Stephen Gambescia: Are our nonprofits being good innkeepers?

Criticism of the federal government’s recent freezing or defunding of nonprofit organizations payments, both domestic and international, gives us the opportunity to remind ourselves of this sector’s founding purpose, importance of fidelity to its mission, avoiding mission creep, practicing good stewardship, and the need for more oversight and accountability of nonprofits by all stakeholders. 

At some level, the establishment and operations of nonprofit organizations are unique to the United States. Nonprofits have been part of the American spirit even before its inception in 1776. As a people we accept the call that “We are our brother’s keeper.” Fraternity is a founding principle of the American Ideology, along with individualism, democracy, liberty, and freedom. This fraternity is evident in charitable acts, offered through nonprofit organizations.

As with the other two sectors in American society, government and private for-profit, there is a philosophical foundation for a sector’s existence, an authoring entity, a population served, a jurisdiction, and most important a driving force in contributing to society. The philosophical foundation of a nonprofit is our belief in pluralism in a civil society. They are authorized to operate by the government via a special legal status, to serve in the public interest, in areas needed, and should be driven by a salient need of the public.

Government entities at all three levels appreciate having nonprofits, given the more the nonprofits do, the less government must do in an area, and the less money the government needs to spend to serve the public. Moreover, it is useful to give nonprofits money to serve a population, given they may be able to do good works more efficiently and effectively than the government.

The types of nonprofits vary considerably from providing abortion services to caretakers of zoos. Some look and operate more like corporations, such as hospitals and universities. Most surprisingly to the public, nonprofits are community based and have budgets under $100.00, annually. They influence our economic, socio-cultural, legal, moral, and increasing political systems.

Nonprofits could use more oversight

Most people are familiar with the charitable nonprofits with the legal designation 501(c) 3. Establishing a nonprofit and its legal designation requires several official steps required by a state and the federal government who ostensibly have oversight from its inception to ongoing checks of accountability. The latter is done by requiring nonprofits to complete an IRS form annually reporting a general profile of its mission, programs, people served, fund raising, finances, assets, governance, and at some level personnel, management, and volunteer operations.  The categories of information requested varies according to the nonprofits’ annual budget, wherein nonprofits with relatively small budgets do not file a form or the IRS asks for minimal information. 

However, given the large number of nonprofits in the US, estimated to be from 1.3 to 2 million depending on what organization makes the estimate, how they are counted, when the count takes place, and what types are counted. In short, and counter to movements to have less government oversight, the nonprofit sector is one that could use more government oversight. In fairness to our government at all three levels, there are not enough staff and time to oversee the workings of the millions of nonprofits in the US, even at the most fundamental level of fidelity to their mission and accountability for money in and money out of the organization.

That’s a serious problem that is finally gaining public attention and one the Trump Administration is taking on, but naturally with much criticism from those nonprofits heavily funded by the federal government and those individuals and organizations who resist any action by the President.

The public knows little about the workings of a nonprofit, aside from some high name recognition, sympathy and empathy for the people they serve, and faith that “they do good work.” Consequently, bad actions, practices, and outright illegal behaviors can easily develop in a nonprofit today. These are beyond the expected rouge manager, employee, volunteer, and even board member who commits bad acts of fraud, embezzlement, conflict of interest, and private inurement. Those who work and volunteer for nonprofits do good work but as human nature has it, some will commit bad acts that can taint the reputation of the nonprofit.

Our three sectors are inextricably linked

We recognize that the activities of the three sectors in society — government, for-profit, and nonprofit — are often inextricably linked in how money is raised and spent, how programs and services are delivered, and how those eligible and in need are influenced by these three entities. However, when an entity in any of the sectors gets too cozy in pushing an agenda or used by a select group of people or organizations to advance a private or political agenda outside the public’s eye, it is fair to ask questions of them.

Politics is about who gets what, why, when and how, and who pays. In the policymaking process, a legislative branch is responsible for who, why, and who pays for a benefit. The administrative branch is responsible by and large for the how and when the benefit is received and has oversight to ensure who needs to pay and who gets paid. The Founders put in place two types of checks and balances via establishing three branches, each given authority in select areas and preserving authentic federalism between and among federal, state, and local with their requisite explicit, reserved, and shared powers. 

In the current administration’s movement to make the federal government more efficient and accountable (DOGE), nonprofits both domestic and international have become Exhibit A. The Department’s and President Trump’s easy targets have been the U.S. Agency for International Development (USAID) and universities and by extension local nonprofit organizations. The Administration’s triad rationale to focus on these two numerous and heavily government funded entities is to expose and halt fraud, waste, and abuse, reverse the decades of a “liberal agenda” that has developed unfettered, and focus on what is in the nation’s best interest.

Meeting nonprofits on their own terms, the administration asks three big questions: 1) Have you been true to your mission? 2) Have you been good stewards of the money given to you by the federal government? and 3) Can you show good-faith accountability for money in and money out the door?

Given their analysis both the USAID and most universities have been involved in mission creep for six decades.

The former had a noble mission to provide humanitarian aid abroad for many in need from fighting AIDS to developing ways to provide clean water to people. Certainly, these funded nonprofits and their staff and volunteers continue to do good work. However, this entity became intertwined with political actors and political parties here and abroad that raises serious questions about USAID’s strategic driving force, and if such work should be funded by taxpayers. Similarly, there is recent and growing criticism from a range of individuals and groups that US universities have morphed from their core functions of research, teaching, and being purveyors of veritas to indoctrinating students on the progressive agenda, investing time and money on questionable research agendas, and “tearing down the mission” of American exceptionalism.

Importance of legislative oversight in funding nonprofits

Regarding stewardship and fiscal accountability, Joni Ernst, US Senator for Iowa, explained in a commentary in the Wall Street Journal that in an effort to peel back the onion of federal officials who are paying out 60 billion dollars to some 10,000 contracts, which include businesses and nonprofits here and abroad, she and other senators got little cooperation and suspect information which led them to believe that both federal program managers and the nonprofits and businesses receiving funds were not being good stewards of the congressionally approved foreign aid. Furthermore, while there is no questioning that members of Congress voted to fund the aid, there was little evidence of basic accountability measures along the pipeline of funding and faint or obscure reports of outputs, outcomes, and impact in program evaluation. Such neglect brings into question how the employees of this 10,000-member agency spend their days.

Agency officials dolling out the money and nonprofit leaders taking the money make a note that they should carry on their good work, given that Congress has authorized the spending. What they fail to mention is that a subsequent responsibility of the “power of the purse” is “legislative oversight.” In this regard Congress has abrogated this responsibility to those receiving the benefits and consequently created a cottage industry of rouge nonprofits on autopilot for taking advantage of Americans’ penchant for being a good neighbor.

Are our nonprofits being good innkeepers?

Americans have long embraced the role of the Good Samaritan, helping those in need. However, as illustrated in the well-known parable, the compassionate traveling Samaritan entrusts money to an innkeeper, expecting not only ongoing assistance for the seriously injured man but also responsible stewardship of the funds provided. The innkeeper is trusted to ask for a reasonable fee for his continued efforts to restore the man’s health.

Health and welfare charities and colleges have historically exemplified the American Spirit and its ideals. Yet, these institutions are now facing a significant decline in trust from many Americans. As a result, citizens are asking challenging and delicate questions about how their contributions are being utilized, which is entirely justified given that they are the financial supporters. The fall-out for those in need of American support arises not from the questions being asked, but from how the institutions choose to respond to these fair, reasonable, and responsible inquiries. All will be better off with a high level of cooperation, transparency, and feeling of accountability to this latter approach.

Stephen F. Gambescia teaches managing nonprofit organizations at Drexel University and is co-editor of the book The Healthcare Nonprofit: Keys to Effective Management.