Capital Commentary is the weekly current-affairs publication of CPJ, written to encourage the pursuit of public justice.

The Public Face of Private NonProfits



October 27, 1997

On September 23, John G. Bennett, Jr. was sentenced to 12 years in prison with no chance of parole for the crime of defrauding more than 1,100 nonprofit organizations and individuals through his "New Era Philanthropy." Many of these are faith-based groups, including a number of Christian colleges, seminaries and social service agencies. Bennett solicited investments from nonprofits, promising to return them doubled out of the contributions of anonymous individuals—a so-called "Ponzi scheme" which was found out only after there was no new money to return.

The New Era debacle shook the nonprofit world. It raises all sorts of troubling issues related to charitable giving and financial accountability. It is also a timely reminder that nonprofit organizations—including churches—wear a public face. They enjoy tax exemption privileges and the right to solicit tax-deductible gifts. In return, charities are to be good stewards of a public trust. They are expected to be true to their own mission and to serve a purpose broader than that of their own organizational self-interest.

Nonprofits are open to public scrutiny in a way that for-profit businesses are not. Their tax returns and other organizational papers must, by law, be made available to anyone who requests them. If their chief executive officer receives too large a salary, the IRS can remove their tax-exempt status. No surplus funds may be paid to the board of directors or anyone else—all funds are returned to operations. In addition, nonprofits continually justify themselves to the public through public relations materials, grant applications, and the like. Scandal within any nonprofit—the New Era case as a prime example—has the potential for damaging the credibility of all.

How should nonprofit charities behave in this public environment? To whom in the community—other than the IRS—are they accountable? A trendy term nowadays is "stakeholders." The idea is that all sorts of groups have a stake in the nonprofit. I prefer to call the groups with which nonprofits interact their publics. Publics include program participants, donors, board and staff, government and foundation funders, and community groups. These groups are vital to the mission and programs of nonprofits. Each of these groups plays a role in holding the organization accountable.

And here's the difficulty. Not every public will be able to assess whether the nonprofit is effective in fulfilling its mission or is using resources efficiently. Nearly all information about the organization comes from the organization itself. There is nothing comparable to the "bottom line" in the business world by which to judge the success of the nonprofit.

But as nonprofits operate in an environment of increasing scrutiny, their publics will better be able to hold them accountable. For example, participants know to what extent they are treated compassionately and with dignity. Businesses can assess the effectiveness of the job training programs. Taxpayers are given achievement and drop-out rates from schools. Neighborhood residents live with the changes that community development organizations help bring about. Concerned citizens can evaluate the relevance of public policy publications.

Let's welcome the opportunity for greater accountability to all our publics. Perhaps with more accountability the John Bennetts of this world will be smoked out earlier, before they do so much damage. Good intentions alone are not enough to justify nonprofits!

—Karen Hosler Kispert, Director
   Indian Valley (Penna.) Housing Corporation


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Capital Commentary is a weekly current-affairs publication of the Center for Public Justice. Published since 1996, it is written to encourage the pursuit of justice. Commentaries do not necessarily represent an official position of the Center for Public Justice but are intended to help advance discussion. Articles, with attribution, may be republished according to our publishing guidelines.”