Like a Business

Earlier this week I read a story in the Los Angeles Times about how as many as 200 small non-profit organizations appear to have been bilked out of some (or all) of their donated funds by an agency they were also using as their fiscal agent. The amounts in question range from $2,000 to nearly $400,000, and the agencies that have been cheated include everything from political and lobby groups to conservation and child welfare groups; collectively, a significant number of the small non-profits that flourish exotically along the coastal regions of California. The question that kept coming up (both in the story and in the comments) was how this could happen to non-profit groups who are innocently trying to make a better world; how could anyone be so heartless and cruel? The question that kept coming up in my mind was how can anyone be so naïve? Or, at least, it would have been if I hadn’t seen this kind of thing before…

For those who have never spent time on the non-profit side of the street, a fiscal agent (sometimes called a fiscal sponsor) is an agency that provides administrative services for a non-profit that can’t (or doesn’t want to) take care of such functions on its own. In much the same way that a lot of small companies employ a payroll service (one of the companies I used to work for used ADP, for example), a small non-profit can hire such an agency to accept donations, pay its bills, file necessary paperwork and so on – leaving the people who run the non-profit group with more time to work on their actual cause. This can be much more efficient that hiring full-time office staff, especially if the agency is so small that there would only be a few hours for an office manager to do each month. Unfortunately, this sort of arrangement also means that the agency’s leaders are allowing a third party company to control their finances…

Consider, for a moment, whether you’d allow a private company to access your checking account, write checks on your behalf, pay amounts that it feels are appropriate without telling you – and pay itself out of your funds for doing this. Not a bank, mind you; there was no Federal guarantee of your deposits, no oversight from any level of the government, no insurance on your funds. Just a private company – and a for-profit one, at that – run by people who claim to be honest and trustworthy. As a private citizen you might go along with this – it would depend on how much you hate writing checks and depositing incoming funds – but a business doing this without some serious safety measures would run somewhere between gross incompetence (for a sole proprietorship) and complete fiduciary misconduct (for a corporation). Now, consider that however much they may hate to admit it, all non-profit groups (everyone operating under Section 501c of the tax code, including 501c3 charity groups) are corporations operating under the corporate regulations of the state in which they are registered…

I’m not saying that all fiscal agents are corrupt, or that all such relationships are unwise; I’ve worked with some quite large non-profits that used fiscal agent arrangement to good effect, and prospered as a result. But all of those cases involved using a city government, a state agency, or (in some instances) a larger non-profit foundation as the fiscal agent – and the people running the non-profit still kept a very close eye on their partners. What I am criticizing in this post is an agency handing its funds over to a private company on the basis of the company’s CEO having worked for other fiscal agencies and worked on environmental causes – and then assuming that nothing could possibly go wrong because they are a non-profit agency trying to do good for all mankind…

As I’ve noted before in this space, a non-profit corporation can do anything that a for-profit company can do, except turn a profit. Unfortunately, this includes being bilked by unscrupulous, corrupt, or simply incompetent contractors, and neither will a non-profits good intentions and good works do it any good in court. People in the non-profit sector are always talking about running their agencies “more like a business” – except when that would involve learning about business, learning about running a business, or doing the boring, tedious, and critical parts of running a business (such as depositing donations and paying bills). Until “running the agency like a business” becomes more of a priority and less of a catchphrase, stories like this one are just going to keep happening…