Monthly Archives: April 2011

Crying over Spilled Tea

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Revelations in recent days about alleged abuses and fabrications by author and international nonprofit leader, Greg Mortenson, leave many crying over spilled milk tea.

Mortenson co-wrote the international bestseller, Three Cups of Tea, an autobiographical account of his escape from death on K2 and recovery in a remote Pakistani village.  Through his survival, Mortenson committed to building a village school, which he has now done over and over again in Pakistan and Afghanistan.  Much of the narrative is alleged to be fiction and has many outraged.  Add to the falsehoods, abuse of nonprofit status and quite a controversy is brewing.

So, what can nonprofit organizations learn from this debacle?  The Chronicle of Philanthropy editorial offers insight from which all of us can learn.  Their top tips:

  • Consider public expectations in every report and publication.
  • View the informational tax return as a public-disclosure document, not just an Internal Revenue Service form.
  • Watch for potential conflicts of interests involving top executives and board members.
  • Prevent sweetheart deals that benefit a charity’s officials or board members.
  • Structure the board to engender public trust.
  • Conduct independent audits regularly to avoid trouble.
  • Adopt clear and fair travel policies.
  • Draft an emergency-response plan long before any problems arise.

For fans of the Blue Mountain Community Foundation, we have all of these practices in place with the exception of clear and fair travel policies, mostly because we rarely travel.  What do you think nonprofit organizations should do to assure trustworthy stewardship?

Reasons to Give Endowments to your Community Foundation

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Ever wonder why you would set up an endowment fund at Blue Mountain Community Foundation instead of giving the money to the charity itself? I have a real life example to show you.  It comes to us from Washington’s west side in the form of the Intiman Theatre.

According to the Seattle Times, here’s what happened to the endowment:

Intiman’s endowment had fallen from $3.6 million about two years ago to $1 million last fall. The endowment is now essentially at zero after using the money to secure, and then pay off, a $900,000 line of credit, said board president Bruce Bradburn.

So, here are a few of my thoughts:  First, market values will dip, but you still must be prudent in distributions from an endowment.  Put differently, a nonprofit organization must be prepared to take less from its endowment when the market value shrinks.

Second, the endowment was used as collateral for a loan.  When an endowment is held at an independent third-party, this won’t happen.  Maybe, using an incoming-producing asset when you start borrowing isn’t the worst thing.  In this case, however, the endowment gets crushed in repayment.

Third, boards change.  In nonprofit organizations, the leadership is always turning over . . . It’s the nature of the beast.  When the mission of the organization is not endowment management, fiduciary oversight can slip.  However, when fiduciary oversight is your mission, there is no slip.

In the end, it is a sad story.  The nonprofit never intended to spend its endowment.  It is also not likely that the donors intended for it, either.

The way to change the outcome of the story is to start with a different script:  Give the gift to your community foundation for benefit of the charity.  The charity still gets the income, but you get the assurance that a zero balance is highly improbable, if not impossible.