Fairfield Senior Center OCTOBER 13, 2015. Topics Covered During the Next Six Weeks Week 1 (Today)The State of Giving in the U.S. Week 2Why People.

Fairfield Senior CenterOCTOBER 13, 2015

Topics Covered During the Next Six WeeksWeek 1 (Today) The State of Giving in the U.S.Week 2 Why People GiveWeek 3 Giving in the U.S. versus Philanthropy OverseasWeek 4 Government Spending and Charitable Giving (Crowding

Out or Crowding In)Week 5 Corruption in the Nonprofit Sector – Nonprofit

MalfeasanceWeek 6 The New Philanthropy and the Principal-Agent Problem

To Get Copy of Slides Go to: www.faculty.fairfield.edu/mleclair Click on link that says Fairfield Senior Center

Week 1 – Giving in the U.S.U.S. by far the most generous country in terms of giving per capitaReflection of both higher income and tradition of philanthropyProtestant ethic of taking care of neighbor(s)Giving was up close and personal

Also, as will be argued in a later presentation, much of what was once philanthropy is now in the public sector in other developed nations

Historical Statistics

Current Statistics 2014 Charitable Giving by Source:•Individual giving, $258.51 billion, increased 5.7 percent in current dollars over 2013.

•Foundation giving, $53.97 billion, was 8.2 percent higher than 2013

•Bequest giving, $28.13 billion, increased 15.5 percent 2013

•Corporate giving, $17.77 billion, increased 13.7 percent over 2013 giving

Source: Giving USA

Numbers Reflect a General Trend•Foundation and bequest giving is rising at a faster pace than individual giving•Represents rapid accumulation of wealth•May influence overall patterns of giving in the future•For now, individual giving dominates

Where does money go? Religion—$114.90 billion, 2014 giving increased 2.5 percent higher

Education—giving increased to $54.62 billion, 4.9 higher

Human Services—$42.10 billion total was 3.6 percent higher

Health—$30.37 billion 2014 estimate was 5.5 percent higher than the prior year

Arts/Culture/Humanities—$17.23 billion, growth of 9.2

Others Environment/Animals—The $10.50 billion estimate for 2014 was up 7.0 percent

Public-Society Benefit—the $26.29 billion estimate for 2014 increased 5.1 percent

International Affairs -- $15.10 billion estimate for 2014 decreased 2.0 percent, in current dollars, from 2013. The drop was 3.6 percent when adjusted for inflation.

What about corporate giving? Why do businesses give?Provides a company with an enlightened imageParticularly businesses that may not be viewed favorably by the publicPetroleum business, tobacco, etc.

Improves work satisfaction among employeesRetention may improve

Firms may donate to causes that help train needed laborInterest of a top executive might also be a driver

Result-Business Giving Looks Very Different from Personal Giving – Largest Participants

1. Novartis Patient Assistance Foundation, Inc. (NJ) $452,981,816 12/31/2013

2. Wells Fargo Foundation (CA) 186,775,875 12/31/2013

3. The Wal-Mart Foundation, Inc. (AR) 182,859,236 01/31/2013

4. The Bank of America Charitable Foundation, Inc. 160,479,886 12/31/2013

5. The JPMorgan Chase Foundation (NY) 115,516,001 12/31/2012

6. GE Foundation (CT) 124,512,065 12/31/2013

7. The Coca-Cola Foundation, Inc. (GA) 98,175,501 12/31/2013

8. Citi Foundation (NY) 78,372,150 12/31/2013

Direction of giving for Corporate Programs Main Destinations were:◦Education (29%)◦Health (25%)◦Community Investment (15%)

Mechanism of Giving Corporate Foundations (34%) Direct Giving (49%) In-Kind (17%)

◦Last category a reflection of drug companies that donate medicines to poorer Americans and to overseas initiatives

Tax Treatment and Total Giving•Tax Incentives are a significant driver of giving for those in the upper-income brackets• Less, however, than many people assume

•The standard deduction for a couple filing jointly in now in the range of $12,500. •Outside of high-tax, high-property price, Connecticut, you may

not reach that by itemizing•Tax breaks not a consideration when giving

In much of Europe•Tax breaks are available only for specific donations (as in Italy)•Another reflection of the subsidiary role played by the charitable sector as opposed to government social spending•Discussion is brought up periodically in the U.S. (removal of tax breaks)

Corporate Deduction•5% of Income – Provides some incentive to give, but the prime motivator is still need to demonstrate enlightened nature of business•This deduction was opposed by many when instituted, given the motives and nature of corporate giving

Uniqueness of U.S. Situation also Reflected in the Mechanisms of Giving•Charity Aggregators (United Way)

•Giving through the workplace (and matching programs)

•More recent phenomena:• Crowdfunding• Social Pressure Websites (Hungersite.com)• Giving through investing (Impact Investment)

Immigration and Economic Development•Political battle in Washington just beginning•Support for more open borders coming from strange bedfellows•The Democratic Party and the Chamber of Commerce (usually regarded as Republican-leaning)•Democrats see a means by which to build up a constituency that is fairly loyal (Hispanics, Asians)

Chamber of Commerce?

•Conservatives argue that business interests want a growing pool of cheap labor•Somewhat confusing argument in an economy that has such a slack labor market•Not sure where corporations are having a hard time hiring, except in high-skill occupations

Benefits and Costs of Immigration•Skilled immigrant labor highly beneficial to economy•Captured endowed human capital in worker•Special programs over the years for nurses and workers with other specialized skill sets

•Unskilled labor more problematic •Immigrants perform work that U.S. citizens are unlikely to seek out

Industries with high concentrations of unauthorized workers•Most obvious is farming•Also see employment in:•Construction (roofing!)•Packing•Painting•Landscaping

Benefits•Avoid labor shortages common in Europe •Labor market more flexible

•Humanitarian benefits

Costs•Evidence of wage suppression @ lower end of market•Cost is borne by those at lower end of labor market

•Social and monetary costs of absorbing millions of individuals•No discussion of limits of market to absorb new labor•California may have reached that limit already•Victor David Hanson’s writings

Undermines existing immigration system•Difficult to tell people they must go through a multi-year process to achieve legal status when millions are simply entering and staying•A well thought-out guest worker program might have been a better way to go•Path taken by Germany with Turkish guest workers•Although social problems have arisen in Germany also

Week 2 – Why People Give•Philanthropy is driven by a variety of Motives•Some self-interested•Reasons for giving partially determines patterns of giving•Also provides some insights into how charities should approach donors

Commonly Discussed Motives•Altruism/Obligation•Warm Glow of Giving (What would Kant Say about this?)•Social Stature•Self-interest – primary motivation for corporate giving

Altruism and Securing Donations•Charities use sympathetic message to raise donations•May also draw some “bad apples” into certain segments of charitable sector•Charities use key words that elicit a response:•Police, fire, veterans, kids, cancer•Those that truly give altruistically may get burned if they

don’t investigate a charity’s history

Look More Closely at 2 of The other motives for giving•Social Stature•Giving is a form of social signaling•People who give receive societal respect in return•This motive drives people to give to causes that are physically

apparent – e.g. a hospital wing or a college building•May cause a form of competitive giving among elites

Self Interest as a motivator•Most obvious example is corporate giving•Businesses may give up to 5% of income in any given year and

deduct it from earnings•Might be driven by philanthropic interests of executives• In literature, regarded as a means of advertising the firm as a good

citizen to increase sales and profits• Donations to the arts, for instance, make a firm appear enlightened

Danger Lurks Nearby•Donations to controversial causes may damage business•Corporate giving programs gravitate to “everyone supports that” causes•Away from the NRA and Planned Parenthood•Research shows that firms that want an enlightened image give

to the arts, while manufacturing firms may donate to educational causes that improve the labor force they draw from

Example LeClair, M. and Gordon, K. (2000), “Corporate Support for Artistic and Cultural Activities: What Determines the Distribution of Corporate Giving?, Journal of Cultural Economics, 24

More Recent is the Advent of the “Ethical Lifestyle”•Philanthropy (or social action) is part of everyday life•Consumption•Avoid products from firms that are regarded by some as morally challenged•Large problem for Walmart for many years•Portrayed in book “Nickeled and Dimed” by Barbara Ehrenreich

•Direct consumption towards firm that are socially responsible•Then, seek out consumption products with embedded philanthropic content•Fair Trade Products, Products that have a complementary charitable component•Girl Scout cookies, Newman’s Own products. And “buy this

product and one dollar goes to breast cancer research” promotions

When it Comes to Investing…….•First, engage in Socially Responsible Investing•From the liberal perspective: No oil companies, no firearms manufacturers, no tobacco companies, etc.•Could come from a conservative perspective: Avoiding media that conservatives consider biased, for example•In general, most SRI arises from the liberal perspective

Examples Socially Responsible Funds

These Funds Necessarily Provide a Lower Long-Term Rate of Return•Basic Economic Theory: Constrained Optimization Lower than Unconstrained•SRI portfolios do not hold the whole “universe” of stocks•If socially-responsible investing provided a higher rate of return (adjusted for risk), then traditional funds would switch to these stocks

For those that Truly Want to Invest Ethically•Impact Investing•Funds pursue a social goal as their purpose•Sustainable Trade (e.g. Fair Trade)• Low-Income Housing (South America)•Clean Energy Access (Rural India)•Active Programs within U.S. urbans centers

Exaggerated Claims Made About Returns•Rates of return are significant for some Impact Funds•Risk, however, is very high•Unlikely risk-adjusted rate of return is remarkable

•Continuing argument made above, if Impact Investing created extranormal returns, then conventional funds would rapidly switch investments in this direction

Investors Compensated with Warm-Glow of Engaging in Philanthropy•Upper-income individuals may continue to donate, even if returns are lower•Raises concern (once again) that Impact Investing (like Fair Trade) is simply an arena for the well-off (a niche)•Growth in Impact Investing has been slow, primarily due to inability to explain mechanism to potential investors

Questions

Current Events•Once again looking at raising the debt limit (from $18 Trillion) to enable the government to borrow more money•Opens up talk about deficits and debt•Difference?•Healthy numbers: deficit less than 3% of GDP•Debt less than 60% of GDP• Deficit has fallen into this range, but debt is 100% of GDP

Federal Deficits

Who holds debt? Public: $13,123 Trillion Other Agencies: $5,027

◦Primarily the Federal Reserve◦Problem:

◦ Running of debt and selling it to the Federal Reserve is dangerous and unsustainable (monetizing the debt)

◦ Risks inflation

Held by foreign nations•$6 Trillion – primarily by China and Japan•Used as a means of currency manipulation•Also raises the specter of destabilization during a time of crisis• South China Sea?

Point/Counterpoint?•“Debt is OK since we owe it to ourselves”•Counterpoint: not any more

•“Debt doesn’t matter because we can always raise taxes to pay for it”•Counterpoint: Not under any conceivable plan at the present – tax rates would have to skyrocket

Dangers

•Debt service is now over $325 billion per year•That money could have been used to end homelessness, hunger, medical care access issues, etc.•Simply paid out instead

•What happens when interest rates rise?•Currently at about 2% on average• If they double to 4%, debt payment balloons to $650/year

Picture of Federal Government 10 years from now…..•Debt service, Medicare/Medicaid and other required payments consumer most of the budget•Congress meets to argue about nickels and dimes•For those that believe in expansion of government programs, there will be no money to do so• In effect, we will be struggling like Greece to provide basic

services and avoid default

•Could be fixed with bipartisan work in congress

Week 3 – Giving in the U.S. Versus Overseas – Why the U.S. is Unique

•Americans donate at about the twice the rate of individuals in other developed nations•Reflected in how difficult it is to get data on foreign nations•Figures tend to be incomplete and haphazard – It’s just not as

important•Doing empirical work on international numbers is particularly

complex

Reasons•Protestant background•Philanthropy deeply rooted in religious underpinnings of U.S.

society

•Wealth accumulation – permits the kind of personal and foundational giving that occurs in U.S.•Relative distrust of government as provider of social services• Some validity to that argument – government spending is much less

efficient than spending at GOOD charities

Counter-arguments•Philanthropic activity is not “fair”•May benefit one group of people over another•Example: if you live by the Cleveland Clinic, you are entitled

to world-class healthcare on a “pay as you can basis”• If not, you may be relegated to a local clinic that provides

adequate, if unexceptional care•Private philanthropy may not align with societal goals•What if everyone only gave to “housing” causes

•Provision of services is uncertain over time•Relies on continued giving•Government programs tend to be reliably present until, of course, they aren’t•Fiscal realities in U.S. may curb programs in the future•Current debt of U.S. ($18 Trillion) costs the government only

$360 billion per year at 2% interest•At a normal interest rate (4%) that doubles to $720 billion-

there go your social programs.

In Ideal World…………•Government spending and philanthropy would complement one another•Government programs (such as food stamps) that assist people in buying food would be bolstered by food banks, etc.•Result would be more efficient, closer to those in need (so better able to judge needs)•Yet, universally available

Tax Policy (Cross-Nation) Reflects this Tension•Most western nations allow either tax credits•Or tax deductions (like the U.S.)•Whether the amount subsidized by the government is greater or smaller depends on tax bracket of individual•2 European countries – Finland and Sweden- allow no

deduction•And Austria’s dates only to 2009

Statistics from Overseas, Social Spending as a % of GDP Nation Private PublicUnited States 10.6% 19.2%

Australia 3.1 17.8

Canada 5.1 19.2

Norway 2.3 23.3

Germany 3.2 27.8

France 3.1 32.1

Spain 0.5 26.0

Explains Differing Views on Philanthropy•U.S. does not provide the same level of social programs, but has a much more extensive system of philanthropy•Ratio of private:public is 55%•No other nation comes close to this•Canada, the next closest, is at 26%• Reflects Canada’s similar Protestant roots

For good (if simplistic) comparison•World Giving Index (Charities Aid Foundation)•First complete cross-national database that uses survey data•Very little detail, but at least all the data is there• Link: http://www.cafamerica.org/media/wgi-2014/

Why differences in giving matter•Government and the Third Sector fulfill specific roles•Emphasis is different•Adding to list of things that philanthropy does better than the government: Emergency response•FEMA response to Hurricane Katrina was slow and later the

subject of intense criticism•American Red Cross ended up acknowledging some issues

regarding its response to Katrina, but….

•239 shelters were open the day Katrina hit(Room for 37,000 people)•Day 2: space for 40,000 people and 63,000 hot meals were served•Day 9: Shelter for 144,000 people and 670,000 hot meals were served•Government response was eventually larger, but very much

delayed.

Decline of Third Sector…..•Means slower response times, and all that entails (presumably more human suffering)•Will argue later that innovation needs to occur in both the transparency of nonprofits and (possibly) regulation•Recapture public confidence

Questions

Week 4•Current Events – currencies and the gold standard•Looked around at chatter on economic websites – Gold Standard being talked about again due to instability•Particularly recent competitive devaluations by China, Japan and others•Returning to a fixed exchange rate system would end that practice and reduce uncertainty

Bretton-Woods System•Dollar pegged to gold – all other currencies pegged to dollar•A trade deficit led to a loss of gold (money), which reduced economic activity and led to a drop in imports•Situation was “self-correcting”• Large deficits in early 1970s led to abandonment of gold

standard in 1973.

New System is Called “Fiat Money”• Money is backed by nothing – system works as long as people are willing to accept it.•Devaluations can be unintended – producing higher costs to buy imports (e.g. Venezuela)•Or, intentional – to increase exports

•Japan devalued the Yen from 90/$ to 120/$ to increase exports as a way of stimulating growth

Problem – Can’t all devalue at once•Process quickly becomes destructive•Return to gold standard (or other fixed rate system)

Advantages•Stability, tight control on inflation•Cannot do “crazy” things with currency system (Zimbabwe, 2008-09)•November 2008, inflation was 79,600,000,000% in one month

•Financial Crises (like 1997 East Asian Financial Crisis) unlikely

Problems•Insufficient gold in hands of governments to back existing currency (U.S. has $11.3 billion at Fort Knox, valued at $42/oz.)•No Guarantee that there won’t be a 1973 style run on a currency despite being gold-backed•Removes monetary policy from bag of tools that can be used to fight a recession

Crowding Out (or Crowding In) in the Charitable Sector•Crowding out: A drop in contributions due to rising government spending•Two causes:• Perception that government is already taking care of a social issue• Higher taxes leave individuals with less money to donate•Result: In European “Social Democracies” giving is much lower

Examples of Overlap of Federal Programs and Charitable Sector•Food Stamps currently cover 47 million Americans•Private philanthropy• City Harvest: Collects food that would be thrown away by grocery

stores and restaurants•Our own Connecticut Food Bank•Maintains food distribution center• Backpack program•Bridgeport Rescue Mission maintains a kitchen that serves meals

daily as does Operation Hope

Example 2 – Medical Care The Federal Government maintains multiple programs for the poor•Medicaid is largest• But, multiple programs for children (CHIPS, SCHIPS) and now the ACA• Total cost in U.S. budget: $265 billion• Plus states spent $193 billion

•More than ½ of U.S. population covered by government programs – do we already have national healthcare?

Parallel Private Programs•Mainly nonprofit hospitals that provide care on a pay-as-you-can basis•Cleveland Clinic is one well-known example

Tax-Exempt Hospitals and Community Benefit: New Directions in Policy and Practice

Annual Review of Public Health

Vol. 36: 545-557 (Volume publication date March 2015)

Housing/Education Overlaps•Federal housing programs under Housing and Urban Development (HUD)•Habitat for Humanity

•Department of Education and education grants•Nonprofits that provide support for low-income students, coupled with thousands of private grants that support higher ed•And, higher ed itself, with growing “discount rates”

Question – is duplication a good thing, or a waste of resources•As noted last week, GOOD nonprofits are far more efficient at providing resources than the federal government•Bad nonprofits can be even more wasteful than Feds•Rankings help get rid of the poorest charities•When was the last time we ranked HHS and said its too inefficient and

we should get rid of it?•And, do nonprofits fill in the gaps left by Federal programs

Examples•Government supports housing for low-income residents, and even supports home-ownership through FHA and (discredited) Community Reinvestment Act•Habitat for Humanity focuses solely on home ownership for

those that cannot qualify for these programs

•Connecticut Food Bank and Operation Hope are busiest near the end of the month• Indication that these organizations are filling in when federal

benefits run out

Even more Ideal Situation is stimulation of nonprofit programs that mesh with government spending (“crowding in”)

•Existence of federal or state program leads to development of complementary private programs•Nonprofits seek out gaps in programs and fill in•Or, utilize government grants to carry out federal and state priorities•Utilize knowledge of local needs to better serve community•Example……”food deserts” – federal programs are leveraged

by local nonprofits by providing complementary services

Tax bite and Total Spending in U.S. and other CountriesNation Central Government

Taxes as a % of GDPGovernment Spending as % of GDP (all levels)

Austria 43.4% 50.9Belgium 45.4 54.8Canada 32.2 NADenmark 49.0 57.1France 44.6 57.0Germany 40.6 44.1Netherlands 39.8 46.2U.S. 26.9 39.0

Tax Burden and Government Spending as % of GDP Very High in Nearly all of Europe•High taxes reduce ability to give• High government spending calls into question whether philanthropy is

“necessary”• Social programs are the government’s purview• Some surprising results in data on giving overseas• Donations to medical causes high in the UK, despite the presence of the NHS• Doesn’t entirely make sense• Last week talked about advantages and disadvantages of government

spending versus philanthropy• Suppressed Third Sector means society loses those advantages

Testing Crowding in or Crowding out•Empirical Testing in Economics is complex•Key aspect is that multiple factors are used to explain one variable•Example: In (early) medical research, it was believed that coffee caused bladder cancer•Once ALL factors were considered, relationship vanished•Other factors were more important than coffee intake

With Philanthropy•Need to control for income, growth in income, wealth, age, etc. and then test to see if rising government spending reduces giving•Given that so little data exists, my research assistant and I used 10 countries and 12 years of data from each•Result: size of government significantly reduces giving

Social Policy in Presence of Crowding out•No expectation that European nations are going to reduce the role of government to stimulate philanthropy•Accept that social policy is less efficient, but more consistent

Week 5 – Current Events•Keystone decision and political/economic ramifications•Probably the most debated inter-governmental decision in the history of international relations•Despite President Obama’s decision, Keystone could simply

be OK’d by next president

Intersection of Politics and Economics•Pipeline no longer made any economic sense with oil at $45/barrel•Tar sand oil is competitive only at $100/Bbl due to high

extraction costs•And, oil was simply going to be moved through U.S. and

exported• Other than construction jobs, benefits to U.S. were small

Politics•Pipeline fully “supported” by Canadian government•Even by Trudeau, the new PM•But, environmental groups strongly opposed (part of Trudeau’s base)•President Obama did Trudeau a great service by killing the

project south of the border•Trudeau does not have to take the political heat from either

unions or environmental groups over the decision

Unclear when oil will again be at price where Keystone is viable•Continued use of fracking in U.S. will suppress prices well into the future – Saudi Arabia is also acting to suppress prices•And, U.S. has trillions of barrels of untapped reserves in Colorado that are accessible through fracking•Hard to imagine when tar sands will make sense again•And, environmental impact of tar sands oil is much greater

than fracking•Actual cost, both financial and nonfinancial, is very high

Week 5 – Corruption in the Nonprofit Sector•Can be divided into 3 forms: Misbehavior, Soft Corruption and Hard (subject to civil/criminal penalties) Corruption•Misbehavior generally refers to “misuse” of donated funds•Donor gives to support a cause and money is diverted to another cause by charity

Most Famous Example• American Red Cross and diversion of 9/11 funds

•Can be a much bigger issue with bequests• Donor is not around to monitor how monies are spent• Unless donation is very large, heirs unlikely to act to ensure funds are spent

appropriately

•Foundations are also subject to this problem• Foundations can pursue projects that their benefactors might have found

undesirable• Annenbergs, for instance, were apparently conservatives – foundation supports

mostly “liberal” causess

Hard Malfeasance•Charity Watch Hall of Shame gives good list of the really bad charities•William Aramony and United Way (1992)•Used donated funds for travel, an apartment, etc. ($1.2

million in total)•Sentenced to 7 years in prison

Other Notable Examples•John Bennett, Jr. and New Era Philanthropy•Charities would deposit funds at New Era – After a period of time,

an anonymous donor would match the funds, and the charity would get back double its money• Problem: There were no donors – It was a Ponzi Scheme• New deposits were used to cover old obligations (no donors existed)• Eventually, Bennett ended up $50 million in debt and the charity

collapsed• Ended up being sentenced to 12 years in prison•While operating New Era, he was drawing a salary of $26,000/week

US Navy Veterans Association (USNVA)•A sham charity run by a single individual out of a Florida Condo•Claimed 60,000 members•Collected nearly $100 million in donations – never gave any

money to any cause

•Run by John Cody aka “Bobby Thompson”•When Authorities closed in he fled to Oregon•Was eventually recaptured and sentenced to 13 years in prison

Angel Food Ministries and the Wingo Family•Unusual philanthropic model•AFM bought food at wholesale with donations; created bags

of groceries and sold them to the poor at a slight markup•At one point, nearly 400,000 families were benefiting• But, lots of cash around, and family members began siphoning off

funds for “salaries” and perks – including a private plane• Charity raided by Federal investigators, since charity had accepted

government grants• Two Wingo brothers received 7-year prison sentences

Other Notable Scandals•Hale House

•Covenant House

•Central Asia Institute (Three Cups of Tea)

•Degree of creativity remarkable•Other articles on Charity Watch webpage……

Charity Accused of Trying to Squelch Unflattering News About Itself

Charity Circulated Forged Audits

Charity Head Stages Failed Coup

Charity Questions the Value of Donated Goods: How $118,000 Shipment May Be Worth Less Than $7,000 to Recipients

CharityWatch Calls for Resignation of Central Asia Institute's Founder Greg Mortenson

Congressionally Scorned Charity Leader Receives $1.9 Million

Feed the Children Controversies Continue: Charity Accused of Overstating Its Work in Haiti

Feed the Children Execs Accused of Stealing Donated Supplies Intended for the Needy

Food is Only a Small Portion of What Feed the Children Distributes

Long Running Family Charity Scheme Exposed

Nobel Prize Nominee's Charity Wins No Award for Accountability

Phantom Charity Takes Flight Leaves Veterans Stranded

The Most Outrageous Charity in America: Larry Jones' Feed the Children

Why Scandals Happen so Often•Relationship between donor and charity is frequently one-time and unidirectional•Donor does not expect anything in return•No “feedback loop”

•With other economic relationships:•Buyer:Seller – both want and get something out of the

transactions•Stockholder:Firm

There is no “consideration” for the donor & no feedback loop that informs donor about how money was used

•Charity is largely free to do with the money what they want, until caught!•Corrupt nonprofits also use tricks to fool donors•Mentioned “Make-a-Wish Foundation”; a four-star, highly regarded charity•Kid’s Wish Network is a sham charity that is on the Donor Advisory List!

Non-Prosecutable Corruption may be a Bigger Issue•Nonprofit free to conduct business in a way that uses all receipts for fund-raising and management•Receives poor rankings, but donors still give due to lack of information•Best list of these is the Tampa Bay Times, America’s Worst Charities

Sample from 2014 - % of Donated Funds Spent on Cause (10 year totals)•Kid’s Wish Network: Raised $138 million, spent 2.5% on cause•Cancer Fund of America: Raised $87 million, spent 1.0% on cause•Firefighters Charitable Foundation: Raised $54 million, spent just 7.4% on causes•Breast Cancer Relief: Raised $45 million, spent 2.2% on cause

Note Causes and Keywords•Firefighters, cancer, kids•Also add in police, veterans, etc.•Managers well aware of what they need to do to tap into public sympathies

How can this be Stopped?•Charitable donations are a “donor beware” environment•It is currently up to donors to investigate charities on their own•Charity Navigator (CN) and Charity Watch provide more than

sufficient data•But…..some problems with rubric used by CN• Doesn’t work well with charities that have program fees or are good

financially, but fail the transparency test• Downgrades these nonprofits

Regulation•A wide variety of suggestions have been made•Current environment is probably too lax•At present, nonprofits must:• Secure and maintain 501(3)c status with the IRS• Provide Form 990 to the public in about ½ U.S. states• In California, charities must conform to a law similar to

Sorbanes-Oxley – very stringent reporting and management rules• Problem: Many small nonprofits would be unable to comply

Possible Reforms•Require form 990 be made public in all states•Not a particularly burdensome requirement

•Require and independent board as part of securing 501(3)c status•Increase oversight on government grants•Shocked to find that some of the worst charities receive some proportion of their revenue through grants – “your tax dollars at work”

More aggressively…………………•Design new nonprofit models•Donor-driven giving by organization•Donor becomes more like a stockholder•Oversight likely to increase

•Tighten rules on how charities use funds, particularly bequests•Only way to prevent redirection of gifts

Questions?