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Should Trust Be Enforced?

In Non Profit on December 4, 2009 at 8:58 am

I recently saw a documentary called Mr. Schneider Goes to Washington. Filmmaker Jonathan Schneider wanted to take a close look at the money-engine of D.C. to see how it corrupts our political process. From a conservative couch, I fully expected a heavy liberal bias where all the democrats are heroes and republicans are Lex Luthors but Mr. S, although obviously left-leaning, at least made a decent attempt at casting the blame on both sides of the partisan line. Because of this, I listened and listening made me want to do some more reading which lead me to Jack Abramoff which introduced me to a legal term I had never given much thought of until now: Honest Services Fraud.

Honest Services Fraud is defined as a scheme or artifice to deprive another of the intangible right of honest services. Seems vague doesn’t it? Turns out, the nebulous nature of the definition is by design in order to give far reaching powers to prosecutors who use it with regularity as a barbed-wire-broom-of-justice. Consequently, its use is highly controversial as explained in excellent detail by Gary S. Chafetz in his article The Fraud of Honest-Services Fraud.

Chafetz lays out his criticism quite nicely but I confess, I’m happy to know this legal tool exists and regardless of its misty definition, I see it as a way to slap the unethical hand of those who dare to betray our public trust. For those, like Mr. Chafetz, who are disturbed by the lack of coherency provided by the redundant wording, I’d like to offer up a new one to clarify the HSF term. Honest Services Fraud: A scheme or artifice created for personal gain at the expense of a trusting supporter.

If political servants must adhere to ethical practices that maintain the public trust, shouldn’t non-profit organizations also be subject to the same legal sway? As far as I know, HSF is almost exclusively used in the political arena with only a scant track record of force in the private sector. The non-profit sphere, however, seems to remain unaffected. Sure, there are plenty of legal restrictions in place to convict non-profits for misappropriations, but in regards to the establishment of ethical relationships as related to the trust of donor donations, the enforcement mechanism does not exist.

To impress my point, non-profits are permitted to create for-profit entities with the intent of generating a money-making-engine that provides the non-profit with a flow of dependable donated income. That is absolutely legal, and one that I fully support. However, to my knowledge, there are no legal restraints that force consistency between the mission of the non-profit and the activities of their established for-profit-entity. Therefore, it would be perfectly legal for Susan B. Komen, the leading center for cancer research, to set up a for-profit entity that manufactures tobacco. It would be legal, but certainly void of ethics. Not only would they be allowed to formulate such a system, they would not be required to tell their donors that the relationship exists.

Do I think Susan B. Koman would do such a thing? No. Do I think there should be legal ramifications for those who would? I’m definitely leaning toward yes.

I spoke with a friend of mine about this who is a grant writer and he warned me that the implementation of such a suggestion could possibly do more damage than good. He pointed out that the non-profit sector is already burdened by so many regulations that he fears another one like HSF would do more to prohibit great services than ensure them. I definitely see his point and come on, I’m a conservative so I’m supposed to abhor regulations, right? Maybe a better compromise on the issue would be to force full disclosure rather than regulate the relationship between the two separate entities. I don’t know exactly what the solution should be but I do know that if you gain my money by persuading me to support a particular ideological mission only to use my money in a way that contradicts the mission you convinced me to support, I’m not going to be happy about.

  1. When I first started reading this, I thought–oh good lawd. Here we go again. Non-profits as criminal agencies, yet conservatives forever want us to take care of all social ills! Burden us with the work of saving lives, yet tie our hands while trying to do it! But then I had to stop my complaining, because you actually made a great deal of sense. ha! HOWEVER… 😉

    Currently, I am blessed to work with the most ethical, mission-focused non-profit I have ever seen. But ohhhhh sweet lawd, have I worked for some of the most unethical bastids alive. Ok. Only 2, both massive national organizations, but still! After I found myself lying to a donor, I quit one job (yes, it was with Catholic Charities), because I just couldn’t do it. Oy.

    ANYHOO, this is such a tricky situation, as your grant writer friend noted. Although as a donor, I understand the desire to want my money to support the right things. But NPO grunts like me have to deal with irrational suspicion from donors. I’ve seen people have mild coronaries over a $25 donation, but make no effort to understand where their tax dollars are going, how their food is grown, or if a child in slave labor conditions made their clothing. The hypocrisy and misplaced paranoia is baffling.

    Non-profit employees must face a host of awful stereotypes (we’re poorly managed, incompetent, shouldn’t be paid well for the work we do, etc.) and scrutiny that other businesses simply don’t have to tolerate. I cringe at the thought of yet another restriction being placed upon us. Why not place such restrictions on ALL businesses? Why not penalize Enron or Goldman Sachs for their blatant lying? Why do we accept unethical behavior in for-profit businesses, but assume that the non-profit sector needs more regulation, particularly when the corporate sector has been so stellar at deregulation?

  2. Tricky situation is right; which is why I brought it up for discussion. You made fantastic observations and I just wish more folks would weigh in on this topic. You are so correct about misplaced donor paranoia but I think that could be alleviated if there were more transparency. Again, I hesitate on taking a staunch stance in favor of further regulation for the very reasons you listed but on the other hand, when it comes to non-profits, ESPECIALLY religious non-profits, there is an element of public trust that needs to be upheld. As I briefly mentioned in the article, For-Profits can be held accountable to Honest Services Fraud, tho’ it’s rare. I think that’s because the role of a For-Profit is to provide a customer with quality goods and services. If the For-Profit engages in unethical behavior, it is likely that the evidence of their malpractice will appear in the quality of the goods and services; which enters into a realm of law that can handle such malfeasant actions. The ability to “see” unethical practices in non-profits is much more hidden and as you testified, it usually falls on the shoulders of workers within a corrupt organization to decide between advancing their cause or upholding moral principle. I wonder if there will ever be a class action lawsuit against such entities who place their employees in such a situation. It truly is abusive. I certainly hope there are more honorable self-regulated non-profits than there are devious and I’m not so cynical as to think that there aren’t but again, unless someone from the inside spills the beans on the depraved, there’s no way of really knowing where the money goes. That really bothers me. Especially in religious set-ups that use God to pull money out of pockets. I, for one, do not give money unless I know someone within the organization who demonstrates a high level of character. If I don’t know someone and I’m interested in a charity, I do some research and then seek out a personal connection with the organization. This method is not a guarantee by any means, but I think it’s more responsible than blindly writing a check.

  3. Cara, we should really grab a cup of coffee and talk about this for a few years. ha! After a particularly painful job, I wrote book proposal that was a bit of a “tell-all,” but I couldn’t get anyone to bite. I’m thankful for that now, as it was mostly just bitter raging that would have hurt more than helped. But…OY.

    I worry about national organizations being penalized for incompetent field offices (I’ve experienced that at three different NPOs–great overall work, horribly managed individual offices). I absolutely love that you get to know an organization first, but I worry that general job dissatisfaction could potential taint an employee’s view and therefore a donor’s view.

    I think a lot of NPO employees operate like for-profit companies emotionally (if that makes any sense). When I worked for a program of Catholic Charities, I actually sat down and did a cost-benefit type of analysis when I found out two of the nuns were kicking women out for not following Catholic doctrines (the homeless women wanted abortions). The nuns’ actions were illegal, but if I reported it, hundreds of women and children could have been out on the streets. It just wasn’t worth that risk in the long run.

    For-profit companies are so rarely penalized for their illegal actions and if they are, it’s usually more cost effective for them to just pay the fine (polluters are the best example of this) than change the behavior. Or they only have to deal with bad press, which is quickly forgotten (Kathy Griffith’s clothing line made my child labor, for instance. Nothing changed in the long run in how she runs her business. Bad press for a minute, and then back to the usual. The irony is that a portion of proceeds go to children’s charities. So, child labor is helping fund children’s advocacy organizations. It’s insane). Many NPOs simply don’t have the funds to withstand that kind of penalty.

    This is yet another really long-winded way of saying–I don’t know the answer. I completely understand the desire for more transparency, but I also know that “transparency” can be faked. I’ve seen plenty of creative accounting in my day. Until we do reach some kind of regulated clarity that isn’t tying the hands of people trying to help, what you’re doing is probably the best approach–know the organizations that you’re supporting from the inside out.

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