The Nonprofit Ethicist | Winter 2006

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Dear Nonprofit Ethicist:

I am on the development staff of a private school which raises money for, among other things, scholarships. This keeps the school halfway accessible and the student body halfway diverse —both worthy causes in an environment that can get somewhat precious.

Two years ago a parent approached a business acquaintance for a donation and, although he did not come away with cash he did manage to acquire three signed prints from a local young and very hip artist, now deceased, whom I happen to admire very much. The artist started in graffiti and was controversial and I don’t think the board overall approved but they took the donation on the basis that they would be sold at the school’s annual auctions as, indeed, one was a few months after the art was secured. Maybe it was the audience, but the first piece sold at less than what was expected by the auction committee.

And that was the last that any of us have seen of the remaining pieces. The board member who had acquired them was unhappy about what we had gotten for that first one so he started a discussion on the board about how to handle the remaining two but the board is less than fully functional and that discussion has never been resolved. Meanwhile the paintings are at the now former board member’s house since he resigned the board more than six months ago. The board member who is most vocal about the need to get the paintings back under our control is widely seen as having had a longstanding quarrel with the other former board member with the paintings. When she brings it up in meetings a business colleague and golf buddy of the former member, also on the board, creates such an angry stir that everybody backs off.

I feel very uncomfortable with the situation and am beginning to feel like it’s come down to my job or my self-respect. How do I begin to approach this situation as an ethical issue? Is this theft or a lack of adequate controls or what? I feel like a duck outta water.

Dear Ducky,

Methinks the buddies of the former board member do protest too much. It sounds as if they know the paintings should be returned but don’t want to yield to someone they regard as an “enemy.” When cliques form on boards it’s almost impossible for a board to function well. One clique usually dominates and bullies everyone else, which is happening here. But I digress.

I assume the possessor has not signed a custody agreement acknowledging the organization’s ownership and his or her responsibilities to preserve and protect the organization’s property. Every day the paintings are out of the organization’s control the board further abdicates its fiduciary duty. The longer the possessor has the paintings, the harder it will be to get them back, and the dumber the board will look should it try to make a public issue of it later. I hope the minutes reflect the continuing controversy, because the possessor might eventually be legally entitled to keep them permanently under the doctrine of adverse possession.

To defuse the situation, try shifting the focus of debate. Focus on insurance. If the possessor claims that his (or her) homeowner’s insurance policy covers the loss, the organization should insist on being added to the policy as an additional insured —otherwise the possessor will get the money in case of loss. Or, focus on public benefit. The possessor presumably wants to make sure the paintings are withheld from the market until prices improve, but the public receives no benefit while they are in his home. Try suggesting loaning them to a museum long-term.

If these tactics don’t work, someone should write a letter to the possessor identifying all of the parties who might be distressed to learn that someone has appropriated the painting for personal enjoyment —the parent who solicited the donation, the donor, the executor of the artist’s estate, the IRS, and your state’s Attorney General. If that doesn’t work, send these parties a copy of the letter and, for good measure, send it to the local papers. I don’t like anonymous letters, but I’ll bet one or two well directed ones will get results, especially when the IRS revokes the donor’s tax deduction retroactively. Expect some hard feelings. Maybe a few people will even resign from the board, but that might not be a bad thing.

By the way, is the organization prepared to preserve and protect the paintings once it gets possession? It had better plan ahead. It would be hugely embarrassing and costly to recover the paintings and then have something happen to them. It is even more important to address the problem of board dysfunction and an executive director who seems to be strangely disengaged from an important issue.

Dear Nonprofit Ethicist,

I am the new executive director of a small faith-based organization that has a lot of volunteers. In fact, we pretty much don’t have any other staff and I spend a lot of time just trying to keep people scheduled to work on the food pantry and free thrift shop. The question I have is maybe a little penny ante for you but let me try it on you anyway because we have disagreement about it here.

Nobody who volunteers here has any money and so they are very often as much in need as anyone else who uses our services. The food isn’t such an issue because everyone pretty much comes in (as far as I know) during the prescribed hours and takes the prescribed mix of food. Those who work on the sorting and boxing of the food, don’t (as far as I know) take anything extra home. They take the same mix. But I do know that when the clothes are being sorted and one of the volunteers spots something that would suit one of their children or an uncle they might put it aside to take home. I do not believe anyone is selling items or anything like that but one or two of the other volunteers have asked me about it. One has (to me) called it thievery.

Is it? We aren’t even big enough to report to the IRS but we are a 501(c)(3). I don’t want to get the organization in trouble—on the other hand, we only manage to get things done through the volunteers. Do I need to challenge them? It would be so awkward!

Dear Perplexed

When it comes to ethics, nothing is penny ante. You never know where small ethical lapses might lead. You rule out wholesale skimming the best goods to sell in the market for personal gain, which is the biggest potential issue. Just to be sure you ought to review your internal controls to make sure they are adequate and you can reconcile the goods that come in the door with the goods that go out the door. For now, I’ll assume the takers genuinely need clothing assistance. The issue is one of fairness to all of your constituents, including your needy volunteers. Instead of allowing freelancing, I suggest organizing the process of letting all volunteers having first pick —not just the ones handling donations —but limit the amount anyone can take to one or two items per person per day, or whatever interval works best with your production cycle and still leave enough good stuff for needy people outside the organization. This policy might help you recruit volunteers.

I’m also assuming that volunteers run the entire organization, with the possible exception of a paid ED. If the staff is paid even a small wage, they should be held to professional standards and should have access to donated clothing on the same basis as everyone else. As you grow and begin to hire more staff, be aware that your standards of behavior will necessarily change.

Dear Nonprofit Ethicist,

I have been the director of finance at a small nonprofit for 23 years. During that time we’ve been very frugal and asked for staff donations for most parties when people come and go, have birthdays, etc. Recently we’ve had a lot of those parties and our new executive director seems to feel that spending for these things through corporate funds is fine and our staff should have the best. I’m wondering how our funding sources would feel if they find we’ve been spending thousands of dollars a year on staff refreshments and parties. Are there cases where nonprofits have been sanctioned to misspending grant funds for such things?

Dear Watchdog,

I don’t know of any organization being sanctioned for such behavior. Ethically, it is a matter of balance between the size of the organization and the frequency and lavishness of the parties. No one is likely to get upset at a little table wine and some cheese now and then, but frequent five-course banquets washed down with rivers of Château Lafite Rothschild are another matter. Even large, well-financed organizations should avoid extravagance. You are right to keep your funding sources in mind. Next time, put things in perspective for the ED by suggesting inviting one or two major funders —after all, they are part of the organizational family. I think it is more meaningful to take up a collection. Then the party is a gift from the honoree’s co-workers. If the ED likes lots of parties and feels this policy would place too much of a burden on employees, solicit the board annually for an employee recognition fund. Occasional unexpected shortfalls can be made up from corporate funds without reproach.

About the Author
Woods Bowman is Associate Professor of Public Service Management, DePaul University.