Dear Nonprofiteer, If an Executive Director puts her hand in the cookie jar and it doesn’t break, does it make a sound?

Dear Nonprofiteer,

The quick and dirty is this: a local AIDS charity has an ED who facilitates a hostile environment. She fires people and then back-fills their employee record with negative things. She makes her assistant accompany her on personal errands, such as to the fertility specialist. The entire executive team has turned over in less than two years, many of us leaving with no job lined up or taking a pay cut of $20-30,000 per year. She gives “presents” to herself and her favorite staff, mall gift cards, in excess of $500. She takes herself and co-workers out for dinner at a $100/head steak house because “we are working so we deserve it.”

In winter 2009, the Board conducted an investigation, wherein one Board member was in collusion with the ED and told her all of the items that were being investigated and in essence helped her to side-step the issues. The majority of the Board resigned, so as not to be tied up with her, with the expectation that her contract would be terminated in Feb 2010. However, the new Board president, her buddy who helped her through the investigation, has asked her to write up her own contract extension. The only reason we haven’t gone to the IRS is because the clients will pay the price.

The federal grant monies are allocated and spent correctly. She seems, however, to use the private donor funds much like they are her personal discretionary spending. The Board took away her use of the company credit card a year ago. One more issue is the fact that she has been promoted within the ranks to the ED position, and has had a personal bankruptcy that is not disclosed to anyone on the Board; she told me because I was the CFO (quit for ethical reasons) and the company was denied for a corporate credit line because of her personal credit history.

Her statement when she took the reins in Feb 2008 puts it best: “I am the CEO of my own company.” Unfortunately, it is my belief that she has fiduciary responsibility to the taxpayers and donors, a responsibility of which she seems oblivious.

Signed, Escaped From Alligators But Still Up to My Ass in Concerns

Dear Escaped:

The only exception to the rule that employees shouldn’t talk to the Board is when there’s evidence of mis-, mal- or nonfeasance on the part of the Executive Director. What you’ve described seems to include all three: interfering with personnel records, helping herself to unaccounted-for petty (and maybe more than petty) cash, and collusion with one Board member to evade the legitimate concerns of the rest. So even if you were still an employee, the Nonprofiteer would recommend that you draft a fact-intensive letter and send it to every member of the Board of Directors, outlining what you know to be true about the Executive Director’s mismanagement and suggesting that it may endanger the agency’s nonprofit status under state or Federal law.

Make sure the letter contains ONLY what you KNOW to be true; talking about other people’s misbehavior is defamatory if it’s false. Err on the side of leaving out anything you heard from someone else and didn’t witness yourself. Also err on the side of maintaining confidentiality from your days as CFO, which is to say, don’t announce the Executive Director’s personal bankruptcy. If you think it necessary, merely report on the agency’s inability to secure credit and suggest that the Board look into the source of this difficulty.

There’s no question that a nonprofit’s Executive Director–just like its Board members–owes a duty to the agency that precludes her using it as her personal piggy-bank, or even her personal source of doing good. People who find nonprofit governance restrictions too confining are welcome to take their chances in the for-profit marketplace; they’re not permitted to transfer the perks of sole proprietorship to the nonprofit arena.

As for “being the CEO of my own company,” that’s all very well; but any for-profit company with stockholders has a Board of Directors authorized–indeed, required–to keep the CEO under control. It may authorize expense accounts (even $100 steak dinners) but it’s also obliged to keep track of where the money is coming from and where it’s going.

For these purposes, there’s absolutely no difference between Federal funding and funding from private donors–it’s all accepted in trust (as it were) for the agency. Presumably some of that private-donor funding comes from members of the Board, and in your letter advising the Board of the Executive Director’s wicked wicked ways you may want to emphasize that. “I know your own generosity goes a long way toward supporting this agency, so you wouldn’t want to have your money wasted or spent on items that don’t benefit our clients.” You probably also want to emphasize that the agency’s reputation is being jeopardized by the behavior you describe, because eventually murder [i.e. financial shenanigans] will out.

Once you’ve done that, you’ve done all you can. (You’d actually done all you could by quitting, but this is the one extra mile you can go without becoming an officious intermeddler.) The IRS has bigger fish to fry, though your state’s Secretary of State or Attorney General may not. But as you’ve noted, the important thing is to restore the agency to its duties to clients, and that’s better accomplished by sounding a clarion call to the Board than by ratting the group out to the cops.

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5 Responses to “Dear Nonprofiteer, If an Executive Director puts her hand in the cookie jar and it doesn’t break, does it make a sound?”

  1. Nathan Garber Says:

    Would not an agency of this size require an annual audit? With so many irregularities, one would think that the auditor would have raised concerns.

    • Nonprofiteer Says:

      It’s not clear what “this size” is; but in any case far too many auditors see their job as making sure the client gets a clean bill of health, whether deserved or not. Certainly a good auditor would pick up at least some of these shenanigans but it still requires a Board willing to act on the findings reported to it.

  2. Escaped From Alligators But Still Up to My Ass in Concerns Says:

    FYI, the agency does do a yellow book audit annually. However, the assumption that the auditor sees the goal as giving a clean bill of health rather than an audit is correct.

    Further, 15 out of 18 employees did write letters to the board, which resulted in the investigation…and some employees were nearly fired because the new board prez let the ED read the “concern” letters. The clarion call was made.

    And maybe it’s something that just proves out The Goal: for her, it’s about making money, just like the book.

  3. Brett Cohrs Says:

    As an insurance guy, this is the type of executive director that scares the britches off of me. The EEOC claims that this type of activity is exposing the organization to is amazing, not to mention the potential loss of funding from donors and/or grantors if the info leaks out. I hope they have a healthy D&O/EPLI policy limit. It’s not just the organization itself, but the assets of the board members themselves could be at stake if they aren’t managing this risk right out the door (i.e. excusing the E.D. for cause and shoring up their standards). Of course, at this point, the E.D. might lawyer up to. Dang. Good luck!

  4. Mazarine Says:

    This sounds similiar to other stories I have heard and lived!

    Kudos to you for quitting. The board is obviously corrupt and checked out, just like other ones I know.

    There’s really only one way to vet a nonprofit. Talk to the staff that work there, (NOT senior leadership) confidentially, away from the office. They can tell you what is really going on.

    Mazarine

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