Imagine a good restaurant that hires a new cook who starts to steal. The restaurant ends up going bankrupt. There’s an important lesson here about internal controls for restaurants.
Now imagine a couple of crooks setting up a sham restaurant in order to launder money. This isn’t about lack of controls in restaurants. It’s about illegal activity using a restaurant as a front.
Somehow the lawyers and regulators of the nonprofit sector haven’t figured out this difference. They frequently point to a sham nonprofit that’s been set up by crooks, and use it as an example of a problem in the nonprofit sector, and to warn boards about oversight or conflict of interest. Wrong. Crooks (that’s the legal term) will use any framework that makes sense: nonprofit, LLC, Delaware corporation, etc. There’s a difference between a church being swindled, and a fake church being set up by swindlers.
Fake nonprofits are a problem, but they’re not a symptom of dysfunction in the nonprofit sector, nor are their crimes possible because of inattention from the board. Fake nonprofits set up to defraud the public are a problem for society, and we rely on law enforcement, our district attorneys and charity officials to stop fraud on our behalf. Yet over and over we hear stories of fake nonprofits told to us in seminars about legal issues for nonprofits. We don’t call upon restaurant owners to stop setting up fake restaurants. Let’s stop telling legitimate nonprofits that the crimes of fake nonprofits are a nonprofit issue.
And while I think this over, I think I’ll go have a glass of wine at my favorite Italian restaurant. I hope Michael Corleone isn’t there. –Jan Masaoka
* Two different takes on disabilities in this issue: Ask Rita looks at whether a disabled employee can be fired, and disabilities activist Mary Lester offers simple, nearly-free ways to make your nonprofit more accessible. Micromanagement — the battle ground between boards and executives — gets a fresh analysis in this issue. Finally, we ask your help by participating in an important study, clue you into a 3-Minute Vacation making pop art, and announce a potluck contest.