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Doug White: Where Does That Money Go?

Jun 2, 2014 by

An Interview with Doug White: Where Does That Money Go?

Michael F. Shaughnessy –

1)     Doug, you have just written an intriguing book – tell us about it.

The book is called, “Abusing Donor Intent: The Robertson Family’s Epic Lawsuit Against Princeton University.”  The lawsuit, brought by the children of people who in 1961 donated the largest gift to support any university to that time – $35 million – claimed that Princeton was not using the money as everyone agreed it would be used.

2)     What got you interested in this topic?

I’m interested in everything that has to do with the nonprofit world and philanthropy, but I pay particular attention to issues that most people don’t deal with at charities, although they ought to.   I teach fundraising, board governance and ethics at Columbia University and I want my students – future nonprofit leaders – to understand the complexities of fundraising and managing nonprofits.  Delving into the issues the lawsuit brought up, particularly donor intent, provides an excellent case study on how donors and nonprofits need to maintain good relations with each other.

3)  Now, let’s talk donations.  How much of, say, a ten-dollar donation actually goes to the people it is designed to help?  How much goes to administrative overhead (electricity, computers, e-mail and internet access) and how much goes to office supplies (Pilot pens, paper, pencils)?

This is a big concern these days, especially after the Tampa Bay Times and the Center for Investigative Reporting last summer published a scathing three-part article on how some charities pretty much steal money from donors.   Although that report focused on the worst, we all wonder how much of our donated dollar actually goes to support the mission of the organization.  While we seem to have informally settled on a broad expectation that no more than, say, 20% of a budget should go to fundraising, maybe another 10 to 15 percent to overhead and the remainder to provide services, we need to remember that the mission won’t be accomplished without a solid infrastructure – people being paid who need pilot pens to write with.  So, while we worry about that issue, the answer isn’t and can’t be specific.

4)  What about religious and spiritual organizations.  Do they use the money more directly?

I have no reason to think faith-based organizations are any better than other charities in the way they spend money.  But we’ll never know because those groups don’t have to report on how they use their money.  While I strongly support the separation of religion and government, the separation clause, as its known in the First Amendment, actually says that the government cannot establish a national religion.   This has come to mean that government must take a hands-off perspective when it comes to faith-based group.  But those groups use public, taxpayer money, so where’s the separation?  In my view, nonprofits that depend on public support – which is to say all of them, even religious groups – should be required to make their financial activity publicly available.

5)  Let’s pick on the Red Cross.  Do you have any inside information as to how they use the money?

I recently read a letter the Charities Bureau, a department within the New York State Attorney General’s office, that asked for a detailed breakdown of how the Red Cross has used donations to help victims of super storm Sandy in 2012.  Yet the Red Cross did not answer that central question.  Unfortunately, the IRS 990 form does not require much detail, just totals on broad spending categories.  The Red Cross is too important to not be more transparent, but it chooses not to be and it seems no one can force it – or any other charity – to be.  That’s why I have advocated (and wrote about it in another book, “The Nonprofit Challenge”) that charities should take it upon themselves to be more responsive to the public’s concerns.  While some charities are great at being aware of that responsibility, I’m afraid most are not.  Not yet anyway.

6)  We have all heard these stories about hurricanes and tornadoes in various far-flung places.  Do the people impacted really get the money, or does some organization get the funds?

Disaster relief efforts are perhaps the most important, while at the same time the most difficult, to monitor for effectiveness.  It’s difficult because many on-the-ground decisions have to be made quickly, and accurate recordkeeping is not always possible.  But closely tracking those efforts is important because the people who support them are giving not only with their wallets, but also with their hearts at a stressful time.   I’d like to see financial reports, the 990 and audited financial statements generated by the charity, keep track of spending on a disaster-by-disaster basis, as well as provide a broad annual rollup.

7)  Colleges and universities often have open and closed scholarships.  By that I mean sometimes the money is earmarked for a certain student, with some specific criteria; for example, the son or daughter of a veteran. Is there anything wrong with specifying where the money should go?

As long as the designation is not too specific, there’s nothing wrong with earmarking a scholarship.  The IRS has a long paper trail on this topic, so the rules are pretty clear.  Basically, a donor cannot specify a particular individual, such as her grandson (yes, that has been tried), and the class of people can’t be too narrow.  Also, a donor can’t specify something that is against the law (for example, whites only).  But designating the child of a veteran should be okay because there are a lot of veterans and, in the way the question is posed here, the donor would not be specifying any particular person or a class of people that would be too small.  Actually, on a personal note, I rather like that designation.

8)  Now, on the other hand, the American Cancer Society asks for money for research. Is this legitimate?

Oh yes.  The American Cancer Society is a good organization.  The general problem you raise here, though, comes from two perspectives.  One is that there are a lot of organizations dedicated to cancer research; so many, I’d say, that the donating public can get confused.  That isn’t to say any particular organization isn’t doing a good job, but I’d like to see a simpler way for donors to determine which groups do what.  The other issue, of course, is that many organizations with the word “cancer” in them have in the past been fraudulent charities – scams designed to basically steal people’s money.  So, while the American Cancer Society is an upstanding place – even though some may quibble with the effectiveness of its budget or the level of transparency it offers on its spending – we have to be alert to those organizations whose missions or activities may not be aligned with a donor’s intentions.

9)     What have I neglected to ask?

You’ve done a good job covering a lot of ground here.  It’s clearer to me than ever before that the public wants to know more than they now do about how charities are run and how they spend their money.  The Princeton book was meant to not only tell a good story – one reviewer called it “equal parts thriller and cautionary tale” – but to alert donors, of all sizes and stripes, and nonprofits how important it is to ensure transparency and good communications – not only in the short run but far into the future as well.

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