1. RESEARCHERS SUGGEST NONPROFIT FRAUD MAY BE SIGNIFICANT; CALL FOR STRONGER BOARDS, REVAMPED DISCLOSURE PRACTICES

While the full extent of fraud in the nonprofit sector is unknown, evidence suggests it may be significant, according to a recent Working Paper from The Hauser Center for Nonprofit Organizations at HarvardUniversity. The paper by Janet Greenlee, Mary Fischer, Teresa Gordon, and Elizabeth Keating reviewed previous research on the topic and also analyzed actual fraud cases reported anonymously by members of an association of certified fraud examiners. Total loss from nonprofits reported in this small data set of 58 fraud cases was nearly $30 million, and the median loss due to fraud at nonprofits – $100,000 – was equivalent to that reported at public companies and nearly three times that reported at government agencies. Misappropriation of assets – which occurs when assets are stolen or misused – was the most prevalent type of reported fraud in nonprofits. Over 43 percent of the reported frauds were detected by tips, with half of those coming from employees. To help improve accountability and lessen fraud, the authors argue that a nonprofit's board should set the tone for ethical behavior and step up its oversight, in part by establishing an audit committee.

One of the co–authors of the paper on fraud has written a second paper that recommends significantly revamping nonprofits' selective disclosure, the practice under which an organization selectively provides information to some donors while withholding it from others. Elizabeth Keating of HarvardUniversitywrites in this paperthat selective disclosure is a practice that poses substantial risks to the sector by facilitating fraud and financial gain for insiders, and ultimately harming the public's trust. Keating lays out the key legal and financial elements for a fair disclosure system, including third–party oversight and monitoring to ensure compliance.

2. FORMER STATE OFFICIAL LARGELY ENDORSES CURRENT APPROACH TO NONPROFIT REGULATION; FOUNDATION LEADER AGREES, URGES CAUTIOUS OVERSIGHT BY GOVERNMENT

A former regulator of nonprofits largely endorses the current approach to charity regulation, under which officials at the state level have primary authority. Catharine Wells, former Massachusetts Director of Public Charities, writes in a Boston College Law School Faculty Paper, prepared for a nonprofit governance symposium held last fall at Harvard's HauserCenter, that her experience did not convince her that fundamental changes were needed. Wells does call for some modifications in her paper, including creation of a consortium of state attorneys general to focus on national charitable organizations.

Meanwhile, in his Harvard Journal of Law & Public Policy article (see also item #5), the Ewing Marion Kauffman Foundation's Carl Schramm argues that state attorneys general must not view themselves as "super" members of a foundation's board – their oversight activity should be restricted to respect for the founder's intent or an "informed view" of what is truly in the public's interest. Schramm identifies four instances in which government intervention in foundation activity is warranted: egregious cases of obviously frivolous foundation action; cases where foundation resources are diverted for private gain; cases where foundation resources are used to advance partisan political ends; and programs intending to erode or destroy aspects of democratic capitalism.

3. CALIFORNIAFOUNDATIONS REACT NEGATIVELY TO PROPOSAL THAT THEY COLLECT DIVERSITY DATA

Foundations in Californiahave reacted negatively to the latest push to improve giving to minority communities: proposed legislation requiring them to disclose their diversity data. The Greenlining Institute held two meetings in the past two months with foundations and others to discuss the purportedly first–of–its–kind "sunshine" bill, which was introduced in the California General Assembly in February. The billwould require foundations with assets greater than $250 million to collect specified race and gender data pertaining to their governance and grantmaking. The bill is an initial legislative response to the institute's recent researchreporting a lack of diversity in foundation grantmaking. Legislation requiring similar transparency from corporations has improved their investments and practices affecting minorities and others, according to the institute. But according to a draft summary of the first meeting, in March, foundation representatives were in agreement that legislation pertaining to them was not necessary and that its implementation could be costly, even damaging to the sector.

In the meeting summary, which has not been publicly released, the institute chastised the foundations, warning that they can try "to run from the problem, but it will be hard for them to hide," with growing media attention to the issue as well as the institute's continued advocacy. Also, this legislative proposal is the first of its kind in the nation, and the institute says officials in other states and at the federal level are watching closely what happens in Californiaand may put forward similar legislation elsewhere. The institute said that it and the bill's sponsor, Assembly member Joe Coto, D–San Jose, are looking to compromise with foundations to strengthen the legislation. 

4. BOOK SAYS ADVOCACY SHOULD BE AN UNQUESTIONABLE FUNCTION OF FOUNDATIONS

If foundations take seriously the causes their mission statements proclaim, they "absolutely must participate in public policy," according to Hodding Carter, formerly of the John S. and James L. Knight Foundation. Echoing Carter's claim, Emmett Carson of Silicon Valley Community Foundation argues that foundations should ask themselves how often they take risks consistent with the aspirations of their mission statements, especially those that are change–oriented. If seldom or never, they should ask why. Carter and Carson make their claims in the new book Power in Policy: A Funder's Guide to Advocacy and Civic Participationpublished by the Fieldstone Alliance and Grantmakers for Effective Organizations. David Arons, formerly of the Center for Lobbying in the Public Interest and the book's editor, writes in his introduction that foundation participation in public policy in the 21st Century is a "mandatory function" given the pervasive impact of law and policy in almost all areas of interest to foundations. According to Arons, foundations are no different than businesses, which regularly try to influence public policy, except that foundations have a higher duty to the public and those they serve. Arons contends that advocacy should be a core function of foundations. 

Power in Policy is intended as a "starting point" for foundations that want to have a long–term impact on the communities and causes they care about.  It seeks to motivate and educate foundations about public policy, but not serve as a technical guide. Nonetheless, the book offers a 12–step approach to aid a foundation in getting started in public policy, including helping a foundation determine its general "personality type," or some combination of proactive/reactive and prescriptive/facilitative. It also includes essays from leaders in philanthropy about the importance of public policy, as well as specific examples from various foundations engaged in public policy activity, including several small family funders and community foundations.

5. FOUNDATION LEADER SAYS FOUNDATIONS SHOULD BE GUIDED BY DONORS AND TRUSTEES, NOT GOVERNMENT OR OUTSIDE CONSTITUENCIES

Government has little control over foundation assets, in much the same way it isn't in charge of the money in individuals' 401(k) plans, which also involve tax–exempt contributions, argues Carl Schramm of the Ewing Marion Kauffman Foundation.  Further, a foundation is not a "passive bank," beholden to constituencies or stakeholders, such as grantees or community activists. A foundation's actions should be tied to the donor's intent and guided solely by trustees, according to Schramm's paper in the most recent issue of the Harvard Journal of Law & Public Policy. Schramm writes in his articlethat an implicit private–public treaty must exist among donors, trustees, and the government that favors allowing foundations "wide latitude and tolerance" to carry out their efforts to improve society – which has, at least historically, been to help to "smooth the rough edges of the capitalism of their time."

Foundations, according to Schramm, play an underappreciated but central role in working to create expanded opportunity for greater wealth and individual freedom. A foundation should seek improved market outcomes, or approach its work as intending to change the economic environment in ways that allow more people to prosper – advancing individual welfare through market means. Foundations aid the market by intuiting needs and demands that the market itself may find difficult to perceive or articulate. Unfortunately, he continues, in the last few decades many large foundations have "retreated" to small ideas and scaled–down visions of their social import, missing the evolving needs and opportunities presented by economic and societal changes.

6. FOUNDATIONS SHOULD HELP STRENGTHEN PUBLIC'S INVOLVEMENT IN WORKING TO IMPROVE SOCIETY

"The power of enormously resourced foundations in setting the course of the conversation is alarming," according to Dave Bergholz, formerly of the George Gund Foundation, referring specifically to public discussion about improving the nation's public schools.  Bergholz sees this reality as a reflection of the nation's increasing divide between rich and poor, and says foundations must be willing to better understand their role in democracy and work to strengthen the public's involvement in choosing courses of action that improve society. That's a recurring theme of a book that asks people to dream about their ideal world and explore what would be involved in making it real. Peter Karoff, founder of the nonprofit consultancy The Philanthropic Initiative, talked to more than 40 people, many of them foundation leaders, for this book which he plotted out based on their observations. The World We Want: New Dimensions in Philanthropy and Social Change, co–authored with TPI's Jane Maddox, serves as a follow–up of sorts to the 2004 book Karoff edited, Just Money – A Critique of Contemporary American Philanthropy, which was more narrowly focused on foundations.

Henry Izumizaki of the Russell Family Foundation told Karoff that American philanthropy should change how it operates and focus more on grassroots leadership development. The proliferation of nonprofit organizations has become part of the problem, since many nonprofits are currently not connected to the constituencies they serve, according to Izumizaki.  Martin Lehfeldt of the Southeastern Council of Foundations echoes that contention, arguing that philanthropy is overly dominated by a relatively small number of foundations.

7. FOUNDATIONS CALLED ON TO DO BETTER JOB OF PLANNING GRANTMAKING WITH THOSE DIRECTLY INVOLVED IN AREAS OF CONCERN

Foundations should do a better job of planning their grantmaking with those directly involved in their areas of concern – a common–sense approach that nonetheless isn't so common – according to a foundation leader and a sector observer. Melinda Marble of the Paul and Phyllis Fireman Charitable Foundation told Peter Karoff for his book The World We Want (see item #6) that "listening to people in the throes of the problem is at the very center of any successful change effort"; doing so gives you the clearest picture of what is needed. But foundations often resist this step, or follow it in only a perfunctory way, Marble continues, either because of the discomfort associated with "invading someone else's private life" or because it's easier to theorize.

Meanwhile, in the funder's guide to advocacy, Power in Policy (see item #4), the Hudson Institute's William Schambra writes that foundations need to "drop all presumptions of a superior understanding of the public good." Schambra notes that foundations are leading funders of studies documenting the decline of American civic activity yet, ironically, they seldom consider that they, themselves, may be complicit in that disengagement. As he describes it, foundations generally fund programs premised on the conviction that sound public policy can only be a product of "expert program design," and as such they refuse, "with bemused contempt," to fund projects that citizens themselves generate and bring to foundations for consideration. Foundations must work to fund civic renewal as civic groups practice it, not as professional experts preach it, Schambra concludes.

8. NEW BREED OF ENTREPRENEURS LOOK TO MARKET TO AVOID WHIMS OF FOUNDATIONS; FOCUS ON NEEDS OF COMMUNITIES BEING HELPED

Foundation support of nonprofits is often geared toward specific program activities that appeal to the donor – activities that might not have even been carried out had the community being helped been consulted. That's according to a book based on case studies of organizations, both nonprofits and businesses, regarded as exemplary in Latin America. HarvardUniversity's James Austin served as the lead editor of this book, Effective Management of Social Enterprises: Lessons from Businesses and Civic Society Organizations in Iberoamerica, which was produced by the Social Enterprise Knowledge Network, a partnership of business schools in or focused on Latin America, including Harvard. Focused on "social enterprise" organizations, or those working to serve their communities in innovative and effective ways, the book profiles both nonprofits – what it calls civic society organizations – carrying out income–generating activity as well as businesses that explicitly work to generate social value. It reports that "disinterested philanthropy" remains the primary funder of social enterprise efforts, often supporting activities based on whim and not community needs. But a new breed of entrepreneurs is looking to the market and for–profit entities.

9. BOOK EXPLORES HOW FAMILY FOUNDATIONS PERPETUATE INEQUALITY; GUIDES YOUNG FAMILY MEMBERS IN ALTERING PRACTICES

Only a small percentage of family philanthropy resources support low–income citizens, women, people of color, and other minorities, according to a new book.  And a key reason for the shortage: funding priorities derive primarily from donors' personal interests and networks. As long as decision–making authority is based solely on proximity to wealth, family philanthropy will be unable to truly support social change. This book hopes to help change the situation. Distributed in partnership with the National Committee for Responsive Philanthropy, Creating Change Through Family Philanthropy: The Next Generation, was written by Alison Goldberg and Karen Pittelman of Resource Generation and explores how institutional practices in family philanthropy actually perpetuate, rather than ameliorate, inequality. But the book focuses on offering a comprehensive, easy–to–follow guide for young people charged with helping shape their family's philanthropy and who are interested in transforming the field by shifting more family funds to social change, defined as creating a more just distribution of power and resources in society. Opening up family funds' decision–making processes "can feel like a monumental task," and it is a long–term effort, the authors write – while noting the importance of this work given that the funds in question are public resources, not private property.

The book doesn't endorse any particular funding agenda, and it also doesn't come out for or against foundations existing in perpetuity. But it does argue for more deliberation in all areas of foundation decision–making, including consideration of alternatives to perpetuity, such as spending down assets or transferring principal to grantees. It also argues that a focus on socially responsible investing should be an integral part of philanthropy, since investing may turn out to have a significant impact on society.

10. NCRP AIMS TO SPARK 'GRASSROOTS UP' DIALOGUE ON NEED FOR MORE OPERATING SUPPORT FROM FOUNDATIONS

Foundations have become better at stretching their definition of general operating support and continue to apply restrictions to these grants, undermining the real value of this kind of funding. Foundations further work to "blame the victim" by attributing problems with nonprofit effectiveness and sustainability to a lack of training and knowledge of nonprofit leaders – not the unavailability of foundation support for internal infrastructure investment or "working capital." Both arguments are made in a new report from the National Committee for Responsive Philanthropy. NCRP calls on all foundations, regardless of size, mission, and geography, to allocate at least 50 percent of their grants in the form of operating support, and to include indirect costs in project–specific grants. NCRP has been calling for this 50 percent operating support minimum for several years now, but the organization says little has changed.

So now, NCRP hopes to help spark a "grassroots up" dialogue, mobilizing thousands of nonprofits to speak up in their own self–interest. A Call to Action: Organizing to Increase the Effectiveness and Impact of Foundation Grantmaking, written by former NCRP executive director Rick Cohen, includes comments from over 120 grassroots nonprofits, voices it says are rarely heard in national philanthropic circles. Too many foundations take complaints as "arrows through their hearts," the report adds, while noting that the nonprofit representatives bemoaning foundation practices expressed that they like working with their foundation funders and simply want to see the relationships improve.

11. BOOKS OFFER TIPS ON FUNDING SOCIAL CHANGE: BE RESPECTFUL, PROVIDE UNRESTRICTED FUNDING, USE IRS FORMS AS GRANT REPORTS

The book Creating Change Through Family Philanthropy (see item #9) includes a sidebar "Thoughts from Activists on Grantmaking," with tips such as: be respectful of nonprofits' time and don't make them jump through hoops; think about ways to learn about organizations and communities outside the proposal process; and provide multi–year, unrestricted funding as well as emergency support.

Another book also offers tips for grantmakers in funding social change efforts. Ronald Clement of the Haigh–Scatena Foundation wrote this small, lively book, Funding Social Change: From the Inside Outto encourage greater discourse on the relationship between private foundations and social change. It's designed in some measure as a parting gift from the foundation, which will finish spending out its assets this year. Incorporating the knowledge he gained as a social change agent prior to taking his foundation position, Clement offers perspectives from both sides of the relationship on other common practices in philanthropy. One of Clement's tips: Instead of requiring cumbersome financial reports on grantee activities – a practice whose purpose grantees don't understand – grantmakers could simply refer to the IRS Form 990s that grantees file. "Surely this information can give a funder reasonable confidence that its funds were used appropriately," he writes.

12. FOUNDATIONS SHOULD MAKE USE OF VARIOUS FUNDING TOOLS BEYOND PROGRAM GRANTS; CREATE STRONGER 'CAPITAL MARKET' FOR RISK–TAKING NONPROFITS

Many foundations use only a few of the broad range of funding tools and strategies available to them, in part because they're not knowledgeable about them but even more because nonprofits are unaware of them. Nonprofits don't know to ask for different kinds of support, and foundations don't realize there is latent demand for them. Greg Cantori of the Marion I. and Henry J. Knott Foundation writes about what he calls "holistic grantmaking" in a chapter of a recent book published by the FoundationCenter. In Wise Decision–Making in Uncertain Times: Using Nonprofit Resources Effectively, Cantori writes that holistic grantmaking involves not only traditional program grants but a full arsenal of financial, technical, and collaborative assistance tools, including operating grants, matching grants, and work through intermediaries such as regional associations of grantmakers. Cantori also touts micro–grants and emergency grants for specific needs, often made without delay and which offer foundations a quick and easy way to learn about an unfamiliar nonprofit that they may eventually want to fund with larger program grants.

Wise Decision–Making in Uncertain Times was edited by Dennis Young, founding CEO of the NationalCenteron Nonprofit Enterprise and professor at GeorgiaStateUniversity, and it grew out of NCNE's second national conference. In addition to Cantori's chapter, James Ferris of the University of Southern California writes another chapter focused specifically on foundations. Ferris argues that philanthropists should see their role as investors in nonprofits and the overall sector, providing support for capacity–building, infrastructure development, and public policy engagement. Philanthropy should help create a more efficient "capital market" for the nonprofit sector, one that funds innovation, rewards risk, and holds grantees accountable for outcomes.

13. FOUNDATIONS CAN HELP FRAME FIELD–SPECIFIC CHALLENGES AND SOLUTIONS; EXAMPLE OF IRVINEFOUNDATION AND THE ARTS IN CALIFORNIA

Foundations can illuminate and frame the challenges in a field as well as help identify the most promising solutions, according to James Irvine Foundation President and CEO James Canales. Canales wrote about the foundation's work in examining the arts sector in Californiain an essayin the Winter issue of Grantmakers in the Arts Reader. According to a working paper from the foundation that was excerpted in the Reader, the nonprofit arts sector has reached a "breaking point" and must adapt to changing technologies and consumer demand or risk irrelevance. Large–scale changes – from shifting demographics to the growing dominance of the market in every aspect of American life – are affecting how art and culture are created, delivered, and consumed. The working paperargues that one way to address the changing cultural landscape is for funders to invest in cultural policy development. Though funders have done this regularly in areas such as the environment and education, according to the working paper, very few have invested in cultural policy, at least in California.

14. FEW FOUNDATIONS FOCUS ON SOCIAL ASPECTS OF HEALTH, SUCH AS RACE, CLASS; PUBLICATION REVIEWS 25 YEARS OF HEALTH FUNDING

Few foundations concerned with health issues focus their grantmaking beyond the medical care system, health promotion, and disease prevention, to include other social aspects that affect health, including race, class, adequacy of housing, and the environment. That's according to a new publication from Grantmakers in Health examining trends in health since the affinity group's inception a quarter–century ago. Knowledge to Action: Critical Health Issues and the Work of Health Philanthropy over 25 Yearsreviews the critical health issues of the period, from access to care to aging to mental health. A chapter on the topic of racial disparities in health concludes by quoting one observer arguing it's time to move from research to action: "it is time to stop documenting disparities and turn our efforts to doing something about them." And a chapter on public health states that foundations are uniquely positioned to strengthen the public health infrastructure in part by educating the public and policymakers about public health needs.

15. FOUNDATIONS OFFERED ADVICE ON WHEN TO

Foundations can decide whether to fund collaborative efforts by asking themselves a series of questions, beginning with, "Why aren't the organizations already collaborating?" That's according to Renee Irvin of the Universityof Oregon, who identifies scenarios under which funding for collaboration should cease, including if the collaboration has failed to produce any significant external benefits. Irvin offers her guidance in a chapter of Financing Nonprofits: Putting Theory into Practice, a volume drawn from a NationalCenterfor Nonprofit Enterprise conference and edited by NCNE founder Dennis Young. Meant in part as a practical guide to financing strategies for nonprofit leaders and a source of ideas for research, the book aims to provide a coherent overall conceptual framework for nonprofit finance.

Another recently published book identifies some of the trends fostering collaboration among nonprofits as well as across sectors.  The trends catalyzing collaboration include:  the emergence of complex issues, growth in demand for accountability, and the development of new technologies. In Nonprofit Organizations: Challenges and Collaboration, Alfred Vernis, Maria Iglesias, Beatriz Sanz, and Angel Saz–Carranza, a team with significant international experience, write that collaborations offer many benefits, including: helping enhance efficiency through economies of scale; increasing the impact, reach, and coherence of the effort; providing opportunities for mutual learning exchanges; and boosting nonprofits' strength and negotiating leverage for future activities. But nonprofits need to strengthen their governance, accountability, and human resources to make collaboration efforts succeed, the authors note.

Of Related Interest

Book Says Humanitarian Groups Help Spur Action in Crises, But Are Too Dependent on Government
The major U.S.humanitarian groups need to find new sources of funding to free them from their near–total dependence on the U.S. government for support.  Drawing on new sources of funding would allow them to be – and to be seen as – more neutral and independent. That's according to a recent book reporting that humanitarian groups play an informal and largely unrecognized role as information sources on the ground around the world. According to Humanitarian Alert: NGO Information and Its Impact on U.S. Foreign Policy, written by Abby Stoddard of New York University, humanitarian groups serve as an unofficial alert system, and they have helped spur responses by the U.S.and other governments through their urgent messages and framing of crises. The book provides examples of how these groups' information and recommendations influenced U.S.government policy decisions regarding the Somalia and Bosniaconflicts. Conversely, according to Stoddard, places such as Angolaor Sudanare so–called neglected crises at least in part because of a much sparser presence of humanitarian groups in these areas.