiliated with the Johns Hopkins Center for Civil Society Studies, about 4 in 10 of the responding nonprofits said they had increased their use of volunteers, and almost half said they planned to use more volunteers over the next year.

http://www.nytimes.com/2009/08/27/us/27volunteer.html?_r=1&hp

Giving by the Wealthy Drops Sharply in 2009 Chronicle of Philanthropy August 25, 2009

The recession appears to be cutting significantly into giving at the peak of the fund-raising pyramid.

Only two individuals have announced gifts of $100-million or more in 2009, according to The Chronicle of Philanthropy’s database of America’s top donors.

(Snip)

By comparison, The Chronicle documented 21 gifts of $100-million or more in 2008. And 10 of those gifts exceeded $200-million.

http://philanthropy.com/news/prospecting/9278/giving-by-the-wealth-drops-sharply-in-2009

NEWS ARTICLES
2008: Giving Dropped $6.4 Billion; Largest Decline On Record (June 9, 2009)

http://www.nptimes.com/09Jun/bnews-givingusa-090610.html

Texas Association of Nonprofit Organizations (June 9, 2009)

Charitable Donations Fell by Nearly 6% in 2008, the Sharpest Drop in 53 Years

http://www.tano.org/en/art/457/

From the Chronicle of Philanthropy June 10, 2009

Donations to nearly every type of charity faltered in 2008, as contributions declined by 5.7 percent last year after adjustment for inflation, according to the new edition of Giving USA, The Chronicle of Philanthropy reports. It was the steepest decline in the history of the survey, which has been conducted since 1956

http://philanthropy.com/news/?id=8520&pth&utm_source=pt&utm_medium=newsletter&utm_content=lefttop

2008 U.S. Charitable Giving Estimated to be $307.65 Billion (2 percent drop in current dollars over 2007) Posted by: philcrosby on Wednesday, June 10, 2009

http://www.pnnonline.org/article.php?sid=8866

Charitable Donations Fell in 2008, Report Finds - Washington Post (June 10, 2009)

Individual donations dropped by about 2.7 percent from 2007 to last year, corporate giving fell by about 4.5 percent and foundation contributions grew by about 3 percent, according to the report.

http://www.washingtonpost.com/wp-dyn/content/article/2009/06/09/AR2009060903233.html?hpid=moreheadlines

Plan for Dozens of Salvation Army Centers Falters By STEPHANIE STROM Published: by the NY Times June 14, 2009

At her death in 2003, Joan B. Kroc, the widow of the founder of the McDonald’s Corporation, left a grand idea and $1.8 billion to make it happen. She wanted the Salvation Army to build some 30 lavish community centers around the nation, like the $87 million complex she paid for in San Diego, with three swimming pools, an indoor ice skating arena and a 600-seat theater.

But more than five years later, her plan is sputtering.

The gift has always rested uncomfortably with some Salvation Army officials, who have a hard time reconciling the elaborate centers with the Army’s image as a frugal church that serves the needy.

Now, the plan is also proving difficult to finance. The Kroc fortune has been battered by the economic downturn, and raising additional money to make sure the centers can sustain themselves in the future has been challenging.

http://www.nytimes.com/2009/06/15/us/15salvation.html?_r=1&emc=eta1

Guggenheim Will Cut 8 Percent of Its Positions By CAROL VOGEL Published NY Times - June 16, 2009

The foundation that runs the Solomon R. Guggenheim Museum said on Tuesday that despite record attendance, it will cut 25 positions, or 8 percent of the institution’s full-time staff.
http://www.nytimes.com/2009/06/17/arts/design/17guggenheim.html?_r=2&ref=arts

Princeton University to offer early retirement Wednesday, June 17, 2009 BY KRYSTAL KNAPP SPECIAL TO THE Times of Trenton Regional News

The early retirement incentive program is the university's latest move in response to an expected one-year endowment decline of nearly 30 percent, or $5 billion, by June 30. The university draws more than 45 percent of its operating revenue from the endowment. Due to the decline of the endowment, school officials are looking to cut $170 million from the budget during the next two fiscal years.

http://www.j.com/news/times/regional/index.ssf?/base/news-17/1245211525322950.xml&coll=5

Big Grant Makers Cut Staff Members from Chronicle of Philanthropy June 22, 2009
Facing huge losses in their endowments since the onset of the global financial crisis, some of America’s largest foundations are cutting jobs, reports The New York Times.

Last week, the Robert Wood Johnson Foundation, in Princeton, N.J., offered buyouts to 42 percent of its 250 employees. Last month, the Ford Foundation, in New York, offered a similar deal to 140 of its 550 staff members. In December, The California Endowment, in Los Angeles, cut 44 jobs. This year, the W.K. Kellogg Foundation, in Battle Creek, Mich., has closed offices in Brazil, Mississippi, and South Africa, resulting in more than a dozen jobs lost.

The job cuts are coming after grant makers have already cut costs using other methods, says Bradford K. Smith, president of the Foundation Center, a research group in New York.

“I think we’re just at the beginning of this process,” he said, though he added that only a fraction of the nation’s private grant makers — about 4,000 out of more than 90,000 foundations — employed workers other than the founder or family members.

http://philanthropy.com/news/?id=8631&pth&utm_source=pt&utm_medium=newsletter&utm_content=lefttop

Metropolitan Museum Completes Cuts, Buyouts, Losing 357 Staff By Philip Boroff June 23, 2009 Bloomberg.com

New York’s Metropolitan Museum of Art completed job cuts announced in March and reduced staff by 14 percent, or 357 positions, according to a press release.

The Met had said it would cut about 10 percent of its staff. Spokesman Harold Holzer said in an interview that about 40 percent of those offered early retirement packages accepted them, higher than it expected, and the museum was able to close down 15 of its 16 satellite shops, also more than expected.

“We weren’t certain we could close all those shops because of rental agreements,” Holzer said.

The museum said it fired 53 people at the shops around the country and another 74 at its merchandising operation. It has just one shop remaining in addition to its Fifth Avenue museum, at Rockefeller Center.

A total of 95 employees ages 55 or over with at least 15 years at the museum took a buyout, according to the press release. In the past two weeks, it dismissed 74 union and non- union employees, the museum said. Other positions were eliminated through attrition.

http://www.bloomberg.com/apps/news?pid=20601088&sid=aLxXS2MdbOkU

Ford Ahead: The Foundation Tightens Its Belt By MARK HEMINGWAY JUNE 26, 2009 Wall Street Journal

The Ford Foundation recently announced that it would be offering buyouts to one-third of its 550 employees. On the surface, the reason seems obvious: too little money. Right now, the foundation has $9 billion in assets. That may sound like a lot of money, but it is $4 billion less than last year, thanks to the country's financial crisis. And if Ford were a business, belt-tightening would be the expected response. But in the world of philanthropy, Ford's drastic action has come as a surprise.

Now all eyes are on Luis Ubinas, who since becoming president of the foundation last year has been trying to streamline its operations. In some sense, Ford is late to this philanthropic trend. Since the $27 billion Gates Foundation arrived on the scene, its founder has helped spread responsible business practices to philanthropy. And conservative foundations such as The Lynde and Harry Bradley Foundation and the John M. Olin Foundation have shown that they can sometimes outflank bigger, more established liberal foundations by being leaner and more focused. Ford's spending, by contrast, has reached almost governmental proportions. As of last year, it had offices in 13 countries and gave away $539 million to 1,997 organizations. Indeed, for decades Ford executives operated as if immune to the forces of capitalism.

But its extravagance has led to problems far beyond those now being felt by its staff. Ford's financial autonomy fostered a confused philanthropic mission that has the foundation slouching toward irrelevance. Mr. Ubinas, a former McKinsey consultant, may be well-qualified to deal with Ford's fiscal problems. What's not clear is whether he has a well-defined strategy for clarifying its mission and ending its scattershot approach to grant-making

http://online.wsj.com/article/SB124598045813858017.html#mod=todays_us_weekend_journal

Banks Turn Away From ‘Planned Giving’ Wall Street Journal (July 28, 2009) By SHELLY BANJO

While planned giving programs steadily gain popularity with charities and their donors, they’re becoming less popular with the banks that service them.

Some key banks are retreating from this area of financial management, refusing to take on charities with less than $1 million or $5 million in assets. Some are dropping clients who don’t make the cut.

That’s putting a squeeze on smaller organizations, many of which depend on planned-giving vehicles to bring in donations and rely on banks to manage the often-complex programs.
More than 50 charities are scrambling to find a new bank after BNY Mellon Wealth Management—one of the biggest players in the planned giving investment arena—in May gave clients until Sept. 1 to find a new manager.

Comprising charitable gift annuities and trusts, planned gifts have become a mainstay for many nonprofits, particularly in a recession, when donors are squeezed for cash and shy away from outright gifts. Finding a new service provider typically takes up to a year.

http://online.wsj.com/article/SB20001424052970204563304574314882717782344.html#mod=todays_us_personal_journal
Metro Atlanta non-profits saw need rise, donations fall in 1Q By Christopher Quinn The Atlanta Journal-Constitution (July 30, 2009)

Metro Atlanta nonprofits reported rising need and sinking donations through the first three months of 2009.

Those trends track what is happening nationally as the economy torpedoes giving, while the same economy is pushing more people to reach out to nonprofits for help.

“I have been at it 25 years, and I have never seen anything like it,” said Jim Seiler, the Atlanta area commander for the Salvation Army.

His organization built a new 80-bed shelter for homeless families in downtown Atlanta, but now that the shelter is complete, the Salvation Army does not have the money to staff and operate it.
The Georgia Center for Nonprofits released new figures from its quarterly survey Thursday to a group of local organizational leaders. It began tracking quarterly trends at nonprofits at the end of 2008. The strains that showed up then have exacerbated.

Twenty-five percent of the about 200 nonprofits surveyed said donations have decreased, compared to 19 percent during the last quarter of 2008.

At the same time, 61 percent of those surveyed in early 2009 said demand for services has increased.

Nonprofits in 2009 are dipping more often into reserve funds (nearly 40 percent compared to 32 percent) delaying programs (42 percent compared to 37 percent) and cutting staff (31 percent compared to 27 percent).

There are a few bright spots, said Karen Beavor, the CEO of the Georgia Center for Nonprofits. The survey shows nine percent of nonprofits said their foundation grants went up in early 2009. Nonprofits are getting more creative and collaborative to fill the gaps.

But it is tough for everyone, and she predicted a tougher second quarter and third quarter before the holiday lift that charities get during November and December.

http://www.ajc.com/news/metro-atlanta-104753.html

With Donations and Grants Down, Social Service Agencies Feel the Pinch by DIANE CARDWELL Published: August 21, 2009

At a social service agency on Staten Island where budget cuts forced the layoff of a driver, the staff scrambles to arrange transportation to Brooklyn for an elderly homeless woman whose family has agreed to take her in.

http://www.nytimes.com/2009/08/22/nyregion/22nonprofit.html?_r=1&scp=1&sq=donations&st=

Fundraisers’ outlook remains gloomy - August 10, 2009 Philanthropy Journal

Fundraisers for U.S. nonprofits paint a dark funding picture for their organizations, and the next six months are expected to bring only slight clearing, a new study says.

The current environment for fundraising worsened over the past six months, with the Present Situation Index falling to 28.9 percent over the past year to 58.0 on a 100-point scale, the lowest since the Index's inception in 1998, says a report from the Center on Philanthropy at Indiana University.

The Philanthropic Giving Index, which is comprised of the Present Situation Index and the Expectations Index, measures fundraisers' optimism about the current and future climate for fundraising.

The Expectations Index, which measures expectations for the coming six months, is up 10.2 percent over the past six months to 78.2.

However, over the past 12 months, the Expectations Index has dropped 13.2 percent.
Almost nine in 10 fundraisers say the economy is having a negative or very negative effect on their development operations currently, while six in 10 say they expect that to continue over the next six months.

(Snip)

While major gifts are down 23.1 percent and foundation grants are off 39.2 percent, two in three fundraisers say they are still having success with direct mail.

http://www.philanthropyjournal.org/news/fundraisers’-outlook-remains-gloomy

STUDIES
U.S. charitable giving estimated to be $307.65 billion in 2008 Giving in worst economic climate since Great Depression exceeds $300 billion for second year in a row by Giving USA FoundationTM

Glenview, Ill. (June 10, 2009)—Charitable giving in the United States exceeded $300 billion for the second year in a row in 2008, according to Giving USA 2009. Donations to charitable causes in the United States reached an estimated $307.65 billion in 2008, a 2 percent drop in current dollars over 2007.

The 2008 number is the first decline in giving in current dollars since 1987 and the second since Giving USA began publishing annual reports in 1956, says the annual report on philanthropy, released today for the 54th year by Giving USA FoundationTM. ( http://www.givingusa.org/ ) Revised estimated giving for 2007 was a record $314.07 billion.

Two-thirds of public charities receiving donations saw decreases in 2008. The exceptions were Religion, Public-Society Benefit and International Affairs. The other types of charities (or subsectors) examined in Giving USA are: Arts/Culture/Humanities; Education; Environment/Animals; Health; Human Services; and Foundations, says the report, which is researched and written for Giving USA Foundation by the Center on Philanthropy at Indiana University.

http://www.givingusa.org/press_releases/gusa/GivingReaches300billion.pdf

New Report Finds DC Area's Nonprofits Lack Funds to Weather Economic Crisis Wednesday, June 24, 2009
Washington, DC – Most nonprofits don't have the financial reserves needed to weather the current economic crisis, according to a new report released by the Urban Institute and funded by the Eugene and Agnes E. Meyer Foundation in Washington, DC. The study, the first of its kind, examined the operating reserves of more than 2,500 nonprofits in the Greater Washington area, ranging in mission from soup kitchens and job training centers to schools and local arts groups.

Operating reserves—cash and other liquid assets without donor restrictions that can be tapped when income falls short of expenses—are an important indicator of an organization's financial health and its ability to survive challenging times. The study reviewed financial data for Greater Washington's locally-focused nonprofits over a six-year period from 2000 to 2006.

Among the report's key findings:

• In 2006, a time of relative economic stability, nonprofits in the Greater Washington area had a median operating reserve of 2.1 months of expenses. Most nonprofit financial management experts recommend a minimum of three.
• 57% had operating reserves of less than three months of operating expenses; 28% of those had no reserves at all.
• The percentage of organizations with less than three months in operating reserves increases with size, making large organizations (those with annual budgets of $5 million or more) especially vulnerable to the economic downturn.
• Arts, culture, and humanities organizations had the highest percentage of groups with less than the minimum reserve (62%); environment and animal organizations had the lowest with 46% falling below recommended levels.
• Nearly one in six nonprofit organizations that filed tax returns in 2000 appeared to have gone out of business or had shrunk below the IRS reporting threshold ($25,000 in revenue) by 2006; these groups had lower operating reserves and were more dependent on private contributions than the organizations that survived.

http://www.meyerfoundation.org/newsroom/press_releases/504

2009 Data Sheds Insights into Giving USA Study
Horsham, PA, June 24, 2009 — A recently released study from the Giving USA Foundation reported that charitable giving from 2007 to 2008 dropped 2% (measured in current dollars; giving declined 5.7 percent in inflation-adjusted dollars). A further analysis released today by DonorPerfect fundraising software examined giving results from a sample of their clients between 2008 vs. 2007. This analysis also looked at client results from the first quarter 2009 vs. 2008. It revealed 2008 charitable giving was greatly affected by a steep decline in donations seen in November and December 2008. It further revealed that if first quarter trends continue, 2009 could be worse than 2008.
Jon Biedermann, Vice President at SofterWare and developer of DonorPerfect, noted “Giving USA’s annual estimates are based on econometric studies from an array of sources and data, whereas our analysis is based on aggregated actual donations recorded by a wide variety of clients. This method allows us to analyze the data monthly, which provides additional insights into fluctuations. Although our donation results are higher than Giving USA, they’re consistent with a multi-year analysis that shows DonorPerfect clients improve their fundraising results above the national average of all nonprofits. Besides these differences, it still tracks well as a snapshot of giving results and provides insight into 2009 trends."
Trends for 2009
An analysis for the first quarter 2009 shows an 8.4% decline vs. the 2008 first quarter. This shows improvement from the steep drop in November and December 2008. However, Mr. Biedermann further noted that “… unless this improving trend continues, there is a good chance that overall giving in the USA in 2009 may be down more than the 2% reported by Giving USA in 2008, perhaps even as low as -10%! The obvious fear from these indicators is that cash-strapped nonprofits will need to reduce services at the very time when they will be needed most.”
http://www.donorperfect.com//press-release/donation-report-2009.asp
Revenue, Donors Continue Free Fall By Mark Hrywna June 25, 2009 NonProfit Times
It’s no surprise that revenue continues to fall but the number of new donors also continues its drop, declining almost 13 percent in the first quarter of 2009, as compared to 2008.
Key metrics in the Target Analytics Index of National Fundraising Performance declined as a whole for the first quarter of 2009 as compared to the same time last year. The index -- released today (6/25) by Target Analytics, a Blackbaud company -- analyzes direct marketing giving for 79 national organizations.

Most organizations suffered declines in key measures for 2008 as a result of the struggling economy, but the new trends are now more widespread across the index.

Index donor declines are due primarily to declines in new donor numbers, which have fallen faster than overall donor numbers since the 2005 hurricanes, and have fallen three times faster since the recession began in 2007 than they had in either of the previous two years.

http://www.nptimes.com/instantfund/09Jun/IF-090625-1.html

Fundraising Dips In First Quarter Of 2009 Sunday, June 28, 2009 at 07:44PM by Allyson Kapin

The struggling economy hit nonprofits hard in the first quarter of 2009. According to the latest Target Analytics Index of National Fundraising Performance, the number of new donors dropped by almost 13%, as compared to 2008. The study analyzed 79 nonprofit organizations and their fundraising campaigns via direct mail, online fundraising, telemarketing and canvassing.

The study also showed that for the first time since Target Analytics released its initial study in 2002, overall revenue per donor declined by 2.1%. Prior to this study, the Index of the National Fundraising Performance had only been showing a gradual decline in donor numbers since the U.S. Gulf Coast hurricanes of 2005. However, things rapidly changed from Q4 in 2008 to Q1 in 2009. The decline in donors accelerated even faster due to the recession and a 13% decrease in new donors.

http://www.frogloop.com/dips

Nonprofits Employ Tougher Measures as Downturn Deepens: Bridgespan Survey Shows 41 Percent Turning to Layoffs, 33 Percent Reserve Draw-Downs, but Also Hope June 29, 2009, 12:01 a.m. EST

BOSTON, Jun 29, 2009 (BUSINESS WIRE) -- The negative effects of the economy on nonprofit organizations has accelerated over the last six months, according to responses from nearly 100 nonprofit leaders participating in a Bridgespan study initiated in November 2008 and updated in May 2009. The percentage of nonprofits that have resorted to layoffs, broad-based programmatic reductions, and reserve draw-downs has increased measurably. Nevertheless nonprofit leaders appear to be optimistic about the future. Almost half of the respondents reported that they believed their organization would be on stronger financial footing in a year's time.

Since that initial survey, the country has a new President, and a new budget and stimulus package. Nonetheless, as the economic crisis has deepened, the situation for nonprofits has continued to deteriorate. According to Bridgespan partner William Foster, "This survey highlights just how tough times really are. Ninety-two percent of nonprofits responding to the May 2009 survey indicated they were experiencing the effects of the downturn, up from 75 percent in November. Forty-nine percent reported that their financial situation had worsened, and the percentage of nonprofits reporting funding cuts has increased from 52 percent to 69 percent. Further, the percentage reporting cuts of more than 20 percent has increased from 13 percent to 24 percent."

http://www.marketwatch.com/story/nonprofits-employ-tougher-measures-as-downturn-deepens-bridgespan-survey-shows-41-percent-turning-to-layoffs-33-percent-reserve-draw-downs-but-also-hope

Managing in Tough Times: May 2009 Nonprofit Leaders Survey Update Published Date: 2009-06-29 Author(s): William Foster Gail Perreault Sarah Sable

Responses of nearly 100 nonprofit leaders participating in a Bridgespan longitudinal study show nonprofits are turning to much tougher measures than foreseen six months ago to cope with the economic downturn. The percentage of nonprofits that have resorted to layoffs has increased, as has the percentage that has made broad-based programmatic reductions. More organizations have drawn down their reserves. Nonprofit leaders appear to be optimistic about the future, though: Almost half of the respondents reported that they believe their organization will be on stronger financial footing in a year’s time. And two thirds have employed contingency planning, a key step for weathering the storm, as outlined in our original November 2008 report “Managing in Tough Times: 7 Steps.”

These current findings follow from results of that November study, in which the Bridgespan Group surveyed nonprofit leaders across the U.S. to find out how the economic downturn was affecting their organizations. We reached out to approximately 800 nonprofit chief executive officers, presidents, and executive directors; more than 100 responded. At the time, many nonprofit organizations were struggling to meet increased demand for their services in the face of deep budget cuts. However, more than a third of the nonprofits that had already experienced funding cuts were not reducing costs to manage through the downturn. Instead, they were trying to compensate by increasing fundraising capacity.

Much has changed in the U.S. since that initial research: There is a new President, a new budget, and a stimulus package of unprecedented magnitude. At the same time, the country continues to face a prolonged downturn and profound state budget crises. We completed our follow-up survey in May 2009 to gauge the effects of these developments on nonprofit organizations. We sent this survey to the same group of leaders who received the previous survey, asking all of the same questions, along with some new ones. The May 2009 survey findings, along with Bridgespan commentary, are presented in detail in this report. The findings indicate that nonprofits are taking many of the seven steps outlined in our original report as they strive to deliver in the short term while planning for the future.

(snip)

This survey highlights just how tough times really are, and the severity with which the economic crisis is affecting nonprofits. But there are purposeful steps that organizations can take to weather economic adversity while continuing to meet the needs of their communities. And tough times can be the catalyst for improving internal operations and making it easier for people to work smarter—not just longer and harder. Bridgespan has collected insights and advice from our clients, from other nonprofit leaders and experts, and from our own leadership in our Managing in Tough Times Resource Center. We hope it will help you manage through these tough times.

http://www.linkedin.com/news?viewArticle=&articleID=47137970&gid=81092&articleURL=http%3A%2F%2Fwww%2Ebridgespan%2Eorg%2FLearningCenter%2FResourceDetail%2Easpx%3Fid%3D4296&urlhash=--G_&trk=news_discuss

Recession Hits Nonprofits Hard By Jim Hickey July 3, 2009 Vineyard Gazette Online

The recession has hit Island nonprofits hard, a recent survey by the Martha’s Vineyard Donors Collaborative has found.

Released this week and based on a survey done in May of a wide range of Vineyard charities, the six-page report by the collaborative found that 56 per cent of Vineyard nonprofits had experienced a decrease in contributions over the winter, and 20 per cent saw a dramatic decrease.

“The Vineyard has struggled like the rest of the nation as the recession takes its toll,” the report says.

The donors collaborative is an advocacy group devoted to strengthening the nonprofit community on the Vineyard.

The survey released this week warns things will likely get worse before they get better.

http://www.mvgazette.com/article.php?21806

Donor Numbers and Revenue per Donor Shrink in First Quarter ’09, July 7, 2009, Association of Fundraising Professionals

Not only is the United States seeing a drop in donor numbers since their peak in 2005, the economy has left those donors giving less.

According to the Index of National Fundraising Performance published by Target Analytics, first quarter 2009 saw the first overall decline in revenue per donor since the study began in 2002. Revenue per donor declines were experienced by two-thirds of the organizations in the index.

As each donor gives less, the problem is compounded by falling donor numbers in the U.S. that have taken place for more than three years (since the Gulf Coast hurricanes of 2005). The study indicates that in the last quarter of 2008 and the first quarter of 2009, this gradual fall in donor numbers has increased in magnitude, suggesting that the recession is accelerating the rate of decrease in donor numbers.

"These numbers continue to underscore the extraordinary situation and challenges the charitable sector faces now," said Paulette V. Maehara, CFRE, CAE, president and CEO of AFP. "However, it's important to remember that overall, the economy currently seems to be steadying itself, albeit very slowly. While we still have a long ways to go, we are hopeful that this report represents the absolute worst of the recession's impact."

http://www.afpnet.org/ka/ka-3.cfm?content_item_id=24956&folder_id=2545

Bridgespan Study Examines Rural Funding Challenges - Study examines rural funding challenges: IDs themes for strengthening the nonprofit Sector’s capacity to tackle social issues. 20 Jul 2009 Authors: Barry Newstead & Pat Wu

The issue of nonprofit funding is topical given the economic climate, but for rural nonprofits it is a chronic reality of life. In a recent study on the rural funding gap, the Bridgespan Group found that rural nonprofits lag behind their urban counterparts in terms of their share of federal government, private foundation, and corporate donations and as such they are less well positioned to help disadvantaged residents in their communities. Funded by a grant from the Atlantic Philanthropies, the study looked at the funding structure of rural nonprofits in two sample states – California and New Mexico to understand the gap. The report identified lessons learned from successful rural youth serving organizations including National Indian Youth Leadership Program (NIYLP) in New Mexico, Boys and Girls Club of Fresno, and the Human Response Network in Northern California’s Trinity County.

(Snip)

“The rural funding gap is real and presents challenges for both rural nonprofits and private foundations that care about tackling poverty. There are no silver bullets but the themes are a good reminder for leaders of the hard work required to expand the resources available for youth and families in need in rural communities,” said Bridgespan’s Newstead.

http://atlanticphilanthropies.org/news/news/bridgespan_study_examines_rural_funding_challenges
Nonprofit medical systems see their financial health worsening -The health care sector also added fewer jobs and had more mass layoffs in 2008 than during the previous year. By Victoria Stagg Elliott, AMNews staff. Posted July 27, 2009.

The recession is continuing to pound hospital and health care finances, according to a pair of reports issued in July.

"This is not a good year for health care, just as it's not a good year for the economy," said Jon Burroughs, MD, a senior consultant with the Greeley Co. in Marblehead, Mass.

http://www.ama-assn.org/amednews/2009/07/27/bisb0727.htm

Charitable Giving Climate Continues to Decline, Nonprofits Say - 86 Percent Report Economy is Having Negative Effect on Fundraising, Center on Philanthropy at Indiana University Study Finds Released: August 3, 2009

The fundraising climate for U.S. charities continued to decline in the first half of 2009, according to the latest Philanthropic Giving Index (PGI) released today by the Center on Philanthropy at Indiana University.

The PGI, similar to a Consumer Confidence Index for charitable giving, includes three indexes on a scale from 0 to 100, based on a semiannual national survey of nonprofit fundraising professionals. Higher scores indicate more positive or optimistic attitudes about the climate for fundraising.

The fundraisers’ assessment of the current giving environment fell to its lowest level since the Center began the study in 1998. In the latest survey, the Present Situation Index (PSI) is at 58.0, an 8.7 percent decrease from six months ago and a 28.9 percent decrease from one year ago. The PSI has averaged 82.1 over the history of the study.

Fundraisers’ expectations for the coming six months are slightly more optimistic, but remain below the historical average for the study. The Expectations Index (EI) is at 72.8, a 10.2 percent increase from six months ago and a 13.2 percent decrease from a year ago. The overall PGI, which is an average of the current and future indexes, is at 65.4, up 0.9 percent from December 2008 and down 21 percent from this time last year.

http://www.philanthropy.iupui.edu/News/2009/08/pr-CharitableGivingClimateContinuesDecline.aspx

Impact of the 2007-09 Economic Recession on Nonprofit Organizations by Lester M. Salamon, Stephanie L. Geller, and Kasey L. Spence, Listening Post Project of Johns Hopkins University (2009)

The current recession has already resulted in serious economic costs for our nation. Although the media has focused on the downturn’s severe effects on businesses, there has been little attention on how it has impacted our country’s critical nonprofit sector. Are nonprofits facing a decline in revenues? Have nonprofits been forced to reduce their programs and services? How are nonprofits responding to these pressures and what consequences, if any, have they had to endure?

To help fill this major gap in knowledge, the Johns Hopkins Nonprofit Listening Post Project surveyed its nationwide sample of nonprofit organizations in five key fields (children and family services, elderly housing and services, education, community and economic development, and the arts) in April of 2009. Key findings from the 363 organizations responding to this Sounding include the following:

1) Significant economic stress

• 83 percent of responding organizations reported some level of fiscal stress during the target period of September 2008 to March 2009.
• Close to 40 percent of the organizations considered the stress to be “severe” or “very severe”.
• Theaters and orchestras were particularly hard hit, with 73 percent of the former and half of the latter reporting “severe” or “very severe” stress.
• But a third or more of child-serving and elderly-serving organizations also reported “severe” or “very severe” fiscal stress.
• Contributing to this stress was a perfect storm of impacts:
• Declining revenues (51 percent of organizations);
• Increased costs, particularly for health benefits, underlining the importance of health benefit reform for the nation’s nonprofit human service and arts organizations;
• Declining endowments hitting 80 percent of organizations with endowments;
• Decreased cash flow as a result of restricted credit and government payment delays.
• Substantial majorities of the respondents expect continuing revenue declines over the coming months, particularly from private giving and government support.

2) Impressive resilience

In the face of this fiscal stress, nonprofit organizations are displaying enormous resilience:

• The share of organizations reporting “severe” or “very severe” fiscal stress is actually lower now than during the recession that followed 9/11 (37% vs. 51% of organizations).
• Except for the arts organizations, sizable majorities of organizations at present are reporting that their fiscal stress is “minimal” or “moderate”.
• This is consistent with experience in prior recessions, during which nonprofits boosted employment while for-profit employment has declined. This suggests that nonprofits are a counter-cyclical force in the economy.
• Reflecting this, more than two-thirds of the respondents indicated that they have been “successful” or “very successful” in coping with the current fiscal crisis.
• As a consequence, nearly three-fourths of the organizations reported being able to maintain or actually increase the number of people they serve, and this was especially true of service to vulnerable populations.

3) A range of coping strategies
To achieve this result in the face of such serious economic conditions, nonprofits have displayed unusual resolve and launched a host of inventive coping strategies:

• Well over half of all organizations have launched new or expanded fund-raising efforts, targeting individuals, state and local government, the federal government, and foundations.
• Substantial proportions of organizations are also tightening their belts further, cutting administrative costs, creating collaborative relationships with other nonprofits, instituting salary freezes, postponing new hires, and relying more heavily on volunteers.
• Finally, substantial numbers of organizations are stepping up their marketing and their advocacy.

http://www.ccss.jhu.edu/pdfs/LP_Communiques/LP_Communique_14.pdf

Survey shows Utah nonprofits struggling - Donations decline while demand for services rises Aug 18, 2009
SALT LAKE CITY - A survey of 127 Utah nonprofit organizations shows the economic downturn has forced agencies to cut staff and services or revamp programs in order to survive.

The June survey, which was released Friday, was the second conducted by Community Foundation of Utah this year. In both instances, charities said their donations had declined while the demand for services increased. Rural agencies struggled the most.

Agencies say that to weather the times, they have increased collaborations with other entities and created new efficiencies and programming to meet demands. At least four agencies said they merged with others to save money .

http://www.msnbc.msn.com/id/32463413/ns/us_news-giving/

A Current Overview of Philanthropy and the Economy – Contributed by: CCS Fund Raising, New York

http://www.givinginstitute.org/resourcelibrary/pdfs/US_Phil_and_Economy_for_Web.pdf

(NEW and current) The Chronicle of Philanthropy is Studying Staffing Trends at Charities: Help Us Draw a Reliable Picture of What's Happening Now
Nonprofit organizations nationwide have been laying off staff members and taking other steps as the economy continues to take a toll on the budgets of charities of all kinds. But how can organizations make sure they are taking the smartest steps now — and avoiding approaches that could cause their most-talented workers to leave as the recession ends and the job market expands?

Those are among the questions The Chronicle is exploring in a new survey of nonprofit organizations we urge you to fill out. Organizations that participate in the survey will get a free copy of the results, which will also be discussed at a Chronicle Webinar in October.

http://philanthropy.com/news/?id=9269&pth&utm_source=pt&utm_medium=newsletter&utm_content=lefttop

My Conclusions:

• Based on the studies linked above, it seems no one really knows what the dollar effect is on the nonprofit sector from this recession.
• It seems no one knows the impact of the recession and loss of nonprofits on a client population.
• Most nonprofits worth their salt had income and expenditures in proposed budgets for 2009. In many the income and expenses were probably about a 4%-5% increase. That too is a loss. Increases in utilities, fringe benefits, salary increases and many other budget items were also lost, the invisible lose to nonprofit groups
• While there appears no universal successful plan for fundraising and proposal writing, some local groups have been able to maintain donors even if not at the same level of giving in the past – but for most, no such plan was in place.
• Nonprofit leaders are not alone with the plight facing them. This could be the best of times for coalescing and creating a new regional and national force of small and mid-size nonprofits for advocacy, political clout and a voice in social policy.
• We have no idea whether the economy will begin to straighten out in 2010. We can make an educated guess It will take awhile for philanthropy to rise. In the meantime there will be fewer nonprofits actually in business. Merger does not seem to be the method of choice for survival and the delivery of services to clients.
• Experienced leadership at the top and in middle management will leave from the stress, the lack of hope for economic change, the inability to have the board get serious about the issues and frustration/guilt about not doing the mission. Board members will begin to disappear because they have no idea what can and should be done – this is not what they signed up for.
• This is not a great time to start a new nonprofit tax exempt organization unless you have strong local support
• This is not a great time to think about a career change to do fundraising and grant writing.
• It can get worse and probably will.
• And many nonprofits will survive and live to continue to perform their missions and they may be different than they were in 2008.

What do you think?