Donors: Beware of Nonprofits

The public’s trust in nonprofits continues to decline. The reality is that there’s a good reason. People care about making a difference and a positive social impact. I hear it all the time as I spend a lot of my days speaking to donors — from major donors giving away millions to small-dollar donors. But donors know that the way the sector is structured doesn’t necessarily work.

From Steve Bannon, of former President Donald Trump fame, and others from the We Build the Wall nonprofit. Prosecutors are alleging fraud, money laundering and donor deceit. But that’s not the only one — that’s just the most famous. There’s also mention of an Oklahoma nonprofit diverting funds that were supposed to help Native American women. As I wrote this article, I read that a pastor in Louisiana was found guilty of stealing $900,000 from his church. 

Now and in the Past

Here’s the deal, the more people hear these stories, the more they don’t trust nonprofits. I’m not sure there are more nonprofit crimes happening now than 30 years ago. However, there’s an enormous difference between now and even the early 2000s. We live in a world of 24/7 digital news, social media, and everyone tripping over each other to get ahead of a story for clicks on websites.

As a nonprofit fundraiser and attorney, I will share that I do my due diligence if I give or support a new nonprofit. Unfortunately, you’re dealing with people, and it’s an open secret that financial firewalls within some nonprofits can be thin or non-existent. But nonprofits are businesses, and we should treat them as such. Still, society has treated the sector as a stepchild or distant tertiary cousin of industry.

Invest in Infrastructure and Equipment

Nonprofit leaders, including board members, need to shift away from treating nonprofits like some nice side thing. In other words, we need to expect from leaders the same toughness that we expect from for-profit business leaders. 

For instance, let’s say, as a nonprofit executive, you receive a large sum of money from a donor. You might be tempted to spend it on your programs. However, investing donor funds in infrastructure and capacity is also vital. Hiring new staff members, expanding your technology and upgrading resources are just some ways to invest in your organization’s infrastructure. Moreover, when you do it, you can compete against millions of other nonprofits, social enterprises, B Corps and others making a significant and scalable impact.

Let’s Promote Complete Financial Transparency

Of course, donors need to trust nonprofits — but they have to verify first. I don’t know a single nonprofit fundraiser who hasn’t seen financial misconduct in grand or even small ways. Do you? The reality is that we have to make nonprofits completely transparent — even if we have to force the issue. As a society, we must demand that all nonprofits, including those earning less than $50,000, make full and complete financial public disclosures.

If you’re a nonprofit leader of a small organization, I’ve got a great piece of advice. Let’s make every tax-exempt nonprofit provide complete financial transparency, perhaps by using a short form and the longer 990. It will help donors trust these organizations and fund future projects or programs. Go beyond the rules and regulations. Post your financials in their entirety and set yourself apart from the rest of the nonprofits that are too small to have to report.

With Power Comes Responsibility

It’s true what they say — with great power comes great responsibility. Why do I say that? Well, because nonprofits have it good compared to businesses. Most of them are tax-exempt as 501(c) organizations. That’s a great thing — only when it’s not. Like when slim financial firewalls exist, pastors steal money from churches or nonprofit CEOs misstate program details to donors about how the money was spent.

In reality, when nonprofits end up with someone stealing or getting caught, the general rule is to keep it quiet. They don’t want to make it public so as not to dry up the fundraising. How does that sit with you? I’ll go first. I think it stinks. Exposing these issues to the public will only bring the light into the darkness and improve the industry. And that’s what we all should want for critical organizations intended to make people’s lives better.