Faith in Doing Good Work
The Department of Justice attorney in the bid collusion
case said the DOJ did not like to hurt companies that do good. In the same vein, HUD, the County of Santa
Clara, and the City of San Jose expressed their confidence in the good work that
HomeFirst did. Can we base our
confidence in nonprofits on anything other than faith[1]?
A nonprofit like HomeFirst can
be difficult to understand. Its revenues
came from thirty or more federal, State and local government grants, restricted
and unrestricted private grants and contributions, rents, service fees, and
other sources. A wide variety of liens
and restrictions applied to the use of its assets. The deliberations of its self-perpetuating
Board were kept private[2]. The costs of
its exemption from property taxes and the tax-deductibility of its donors’ contributions
were undisclosed.
Its
performance and impact on society were difficult to measure[3]. Like its competitors, HomeFirst does not systematically report
the outcomes from its work. It does not
describe how many clients are served in its program areas. It does not state the number of clients who
move from homelessness into housing as a result of its efforts. It does not report revenue and costs for any
of its program services, thus keeping secret how much additional support is
needed for any program. A potential funder has no rational basis for judging the effectiveness of the
services that HomeFirst provides or comparing the cost-effectiveness of
HomeFirst to any other service provider.
In all that, though, HomeFirst is very much like its competitors who are
similarly reticent.
HomeFirst’s mission – to confront homelessness by
cultivating people’s potential to get housed and stay housed – does not lend
itself to quantitative measurement. HomeFirst is not unique among
nonprofits in offering a vague vision. Its
competitors voice goals like “ending homelessness,” “fighting poverty,” and “strengthening
communities.” They, too, shun performance
statistics[4] in
favor of the individual success stories that are known to be effective
fund-raising tools[5].
Scandals have occasionally hit for-profit companies, but critics
have seldom targeted nonprofit accountability. Nonprofit
leaders avoid speaking out against fraud because they think that bad deeds are
so rare at charities (with one
notable exception or another) and
their community value is so obvious[6]. But assuming that community value exists can,
by itself, delay demands for accountability for waste and wrongdoing.
Reasons for charitable giving are varied, including social pressures, religious
orientation, income
level, empathy
for those the charity serves, and many other drivers. But with the exception of a small group
pressing for effective
altruism, which is sometimes criticized
for directing donors away from feel-good charitable giving, few express concern
for evidence that their charities actually do good with their contributions.
The tax-exempt status of nonprofit companies opens them to governmental
oversight to ensure that they are not entirely dysfunctional and they are reasonably
transparent and honest[7]. While the potential for official oversight
exists, with limited scope, ambiguous
standards and constricted resources practice can fall short of
potential. For example, despite increasing numbers of tax-exempt
organizations and donations to them, IRS budget cuts contributed to a 7%
reduction in IRS tax-exempt examination staff from 2010 to 2013. The examination rate for tax-exempt
organizations was just .71% in 2013, roughly half the rate for other
corporations[8]. Of the 6,940 nonprofit-related complaints
received by the IRS in 2013, only 355 (5%), resulted in examinations.
Nonprofit managers argue that an emphasis on accountability
through financial and governance reports serves the short-term interests of
funders but diverts attention away from important longer-term, strategic
concerns[9]. They contend that measuring outcomes, like
the number of people who move into and remain in permanent housing, can describe
better the impact of the organization on the community. Managers, however, tend to favor an appealing long-term goal, like ending homelessness, over which they have little control and where
measurement of success will occur after they have moved on to different
companies[10].
One study
of clients served in 2007-2012 determined that the average chronically homeless
individual cost Santa Clara County $83,000 for public services from its
hospital, mental health, criminal, and other systems. The study found that a program targeting
these individuals could generate net savings of $43,000 per client on average. The study encouraged the County to select a
competitor of HomeFirst to run a “pay for success” project targeting the chronically
homeless. Although this client group was
key to HomeFirst’s business, it did not apply for the grant.
The pay for success model seems an attractive way
to build accountability into nonprofit work, but it does
not apply to most HomeFirst programs, whose economic savings are difficult
or impossible to measure. Outcomes
measurement, while potentially valuable, was also elusive for HomeFirst because
testing whether housing was found as a result of the client’s or HomeFirst’s
effort and whether the client remained
housed was expensive or impractical.
If donors choose to contribute money to a nonprofit
that does not report its results and effectiveness, perhaps no one is harmed
but the donors. If a government agency
chooses to give money to a nonprofit whose reported results are unconvincing,
perhaps the harm done to any individual taxpayer is small. But when authorities favor a nonprofit based
primarily on its assumed but unverified goodness, then the whistleblower can feel
the full force of that unjustified faith.
[1] Ashforth, Blake E.,
Dennis A. Gioia, Sandra L Robinson and Linda K. Trevino. “Re-Viewing Organizational
Corruption.”
Academy of Management Review. 33.3 (2008): 670-684
[2] Kearns, Kevin P. Managing for Accountability: Preserving Public Trust in
Public and Nonprofit Organizations. San Francisco: Jossey-Bass Publishers. 1996
[3] Kearns, Kevin P. “Ethical
Challenges in Nonprofit Organizations: Maintaining Public Trust .” In Ethics in Public Management. H. George Frederickson and Richard K. Ghere
(eds.). Armonk, NY: M.E. Sharpe, 2nd ed. 2013
[5] Higman, Rebecca and Katya Andresen. “The
Secret to Getting People to Give: 15 Reasons Why People Donate.” Network
for Good.
[6] Berger, Ken and Jeremy
Kohomban. “Keeping
Quiet About Wrongdoing at Nonprofits Only Makes Matters Worse.” Circle of Philanthropy May 5, 2014
[7] Wells, Catharine. “Holding
Charities Accountable: Some Thoughts from an Ex-Regulator.” The Hauser Center for Nonprofit
Organizations and The John F. Kennedy School of Government Harvard University
Working Paper No. 33.1. October 2006
[8] U.S. Government Accountability Office. “Report to the Ranking Member,
Committee on Homeland Security and Governmental Affairs, U.S. Senate:
Tax-Exempt Organizations. Better
Compliance Indicators and Data and More Collaboration with State Regulators
Would Strengthen Oversight of Charitable Organizations.” GAO 15-164.
December 2014.
[9] Ebrahim, Alnoor. “The Many Faces of Nonprofit
Accountability.” Harvard Business
School Working Paper 10-069. 2010
[10] Campbell, David. “Outcomes
Assessment and the Paradox of Nonprofit Accountability.” Nonprofit
Management and Leadership 12.3, (Spring 2002): 243-259
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