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Nonprofit Scandals. How to Avoid a Scandal of Your Own, and What to Do If You Don’t

by: Adam Greenberg, Senior Copywriter

It’s 8 a.m. on a Monday morning. This is the time you’ve set aside to manage your social media before meetings and phone calls. You open Twitter, checking for messages and retweets, but you find more mentions than you’ve ever seen. Before you can get excited about going viral you notice the topic, “Scandal Rocks Local Nonprofit”. How can this be? You try to make sense of it as you read through post after post. Finally, you realize what they’re saying could actually be true. How could this happen to us?

The reality is people make mistakes. They say and do things they shouldn’t and sometimes they even break the law. When scandal hits any organization, the Executive Director, the Board of Trustees and their donors have already lost. Once people hear something negative about you, it can’t be unheard. Even if the story is exaggerated or the facts are unclear, it won’t matter. It’s critical to avoid impropriety at any cost. For example, anyone who manages or participates in decision making for a nonprofit, must to be keenly aware of the laws, tax regulations, torts, contract guidelines, securities, and labor laws.

Here are some areas to focus on.

Distribution of Earnings
A common thread for nonprofit scandal is financial impropriety. You might think nonprofits are disallowed from making a profit, but that’s not true. Nonprofit organizations are typically profitable at the end of their fiscal year. What is strictly prohibited however, is when a trustee, director or manager directly benefits financially from the profits earned.

Tax Exemption
Recent fraud scandals have been full of abuses related to tax incentives. Most states, and the federal government have begun to pass laws that help to prevent tax fraud, so it’s important to be keenly aware of these laws. Title 26 of the US Code contains code provisions that apply specifically to nonprofit organizations. According to the IRS, they are beginning to find problems in virtually every type of tax-exempt organization.

Employee Compensation
Compensation for employees of a nonprofit organization should always be fair and reasonable. Most importantly no one individual should be receiving any undeserved compensation. Enter the “Excess Benefit Transaction” rules. These rules prohibit nonprofits from providing excess benefit to those in a position of substantial influence over the affairs of the organization. Aside from the legal ramifications, board members should carefully consider the potential public relations nightmare, should their donor base find out that a single person is receiving undeserved compensation from their contributions to a cause they believe in.

Charitable Solicitations
Every state has their own set of charitable solicitation laws. It is critical to understand and follow these regulations. If your organization crosses state lines you will need to understand and comply with the rules of each state. This is particularly difficult when you provide online giving opportunities.

 

Program Evaluation
If your mission and purpose is to provide specific services to your community, make sure that’s exactly what you’re doing. Many charitable organizations have overstated the relief they provide to their beneficiaries, a critical miscommunication of their mission. In 2015 the Cancer Fund of America claimed donations would be used to help people with Cancer, instead over $187 million of donor money went to pay the telemarketing company that solicited the donations. Needless to say, the Federal Trade Commission, the enforcers against charity fraud, filed a complaint against them, creating one of the largest nonprofit sector scandals ever.

 

Written Guidelines
A good way to make sure your organization is following the laws and operating ethically is to draft a Charter Document. In essence the Charter Document is a constitution for your nonprofit. It should include a clear mission statement, a comprehensive list of programs or services you will provide, and an roadmap of how you will manage your organization.

Unfortunately, there may come a time when you find yourself in the middle of a scandal, even though you thought you were doing everything right. This is not the time to panic or overreact. Here are a few things you can do if this happens in your organization.

 

Get Your Facts Straight
Take some time to gather all the relevant information. Talk to all parties involved and document everything thoroughly. Never make a statement to anyone before you have gathered all the necessary data.

 

Own Up to Your Mistake
After you have determined exactly what went wrong, communicate the details clearly. Be honest, and explain how it happened. Most importantly take responsibility and apologize.

 

Assess the Damage
Sometimes the community will call for action, but sometimes they’ll be satisfied with your apology and willing to give you another chance. Either way, it’s critical for you have a clear perspective on their feelings. Don’t guess, or assume you know. Simply, ask them. Use tools like social media or your website to solicit feedback.

 

Develop A Plan for Recovery
The most important thing to do after scandal hits is to recover from it. You should have a clear plan for going forward. Include lessons learned and ways to avoid the same outcome in the future. Clearly outline policies that will prevent the same mistakes from ever happening again. Communicate your plan with your employees, volunteers and board members. Make sure everyone is involved in the process. Include ways to repair the damages to the relationship with your constituents.

 

Whatever guidelines you create in regard to ethics, remember transparency is key. You can maintain public trust by being open and honest about your practices.

 

 

 


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