While corporations have been fighting to regain investor confidence in the wake of accounting scandals, charities and other nonprofits are moving to convince donors that their money will be well spent.
One of the catalysts: a donation-skimming investigation that erupted three years ago at the Washington area's United Way office, which led to the ouster of the chief executive, board of directors and the entire finance team. Since then, managers of the National Capital Area chapter have struggled to restore public trust.
United Way's rapid descent -- and problems at other respected charities around the nation -- have helped fuel a regulatory drive to make it clearer to donors what happens to their money. Earlier this year, a California law that requires large nonprofits to open their books for an annual independent audit took effect. The Senate Finance Committee yesterday heard testimony about tax-exempt charities profiting by devising ways to help corporations and wealthy individuals shelter their income from taxes.
Charities and other nonprofits also are examining what they can do on their own to reassure donors that they are well run.
"It's time to grow up," said Peggy M. Jackson, a management consultant and author of "Sarbanes-Oxley for Nonprofits," a forthcoming book on nonprofit accountability. "The years of fiscal adolescence are over. If donors are going to entrust you with their money, they expect a return on their donation. They don't expect you to betray their trust."
Nowhere is that shift more evident than at United Way headquarters at 95 M St. SW. Its former chief executive pleaded guilty to stealing almost $500,000 and received a 27-month prison sentence last year. The guilty plea exposed an organization whose finances veered out of control for more than two decades, board members say. Out of necessity, according to the new management team, the local United Way chapter has adopted a series of structural and financial reforms of the very sort that Congress mandated for publicly traded companies in the controversial 2002 Sarbanes-Oxley Act.
The law applies to all nonprofits in two narrow ways -- requiring them to have policies to protect whistle-blowers and to preserve documents, experts said. But United Way has gone much further than the letter of the law and taken on many of the responsibilities required for publicly traded companies.
Charles W. Anderson, United Way's new chief executive, said the board carved out a stand-alone audit committee to hire independent accountants. He and the new finance chief formally vouch for the accuracy of the financial statements each year. Both those moves are required for publicly traded companies under Sarbanes-Oxley. Anderson added that he personally reviews every check that gets returned to United Way each month to help prevent financial "hanky-panky."
"It does cost more, but, boy, look, if these people who were here on the management side of things in the past were doing this, I'm pretty confident problems never would have occurred or would have been detected a lot sooner," Anderson said.
William Couper, chairman of the United Way board and president of Bank of America of Greater Washington, said a forensic audit to trace the roots of the fraud cost the group more than $250,000. Additional unspecified costs continue to emerge as the charity tries to spread out responsibility for things such as opening mail, making deposits at the bank, and other financially related duties to reduce the likelihood of fraud and mistakes.