Last week I made a post about “rebranding” overhead costs in other terms in order to get away from the associated stigma. Included in the post, I mentioned that a non-profit was being sued by donors for dipping into its restricted funds to invest in the organization’s exploding growth.
On the Non-Profit Quarterly website today was an interview with Cindy M. Lott about the changing non-profit regulatory and enforcement environment that suggested similar scrutiny of non-profits may only increase.
The interview with Lott discusses a lot about the history of non-profit regulation on the state and federal level. One of the things they note is that the IRS’s decision to digitize 990 filings is going to bring the opportunity for a lot more transparency for non-profit charities. Access to financial documents and other information will hopefully provide a greater capacity to detect misappropriation and embezzlement of funds.
What caused me a bit of concern wasn’t the prospect that governments might use this information to apply undue scrutiny to non-profits, but that donors and funders might.
According to Lott, state attorneys general have always had legal standing to bring a suit against a non-profit entity or board of directors. In recent years, she says, other groups have argued that they have standing to bring suit as well.
Occasionally, we see beneficiaries who say, “Wait a minute—I represent an interest that is not being brought by AGs for whatever reason.” And we see marginalized members of the board and donors who say this as well.
While this is contrary to laws regarding who has standing, the fact that there are shareholder actions and class actions in the private sector may be cited to pressure for the same rights in the non-profit sector. Lott notes that secretary of state offices which oversee non-profits in each state are heavily involved with enforcing consumer protection and might easily equate donor dollars with consumer dollars.
I am merely noting what may be a natural outcome of the current trajectory of an underresourced enforcement community intersecting with a wealth of publicly available data. We may very well find in the near future that donors and beneficiaries who have access to information about where these billions of dollars are going may, in fact, decide that they would like a say when they believe something goes off the rails.
The interview cites the action taken by a wide segment of stakeholders in the case of Sweet Briar College’s planned closing. The footnotes for the interview provide a number of other examples of stakeholder actions, including a class action by donors who discovered 100% of their donation didn’t go toward programs as they intended and a suit by two sons who want to review the cause of losses suffered by a foundation their father established.
At this point I don’t see anything to be immediately alarmed about. It will definitely be worthwhile to keep an eye out for how things develop in the areas of governmental oversight and legal standing of donors and other possible stakeholders.