Seeking Solutions: Greater Oversight, Self-Regulation, or a New Direction

This chapter considers possible solutions to the problem of corruption in the charitable sector. It is argued here that only when all these measures are employed in concert will nonprofit malfeasance be effectively controlled. First, the regulatory environment must be strengthened, and if legislative solutions are not possible at the federal level, then individual states should undertake appropriate action. A simple reform would be to require all organizations to submit financial reports beyond IRS Form 990; this additional step should take the form of either an independent audit or a less rigorous compilation or review. Independent voting boards should become universal as this management structure demonstrably improves performance by assuring greater transparency and accountability. Beyond these externally mandated controls, the charitable sector must work to clean its own house. In the spirit of reform, nonprofits, regardless of their size, should embrace professional associations that uphold financial and accountability standards. This sector-wide initiative to demonstrate effective stewardship practices would be a win–win, as it would rout out bad actors in the field while increasing the confidence of donors. In the absence of such concerted efforts at reform, charities face an uncertain future in which contributor confidence may collapse. In the worst case scenario, the federal government could impose performance standards as a condition of obtaining and keeping 501(c)(3) status. With the news cycle making the public, and particularly contributors, ever more aware of significant ethical lapses in the nonprofit arena, philanthropy needs to be vigilant in demonstrating its essential role as a responsible complement to the governmental and corporate sectors.