Those who donated to the Hurricane Sandy Relief Foundation (HSRF) in the aftermath of last fall's storm were acting on a uniquely American impulse -- being charitable. Sadly, these generous first-responders to charity were misled by criminals. A New Jersey Superior Court Judge has just dissolved HSRF on the grounds that, among other misdeeds, the fund's organizers lied about how donations would be used, and diverted contributions to private bank accounts.
HSRF's offenses are just one dispiriting example of the need for rigorous oversight of nonprofit organizations. But even though there are laws in place to punish rogue groups that prey upon the good will of the American citizen, many in the nonprofit community support an even stricter set of voluntary regulations.
Some of these proposed rules, however, would do little to prevent wrongdoing and could needlessly restrict the ability of charities to carry out their philanthropic missions freely and effectively. As the nonprofit community works with lawmakers to enact and enforce safeguards against fraud, we need to be sure not to obstruct philanthropic organizations that are doing selfless, honest, and valuable work.
The United States has a proud and distinct reputation as one of the most charitable countries in the world. Despite a sluggish economy, in 2012, Americans donated over $316 billion -- $228.9 billion of which came from individuals. But where Americans really excel is in giving their time and effort. According to the Charities Aid Foundation, the United States had more volunteers in 2012 than any other country.
As I've discovered through my own philanthropic endeavors, the reasons behind charitable acts vary from person to person. Some have a natural desire to affect positive change. Others are motivated by a past life experience, as when the mother of a cancer patient donates to the American Cancer Society. What all donors have in common, however, is that they expect the recipient organization to use their time and money in a worthwhile manner. More than that, they expect charitable groups to be honest and transparent.
The sad truth is that fraud is still all too common in the nonprofit world. This summer, in a darkly ironic turn of events, Oxfam's former anti-fraud chief was in court facing charges that he stole about $90,000 from the charity.
It should go without saying that charitable organizations must stomp out such abominable behavior as best they can. Abuse of this sort represents an appalling betrayal of donor trust, and creates the kind of cynicism that discourages giving. The impact of charity related malfeasance is profound and lasting betrayal.
To address such misconduct, many in the nonprofit world support some system of private governance and accreditation. By leaving the responsibilities of oversight to an authority comprised of nonprofit leaders, proponents of this view believe that charitable groups can avoid state and federal regulatory overreach.
However, such private regulatory schemes often carry all the drawbacks of shoddy government regulation, and few of the benefits. Take the regulatory framework proposed by the Independent Sector (IS), a coalition of over 600 non-profits. According to this organization's standards for good governance, unless they are very small, foundations should have at least five board members and should disclose how they evaluate the outcomes of their work.
If such rules are used to determine which charities are granted tax-exempt status, then they will bring many of the problems of excessive government regulations. By forcing foundations to adhere to such arbitrary rules, schemes such as IS's would rob nonprofit leaders of the freedom to act on their own best judgment when making organizational decisions. Not all groups, for instance, require five board members.
But if such guidelines for "self-governance" are merely non-binding suggestions, then they have little hope of dissuading would-be wrongdoers.
So long as they are properly enforced, the state and federal laws already on the books are enough to protect donors from fraudulent organizations in most instances. In the case of HSRF, the State of New Jersey used existing charity registration and consumer protection laws to punish the group's operators and distribute its funds to law-abiding Sandy relief groups.
In those places where the law needs strengthening, the nonprofit community should work with lawmakers to craft targeted regulations that carry the full force of law. Such reforms should give donors the highest possible amount of protection against derelict foundations, without abridging the freedom of well-governed charities to carry out their mission freely.
Those of us in the philanthropic world have a responsibility to ensure that fraudulent charities are identified and purged. We owe it to our donors and to our causes. A new layer of private oversight will do little to accomplish this critical objective.
Yuri Vanetik is a board member of Miracles For Kids, Red Cross, and the Gen Next Foundation.