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 2
Why People Give
Week 3
Giving in the U.S. versus Philanthropy Overseas
Week 4
Government Spending and Charitable Giving (Crowding
Out or Crowding In)
Week 5
Corruption in the Nonprofit Sector – Nonprofit
Malfeasance
Week 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 capita
Reflection of both higher income and tradition of philanthropy
Protestant 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 image
Particularly businesses that may not be viewed favorably by the public
Petroleum business, tobacco, etc.
Improves work satisfaction among employees
Retention may improve
Firms may donate to causes that help train needed labor
Interest 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 multiyear 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 billionthere 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
United States
Private
Public
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 Countries
Nation
Central Government
Taxes as a % of GDP
Government Spending
as % of GDP (all levels)
Austria
Belgium
Canada
Denmark
France
Germany
Netherlands
U.S.
43.4%
45.4
32.2
49.0
44.6
40.6
39.8
26.9
50.9
54.8
NA
57.1
57.0
44.1
46.2
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 onetime 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?