I ended up in the black. I had a lot of charitable deductions since it’s my business policy to give 2% of the value of each contract to a charity of my client’s choice. Because they did the choosing, there were some charities I was unfamiliar with. So, I started doing a bit of research. It’s a scary world out there in Charityland these days.

Both the highly-respected Brookings Institution and Harvard University recently released reports revealing a well-founded crisis in public confidence in charities. The Chronicle of Philanthropy’s February 5 issue carried a special report on this same subject.

The crisis stems from incidents that are at best questionable business practices, to worrisome ethical conflicts, to downright illegal activities such as theft. These problems were pervasive throughout the non-profit world, from large organizations like the U.S. Olympic Committee to social services groups in small towns.

Illegal and unethical activities in what are charitable and humanitarian organizations are not new. Over 25 years ago when I was working at the headquarters of the international aid organization CARE, the Executive Director embezzled over $100,000 and eventually was imprisoned for his act. 

We had to break the news to our donors. Our donor contact at IBM asked an interesting question, “How much was his salary?” After learning the very modest figure this man was paid for leading a $350 million (in 1979) organization, our friend responded, “He’s underpaid. That’s an invitation to steal.” CARE’s President is now one of the highest-paid executives in that sector of philanthropy.

According to the various reports, one of the most common problems in this crisis in the charitable community is excessive salary and various perks that are provided with the job. Self-dealings, such as making interest-free loans to executives and board members for personal gain, were another way that charities used donor dollars inappropriately.
Could this happen in Minnesota?

It can and it did. The Harvard study, which covered 1995-2002, cited three cases here: Allina Health Systems and Medica Health Plans in 1999 found officers and directors involved in self-dealing, excessive compensation and expenditures. In 1996, Minnesota Public Radio’s president was accused of millions of dollars of self-dealing. And the Executive Director of Sudanese-American Community Development in 1999 misappropriated thousands of dollars for his personal benefit.

All of these cases were uncovered and/or resolved through the Minnesota Attorney General’s office. Few business owners know that the A.G. is the man to go to when looking for information about who you should go to when it comes to making charitable donations. Hatch uses the office of the Attorney General to protect citizens, preserve charitable assets, and address illegal conduct and fraud in order to enhance public confidence in charitable giving.

The Attorney General’s office 2002 report, “Giving Makes a Difference” profiles fifty charities registered with the Attorney General who solicit contributions in Minnesota. It was partly motivated by a report by the Barna Research Group showing that in the previous two years, 14 percent of respondents had stopped giving money to a nonprofit group because they perceived a lack of trustworthiness on the charity’s part.
A company that gives the national average of 1.2 percent of pre-tax profits to charities is giving a lot of money. For a mid-market company that makes $5 million in profits annually, it translates into $75,000 in donations. Those donations are investments in the non-profits that receive them. Most businesses would consider that an investment worth protecting.

Even if your company doesn’t make $5 million in profits, if you give 1.2 percent, then your exposure is just as great as the larger donors and deserves similar scrutiny.

Every non-profit organization in Minnesota is listed on the Attorney General’s web site, but the information there is sketchy. Hatch knows this, and he throws the onus of finding out more onto you, the donor and business-owner.

One of the most important recommendations in Hatch’s report is that you ask lots of questions before donating: How will the money be used? If the cause sounds good (let’s say “cancer”), but the name of the organization is not totally familiar, ask for literature to make sure this is a group you truly want to support. 

One question I believe you must be sure to ask is “Does this organization issue an annual, independently-executed financial report?” 

If it does not, there are two reasons for concern. First, if the failure to do so simply seems to be that this is such a small organization that it can’t afford an independent audit, think again. There are many resources available in the community to even the smallest groups that can provide auditing services free or very cheaply.

Secondly, they might well be hiding something.
Hatch doesn’t tell you how much to give or how to integrate giving into the various parts of your company’s business plan or corporate structure. He doesn’t make recommendations about which organizations to support. What he does offer is a good list of criteria to consider when planning your corporate citizenship gifts and activities. He also provides guidance to other organizations that offer information about nonprofits. 

“Giving Makes a Difference” can be found on the Attorney General’s web site www.ag.state.mn.us/charities/CheckingChar_02.html and is worth reading for some elementary education on the state of giving in Minnesota.

Another way to safeguard your donations is to be sure that the charities you support adhere to a code of ethics. Independent Sector, a coalition of national charities, recently issued a recommended set of ethical guidelines in Statement of Values and Code of Ethics for Nonprofit and Philanthropic Organizations. You can download it from www.independentsector.org.

Giving to charities should produce more than a tax-deduction for the donor. It should provide value to some sector of society. We must all take responsibility to see that our donations do both.