Nonprofit Corruption: Description, Causes, and Effects

This chapter provides an overview of the breadth of corruption that has beset the U.S. nonprofit sector. This malfeasance is almost always the result of nefarious individuals seeking significant returns in a field that is only lightly regulated. The process of forming a new charity is relatively simple and legal action taken against unethical organizations is generally confined to the most egregious abuses. Throughout this study, a distinction is drawn between hard corruption, that is, illegal activities that are prosecutable crimes, and soft corruption, which in most cases is the deliberate misuse of a charity’s revenues for personal gain without the risk of legal peril. The Internal Revenue Service is responsible for granting organizations 501(c)(3) status, and they are also the only federal agency that compiles comprehensive data on nonprofits through the required annual reporting on Form 990. Although this information rests in the public domain, only a minority of contributors seek direct access to it before giving. Of the evaluative services that have emerged to intermediate between donors and charities, most rely on IRS Form 990 to examine and interpret the financial and administrative workings of the organizations under their lens. The focus on financial data to assess the viability of nonprofits has come under increasing criticism by those who believe that charities should be judged less by accounting rubrics and more by their accomplishments.