How’s A Poor Charity To Know?
Isn’t it ironic?
The last 2-3 years have seen a surge in heavy reflection on the part of donors on the matter of evaluating the credibility and performance of would-be nonprofit recipients of their largesse. Are the donations really getting through to the ultimate beneficiaries who need them? Which charities are spending "too much" on overhead? Of the competing charities working in the same field, whose performance is best? Etc.
Oh! … the strain of being a responsible donor! Probably a similar stress to movie stars abhoring publicity.
But now it turns out that it’s the donors who should be under the microscope, lest they be outright criminals like Bernard Madoff! Now we have worthy charities screwed by greedy SOBs like Madoff. How is your typical charity supposed to protect itself from the likes of him?
And as Stephanie Strom reports in the NY Times, the impact of a slimeball like Madoff isn’t limited to his own personal charities. Indeed the far greater impact is on all the other perfectly respectable wealthy donors who, defrauded by Madoff, now find that they have significantly less money to give away … leaving their charities in the lurch.
Who’s supposed to be protecting the charities from the unscrupulous donors?!
Today the press reports that the SEC chief admits that his watchdog agency never investigated Madoff’s activities despite years of complaints. But let one nonprofit emit an errant fart and grandstanding Members of Congress and the IRS would be all over it (the nonprofit, that is) like ticks on a hound.
So far we’ve seen very little by way of punishment meted out to the financial thugs who have eviscerated the global financial world, triggering in turn economy-wide hardship. Where are public stocks in the town square when we need them?!
Tom
7 responses to “How’s A Poor Charity To Know?”
Behavioral Science Q & A
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I’m not an expert in this but a quick search surfaced this article on the effect of tax reforms on 2019’s charitable giving. The researchers didn’t find a reduction. Actually, they observed an “increase in charitable contributions in 2019, even with the lower tax rates and the dramatically smaller number of taxpayers who itemize their […]
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One charity has already announced they are closing their doors due to Madoff’s shenanigans. The Fair Food Partnership in Ann Arbor apparently had the bulk of their very large working capital fund invested with Madoff. My recollection one large donor was the source of a lot of their funds. Got an email from them today announcing they were closing their doors.
The best defense against fraud and crime is personal responsibility. NOTE: this is no intended to excuse Mr. Madoff or anyone else who commits a crime.
However, there are limits to the sympathy one should have for individuals and organizations that fail to exercise due diligence when hiring a financial advisor, and who fail to adhere to reasonable investment strategies and investment policies.
Let’s also examine those investors who chose Mr. Madoff’s services for “other people’s money” (i.e., charitable and trust ivnestments) but not for their own investment assets. Where is the “duty of care” inherent in a trustee relationship?
I have written much in the past on the term “charity fraud” being like that of “train robbery.” Just as train robbery rarely, if ever, invovles the actual theft of a train , so, too, charity fraud usually involves misrepresentation by principals as being a charitable entty, or people associated with a charity stealing from the charity.
A quick google search came up with the following nonprofits effected by the scheme.
Closing:
The Chais Family Foundation
Robert I. Lappin Charitable Foundation
JEHT Foundation
Arthur I. and Sydelle F. Meyer Charitable Foundation
Heavily effected and/or in danger of closing:
Mort Zuckerman’s charitable trust
Wunderkinder Foundation
The Elie Wiesel Foundation for Humanity
Sen. Frank Lautenberg’s Family Charitable Foundation
Philoctetes Center for the Multidisciplinary Study of the Imagination
Yeshiva University
The Gift of Life Foundation
The MorseLife Foundation
In November, 1994, I started work as media director for an international ministry. My first day on the job, the president of the organization came into the board room during the Monday morning staff meeting and said, “John Bennett is on the phone from New Era and said if he can keep our $500,000 for another six months he’ll double it!”
The room buzzed with excitement as everyone considered what $1 million dollars would do for the projects in various parts of the world. Being new, I leaned over to the individual next to me — the director of administration — and quietly said, “Gee, I know I’m new here, but where I come from in San Diego we would look at that as a Ponzi scheme. Am I missing something here?”
The man sighed and muttered back, “No, you’re not missing a thing. You and I are the only ones in the room who think we’re going to get bit in the butt on this.”
Long (and very interesting) story short: We did get bit in the butt. And when the story broke the following May on the front page of the Wall Street Journal, I took the paper into the administrator’s office and laid it on his desk with a soft warning: “We’re on Page 8. I want all media inquiries running through my office. No one talks to the president or the CEO. And no one comments to the media except me. Period. Oh, and I probably should have bet you dinner and drinks on this happening.”
John Bennett is out of prison now. According to Arlin M. Adams, a Philadelphia attorney appointed by a judge to look for the lost money in the New Era scheme, about 95 percent of the $354 million Bennett collected from churches, colleges and cultural institutions was eventually recovered.
I thought people would have learned from that. But apparently not. I guess organizations and individuals will bypass due diligence (and there was plenty of it available with New Era) when the payout is big enough. And the talk is smooth.
Gregory C. Wallace
While it is apparent that Bernard Madoff conducted egregious illegal activities that will cost many people and organizations billions of dollars, I find little sympathy for non-profits that allowed any person or entity to manage or control “the bulk of their very large working capital fund.” Where is the responsibility of the management and board of these organizations?
Setting such a large part of financial resources in a single institution is at the very least the height of irresponsibility. At worst it is unmitigated greed.
I agree that there has been extremely lax oversight in the financial arena. People like Mr. Madoff should be punished to full extent of the law for every single illegal activity conducted. However, it is our responsibility as trustees of the donor gifts to be sure we are wisely looking after those gifts.
When we decide to participate in “investments” that appear too good to be true, with returns and promises that so consistently and completely buck the trends, how are we much different in motive than the likes of Mr. Madoff?
We should not be allowed to hide behind the cloak of “doing good works” with less than sound investment strategies.
The Madof debacle reminds me of the Axelrod debacle at the New Jersey Symphony. This was another case where a closely connected and aggressively influential donor pushed a non profit nearly over the brink. The dynamics of non-profit Boards are complicated, especially where money is concerned. It is important for all Board Members to feel empowered to speak up and voice concerns especially when they involve “sophisticated” financial transactions. And all Boards need to be reminded that the best way to raise Major Gift money is the old fashioned way – with Board Members asking face-to-face and one-on-one.
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