Mismanagement at nonprofits? Think again

Tuesday, June 14, 2022

Mismanagement at nonprofits? Think again
By: Kathryn O'Neal-Dunham, CEO, Philanthropy New York, and Marlon Williams, Vice President of Collaboration and Policy, Philanthropy New York. New York Nonprofit Media originally published this piece on June 3, 2022.

The recent high-profile indictment of Lieutenant Gov. Brian Benjamin for directing state funds to a nonprofit run by a real estate developer in return for illegal campaign contributions has further contributed to a loss of trust in nonprofits. This loss of confidence is made glaringly apparent by top-tier news outlets digging for stories of mismanagement and fraud in the sector

New York City has the largest municipal budget in the country at $95 Billion, with 35,000 nonprofits entrusted with $16.4 billion in charitable giving each year and the responsibility of holding together a critical safety net for New Yorkers. With the size and scope of that responsibility, the government’s shifting of fiscal responsibility to nonprofits and inability to pay them on time is undoubtedly a much bigger story than the few individuals who mismanage or misappropriate funds.

As a membership association with more than 280 philanthropies providing more than $6 billion in grantmaking annually to the non-profit sector, Philanthropy New York recognizes that our membership may have witnessed some form of mismanagement or poor oversight in a grantmaking portfolio. That same expertise, however, provides us with critical insight. That’s why PNY members have come together to fund work to build relationships with the newly elected mayoral administration and City Council. We are championing:

  • On-time and in-full contract payments
  • A living wage for health and human services workers
  • A living wage standard for New York City.

In New York City, the same government that routinely outsources critical services like foster care, care for the developmentally disabled, meals for the elderly, and after-school programming does not pay for these services on time or in whole. This has real-life implications for the ability of the nonprofit sector to manage these services efficiently. Imagine a business that routinely had to float an accounts receivable line in the tens of millions of dollars. New York City often forces nonprofits to establish lines of credit in the millions of dollars each year, paying hundreds of thousands of dollars in banking fees to “float” government contract payments.

When the federal government instituted the tax code that allows private philanthropy to exist, surely it never intended for philanthropic support to underwrite banking fees? Rather, grantmakers have a critical need to ensure that nonprofits can sustain core infrastructures such as IT cybersecurity and staff development, innovate new programs in response to needs identified by their clients, and build campaigns that advocate solutions to systemic inequality.

Further compounding this issue are government contracts that routinely set near-poverty wages for the frontline workers who provide the social services serving as a backbone to the city. This means that the workers responsible for ensuring that the most vulnerable can get the resources they need to live – who are most often women of color – are often on government assistance because the pay they’re receiving is not enough for them to take care of their families. 

A few brave nonprofits have risked deficits to raise wages without contractual support because they understand that the women of color supporting our most vulnerable New Yorkers should not be made susceptible to poverty themselves due to choosing a profession that centers on the needs of others. Philanthropy New York is proud to be a member of the #Justpay campaign, an effort led primarily by the Human Services Council focused on making sure that people working in the nonprofit sector are paid wages commensurate with the value that they’re creating for New York City. It is far past time to end government-sanctioned poverty wages for human services workers.

Despite a heroic, innovative, and relentless response the health and human services sector kept New Yorkers going during a rollercoaster two years of endless pandemic spikes, public trust in nonprofits is down. As our colleague Phil Buchanan of the Center for Effective Philanthropy recently pointed out, the latest Edelman Trust Barometer results reflect that in the U.S., trust in nonprofits is declining. And this is a major concern. Trust, and the systemic support that creates it, are critical to building a robust social safety net and a flourishing civil society. Sensationalist stories of fraud mislead the public about the extent to which mismanagement happens in the nonprofit sector and fail to expose the significant structural barriers nonprofits face to serving the public.

PNY Members: Register today for On-Time and In-Full: Partnering with the City on Nonprofit Contracting taking place on Thursday, June 23rd, for a discussion on the concrete action plans risen from the City’s Joint Task Force to Get Nonprofits Paid On Time. Bring your burning questions, recent observations, and grantee feedback to share with City officials as they discuss:

  • How the City plans to address delays in the contract registration process, reduce payment delays, and deliver on its commitment to increase the indirect cost rate in contracts  
  • The role of philanthropy in this work and how it can be shaped to move this agenda forward