Striking a Balanced Response to a Fraud-Focused Atmosphere

NFC has a lot of participants in the great state of Minnesota, where a recent nonprofit fraud case involving $250 million in federal funds has galvanized the public. Unfortunately, as tends to happen with these things, its impact has rippled out, creating problems for other nonprofits in Minnesota and around the country. These problems, in summary, are associated with effects on external credibility and the need to review internal compliance processes in the face of a relatively hostile regulatory atmosphere.

Such ripples can cost dearly in terms of donations and additional compliance requirements, but nonprofits can mitigate some of the losses. We emphasize the “some” qualifier because, as this excellent article by Sarah Webber points out, some enforcement taking place may be more politically than administratively motivated. Webber points to the April indictment of the Southern Poverty Law Center, writing that the “indictment has raised concerns about increased federal involvement in policing nonprofits—especially those that take actions the government may find objectionable.”

We won’t try to summarize the article for you, but in our estimation, it is one of the most balanced descriptions of the current regulatory/compliance atmosphere we have seen. She concludes, “As an accounting professor who studies nonprofit fraud, I see the SPLC indictment and similar actions as a broader shift toward more aggressive government oversight of nonprofits and the policing of charitable activities.” Some business literature describes this kind of operating environment as “hostile,” and while it should not intimidate nonprofits from doing the mission-oriented work they are established to perform, it should cause us to take additional precautions to eliminate any unnecessary problems. This might include a closer-than-usual review of your documentation and billing systems and the compliance requirements in your contracts — or even refusing contracts that would load you up with additional requirements that might overstress your systems. Now is the time for a preventative approach, as well as a closer relationship with field intermediaries to get a heads-up on impending issues and to advocate for fairness.