Saturday, September 30, 2006
Still every month (even every week at times), another story of a nonprofit fraud. NOTE: these are not charities who have defrauded the public, but rather charities who have been the victims of fraud.
SEPTEMBER 29, 2006
METHUEN, Mass. A Methuen woman faces two dozen felony charges for allegedly stealing from the Children's Glaucoma Foundation. ...45-year-old Karen Sicher stole more than half a million dollars from the Boston-based nonprofit organization....
SEPTEMBER 24, 2006
Elaine Bernard and Carol Dela Torre (launched) Genesis in 1987, eventually turning the Fresno group home and foster-care business into an $8 million annual enterprise caring for neglected, abused and abandoned children...Now the sisters...are accused of using the nonprofit's credit cards and business checks to skim more than $500,000 from the nonprofit business between 1996 and 2002, squandering public money intended for children on vacations and shopping sprees.
SEPTEMBER 12, 2006
TEWKSBURY — A former chief financial officer and another ex-employee of Oldwick's Work-Family Connection have been charged with embezzling more than $50,000 from the nonprofit agency, authorities said.
To further explore (deconstruct?) a recent non-profit fraud and see what steps you can take to prevent it at your organization refer to Risky Business.
Technorati Tags: Charity, Fraud, Fraud Detection, Hall of Shame, Nonprofit
Monday, September 18, 2006
Who here is a compensation specialist? Not me, but I know there is a science to it. Salaries aren't (usually) plucked out of thin air. They are determined, not just by mean and median, but by geography, skills, the market and scope of responsibility.
Therefore, before we evaluate whether a $200,000+ salary could be appropriate for a non-profit executive, let us go through three steps:
STEP ONE: CONTEXT
Start with some stats cut and pasted from the "Economic Statistics Briefing Room" section of the White House's website...
Median household income was $46,326 in 2005, up 1.1 percent from 2004 after adjusting for inflation. This is the first annual increase in real median household income since 1999. Since 1967, the first year for which household income statistics are available, real median household income was up 30.9 percent
How does that break down by ethnicity?
Black households had the lowest median income in 2005, $30,858, which was 61% of the median for non-Hispanic White households, $50,784. Asian households had the highest median income among the race groups. Their median income was $61,094, about 120% of the median for non-Hispanic White households. Median income for Hispanic households was $35,967, which was 71% of the median for non-Hispanic White households.
Want to read the full (depressing) report? 2006 Stats.
STEP TWO: GEOGRAPHY
Now let's take that $46,000 and say you are earning that in Los Angeles, but want to go work for a non-profit in New York:
The cost of living in New York, NY is 42.1% higher than in Los Angeles, CA Therefore, you would have to earn a salary of $65,351 to maintain your current standard of living.
Likewise, earning $61,094 at 42.1% would need to earn $86,794
STEP THREE: SCOPE OF RESPONSIBILITY
Now that we are in New York, how big is the budget we are going to manage? How many employees? How many clients? What are our performance expectations? Managing 1-5 million? Maybe $60,000? Managing 10 million? Maybe $75,000? Managing $50-$200 million? Surely at some point $200,000 doesn't sound unreasonable.
On the other hand, that Dallas CEO who gave himself a million dollar salary made us all look bad...
I'm not alone in trying to understand this perplexing issue, here is a really good exploration:
Nonprofit Compensation: Some Challenges of Comparison
This from the Nonprofit Times salary survey:
Male executive directors were paid $108,555 on average last year (2005), while females holding the same position received $77,086. Men executive directors are expected to receive $109,516 this year (2005), and women executive directors are slated to receive $79,992.
Now that I think about it maybe I should go work for National Organization for Women...
Technorati Tags: Excessive Compensation , Nonprofit
by pam ashlund
Most folks in the entertainment industry know that they are after the 13-35 market, but what's the magic number for nonprofits? Are we trying to reach an audience to educate? to fundraise? to reach out and help? If we're advertising the services of a teen pregnancy prevention program then maybe our audience is 13-17 year olds. If it's an audience of givers then maybe it is just wealthy people in general. All I know is that if we are trying to reach today's high schoolers and we aren't completely immersing ourselves in YouTube and MySpace, then we have missed the boat.
Yes the girl in this vlog is just doing a spoof, but it speaks for itself in terms of untapped potential:
I'm visualizing a link to an online giving page where a pull-down menu allows the donor to pick their coffee-drink giving level....Frap & Scone - $8.95....1 lb Rare Ethiopian Whole Beans - $28.50, etc.
Technorati Tags: MySpace, YouTube, Guerrilla Marketing, Nonprofit, Vlog
Wednesday, September 13, 2006
FREEDOM IS SLAVERY
IGNORANCE IS STRENGTH
$200,000 IS EXCESSIVE COMPENSATION
How did I wander into this strange land where nonprofit executive salaries over $200,000 may be considered excessive?
When you are a lone voice standing against the crowd you are likely to be labeled a) schizophrenic (R.D. Laing); b) a terrorist (G.W. Bush); c) mental-patient (Ken Kasey); d) paranoid (Sydney Pollak); e) neurotic (Freud); f) a poltergeist (Spielberg).
In the movies (at least the movies of the 60’s and 70’s) when you stand by your guns against all odds you are a hero (especially if you triumph in the end). I’m thinking of Dr. Strangelove: How I Learned to Stop Worrying and Love the Bomb; RollerBall; One Flew Over the Cuckoos Nest, etc.
Even fairly recent movies, such as The Matrix, speak to the issue of a hidden reality which we are either afraid (or not permitted) to see. Sadly, in that film, the “false” reality is so powerful one has to take a drug (the red pill) to break through to the other side and see “the truth”.
That which we are afraid to say, not allowed to say, can not (ultimately) be repressed. Thus say the psychologists and philosophers of this century (Freud and his theory of the unconscious, Jung and his shadow, Orwell and double-speak). Just the act of “naming” can be a relief in itself.
In an ironic footnote, the very interdependence of thought and speech has proven to be a contentious hypothesis rather than an obvious fact.When linguists, Sapir & Wolff explored the issue, that language might effect (or limit) thought and behavior, a disciplinary controversy erupted. Turns out the hard case “can you have an idea if you do not have a word for it?" is difficult to prove. I will side-step this raging linguistic debate by not worrying about proving the “hard case”.
Whether chicken or egg, we can either not express what we can not conceive of, nor conceive of what we can not express.That place where language and understanding and mental health converge is famously explored by George Orwell in 1984 through Newspeak (the artificial language imposed by the Party to limit the capacity to express or even think "unorthodox" thoughts).
That is why, when I came across the AFL-CIO’s “Executive Pay Watch” I felt like I had taken the red pill, broken through to the other side, seen through the screen put up by non-profit new speak. In 2004, the median non-profit CEO salary was $291,356 but here were the mid-range salaries of the nations top CEO’s:
Alan G. Lafley, of Procter & Gamble earned $24,620,600; Kenneth I. Chenault American Express earned $23,619,693; Charles O. Prince of Citigroup Inc. $22,994,729; William B. Harrison of JPMorgan Chase & Co. earned $22,338,815;Kenneth D. Lewis of Bank of America earned $22,027,984.
Compare these to your salary!
 Laing, R.D. (1967) The Politics of Experience and the Bird of Paradise. Harmondsworth: Penguin.
 Nineteen Eighty-Four, its terminology and even its author have become bywords in discussions concerning privacy or state-security issues. The term "Orwellian" has come to describe actions or organizations reminiscent of the totalitarian society depicted throughout the novel.
 Chronicle of Philanthropy, September 30, 2004 Executive Pay Rises Modestly “Trend could continue as IRS increases scrutiny” by Ben Gose
Technorati Tags: Blue Pill, Doublespeak, Excessive Compensation, Newspeak, Nonprofit, Red Pill
Tuesday, September 12, 2006
by pam ashlund
I was thinking about the notion that nonprofits are run by women. That is probably still true, I'll have to look around for some stats. In my quest I came across the Women in Engineering organization. I didn't find stats, but I did find this:
Contact Webmaster Peter Wong at: email@example.com
But either way, that got me thinking about a group my sister introduced me to years ago: Society of Women Engineers. I surfed over to their site tonite to see what the dismal stats were on women holding jobs in engineering, and here is what I found:
We've come a long way baby. sigh.
Technorati Tags: Nonprofit, Womens Issues, Women in Engineering
Sunday, September 10, 2006
by pam ashlund
"New" nonprofit rules for recognizing revenue were established by the Financial Accounting Standards Board back in 1993 (FASB 116), links summarized in a previous post.
Then why now is the subject of Revenue Recognition suddenly so important? File it under “Blame it on Enron”. When this infamous company decided to recognize revenue based on their projection of future sales (NOT completed sales), they opened the door to a previously unimaginable new chapter in the ongoing novel of Fictional Accounting. The guys who came up with this scam were known as "The Smartest Men in the Room". Were they? The answer is yes (and no) and yes.
Madness in the Method?
Even though their method was clearly preposterous, the lesson we can learn from their sad example is that accounting is mostly, but not ALL hard science. Many accounting decisions involve significant “management discretion”. Any area of accounting that can change depending on the opinion of managers is a danger area. Revenue Recognition is one of these areas.
Booking a sale as "Income" involves a lot more speculation than completing a unit of service or finishing a work project in the nonprofit arena. But nonetheless the hammer has come down upon non-profits just as if we wielded the same power than Enron had (as if!). The for-profit world estimates that the new compliance regulations imposed after the Enron scandal added another 5% to their overhead costs (translating into billions of dollars annually). I sure hope this makes us all safer from giant acts of fraud, but somehow I doubt it.
But back to nonprofits and revenue recognition. Where can we get into trouble? Occasionally we do recognize revenue that we haven't billed for yet. Following generally accepted accounting practices, we class that income as an unbilled receivable. Exactly what is that? An unbilled receivable is an abbreviation meaning “earned, but unbilled”. I generally interpret this to mean having not invoiced. Reasons for not sending an invoice may vary, but will generally not be sent due to a contract that is not in place. The decision to classify a receivable as unbilled does involve managerial discretion.
The most significant deciding factor is not literally “did I mail the invoice”, it is “can this invoice (mailed or not) be processed for payment”. 99% of the time both conditions are true: a) the invoice cannot be processed for payment because the contract isn’t signed yet; AND b) we did not mail the invoice because we know it won’t be processed. When in doubt consider the receivable unbilled because the alternative is it might be incorrectly mistaken for an aging receivable eligible for collection when in fact it is not “payable” yet and can not be counted on for continuing cash-flow.
Auditors trained in detecting fraud now look very carefully at these as “areas of risk”. Most abuses in these areas can be spotted by trend analysis. Businesses wishing to be proactive ought apply the closest scrutiny to these areas and be sharply aware of how these figures will be perceived (by the public, by auditors, and by potential donors).
Please note that when an auditor observes a sharp rise in unbilled receivables this may indicate to them that management’s estimate of the percentage of work completed is too aggressive.
Those with responsibilities for managing finances would be wise to scrutinize receivables classified as unbilled every bit as closely as those classified as aging grants receivables.
The Emperor Has No Clothes
Why are the "smart guys" guilty of anything when their uber-risky accounting method "mark to market" was approved by the Feds? The Securities Exchange Commission approved it (for them alone) in 1992. Why not just hold SEC accountable? This whole idea is brilliantly (and succinctly) explored in Timothy Carney’s Op-Ed piece: Feds Were Accomplices to Enron Crooks, Human Events, June 12, 2006.
Death and Taxes
Enron Founder, Key Lay, died of a massive heart attack at age 64 on July 5, 2006.
When Stanley Milgram ran his historic experiment demonstrating how far subjects would go in obedience to authority, he proved how hard it is to stand up and say no.
Two woman who really knew what was wrong had an uphill battle (when told essentially "don't worry your pretty little head about those things darling" both Bethany McLean (the fortune magazine writer) and Sherron Watkins (the whistleblower) really had to believe in themselves to overcome the mass psychosis and stand up.
Keep Your Sense of Humor
The Enron Movie site has a pretty cute interface with which to review with scandal.
Technorati Tags: Enron, Fraud Detection, Non-Profit, Nonprofit, Revenue Recognition, Scandal
Tuesday, September 05, 2006
by pam ashlund
When will nonprofits learn what is common knowledge to politicians? Modern political strategy stands on three pillars (according to Wikipedia): Message, Money, Machine. The entry-level campaign strategist understands that the second two won’t come until the first pillar is set up...establish the clear message (and ideally condense it into a catchy sound bite).
Let’s face it, we have an uphill battle on money and machine. If we raise too much money--unrelated business tax, if we raise too little--program cuts, if we spend it promoting our cause--misuse of funds; if we hire savvy leaders—Excessive Compensation! If we hit the streets-unallowable costs; if we use our volunteer activists? Lobbying; If we hook up with local politicians? Loose your tax-exempt status!
But Message? There are no barriers in our way here. Who are we? What do we want to be? And once we know why we are here…what do we bring to the table? The later should be in the forefront of every givers mind.
If you are seeing a nonprofit version of a monopoly game (go directly to jail do not collect $200)…you are reading my mind.
WHEN YOU’RE UNDER A CLOUD…LOOK OVER THERE!
What to do when the message is already out there and it isn’t what you were wanting? Take a hint from the message masters: Politicians. Politicians are no strangers to scandal (did I say that with a straight face?). When they want to rebound after a scandal do they set up workshops on Accountability? NO. Do they write codes of conduct? NO. Do they hire compliance officers? Not a chance. They turn to the staple of magicians everywhere—misdirection. Give the public some compelling new vision, take their minds off the past and look toward a new future.
NEW METAPHORS FOR NONPROFITS
File this one under "I wish I said that!":...and the honor goes (dramatic pause) to Andrew Taylor and his blog The Artful Manager. Andrew had this to say:
“nonprofit...organizations have focused on a corporate ideal...effectiveness, efficiency, professionalism, best practices, change management, accountability...But what if, all along the way, we fundamentally misunderstood what it meant to be run "like a business"? What if our management metaphors actually contribute to the problems we hope they will solve—separateness, disengagement, inflexibility, entropy, and stress?”
I’d like to join Andrew in seeking a new set of metaphors.
WHO'S SETTING THE AGENDA?
Agenda is a funny word. Merriam-Webster’s lists two meanings: 1 : a list or outline of things to be considered or done
Sometimes the two meanings become one and the same, when the one with the "agenda" writes the "agenda"
Here’s the question: does the non-profit sector define it’s own agenda or is it defined for us?
There will always be the Senator Grassley's of the world, leading witch hunt’s and pointing out what’s wrong.
For an answer, I offer the example of Abraham Maslow. Instead of accepting psychology as a science that identifies and defines illness and cures, he asked what a healthy person would look like. That optimum state of being he defined as the self-actualized individual.
Maslow didn’t want to know what a neurosis was, he wanted to know what we could become, and in what direction we should proceed on that journey.
That simple change of focus was revolutionary to psychology and the same could be true for the nonprofit world.
What would a self-actualized non-profit sector do? What is this “third” sector that is not a church and not a governmental entity? Will we allow it to all be reduced to a tax-exempt status? That is what Grassley would have us be. So many challenges focus on taking away the tax exempt status of this type or that type….these challenges might help us define ourselves in the negative (by defining what we are NOT). But what did we think we were in the first place?
There’s an analogy here with the fate (failure?) of liberalism. What would it take to put forth a cohesive liberal platform? When did it become an insult (e.g. damn liberals)? Answer: a long time ago! How did a series of important ideals get reduced to their lowest denominator?
At this point we can’t even say we’re in business to “do good”. As we all know “do-gooder” is an insult.
Well, I’d better get back to the blackboard…I have my work cut out for me! In the meantime read the first article in this series: Identity Crisis.
Technorati Tags: Excessive Compensation, Maslow, Grassley, Lobbying, Marketing, Nonprofit, Tax-exempt Status