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It's Time to Give Philanthropists the Protection They Deserve

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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.