No Excuses: The "Compliance Awareness" Dilemma

“Ignorance of the law is no excuse” is an adage with which we are all familiar. But many of use ignore it at our own peril when managing modest child- and family-serving agencies. The reality is that most of us simply lack the resources, including time as well as technical savvy, to stay current on all of the laws, regulations, and standards that impact fund development, as well as apply to our professional fields of practice.

As Yogi Berra probably never said: “The key to success is having a thorough knowledge of what you don’t know, and then acting on it.” That is surely the “compliance awareness” dilemma for us. Think about all federal, state, and local laws and regulations that are changing and the new ones being promulgated even as you read this. The accountability to regulatory bodies, charitable registrations, licensing entities, and accrediting systems is extensive. Now we have increasing charitable reporting and disclosure requirements, HIPAA, Medicaid corporate compliance responsibilities, IRS regulations related to charitable activities, as well as corporate reporting. How will HIPAA sunset requirements on release of information impact the use of client stories in our appeal, newsletters, and annual reports? Will composite stories be “acceptable” again in the development world? Employment law and regulations on federal and state levels are extensive. Dare we even think about the Sarbanes-Oxley Act? I could go on.

The complexity and cost of regulatory awareness, quality improvement systems, and compliance is substantial and it is growing for both our development departments and our agencies as a whole. Add on top of all that the costs of the accreditation processes, and the total costs can become staggering. In fact, they may be unrealistic for many small and modest nonprofit agencies in today’s funding environment. Yet, government, our communities, and our donors expect and require nonprofit organizations to be accountable. Furthermore, we are expected to manage and serve at the highest levels of ethical functioning adhering to law and regulation with an increasing move toward corporate transparency in our administrative and governance functioning.

These are “overhead” costs that continue to increase our “fundraising expense ratios” as well as the overall “G&A” percentages. Clearly, we all want our organizations to be managed well, and to be guided by the best business and ethical practices. Accountability to our donors, funding partners, boards, and communities is an essential defining and guiding principle of the nonprofit world. So these investments make good organizational sense. They are the right things to do. No one seriously believes that we will move into environments that require less accountability for management of resources and verification of intended impacts in service of mission. But, then comes that question we all sadly hear, even from some board members or United Way volunteers, “Is my donation really helping those in need? Or is it just …”, and “How much of my dollar really goes to …”?

The trend coming from the foundation world, United Way, and government is targeted and program specific funding and reduced support of infrastructure or overhead. Many federal grants now cap G&A at 10 percent while excluding facility cost. Few of us expect that wave to ebb anytime soon, all while the expectation for accountability and compliance are increasing.

In a recent issue of The Chronicle of Philanthropy (9/4/03) a letter to the editor from an executive of a small nonprofit organization in response to the Chronicle’s focus on charity fraud appealed for creative and collective solutions to the “cost of awareness” dilemma. Are there solutions to the spiraling “cost of awareness” issue? I think yes, particularly within a cooperative membership network such as the Alliance for Children and Families that can mobilize creative and collective responses to our need for “awareness.” The Severson Center, the Resource Development Network, and other Alliance training and programs may well be able to tackle this issue quite efficiently. Many of our development professionals are active members of the Association of Fundraising Professionals, and their resources are clearly allies in such an effort.

As I see it, the even tougher issue for most of us is managing within what I call a “culture of organizational deprivation.” This is a nonprofit culture that makes appropriate investments in core capacity challenging—even perilous—to our agency’s reputation. Resistance to appropriate investments is so ingrained in our culture, agencies can experience it even from their senior program staff who may regard “overhead” costs as a “tax.” Therefore, I was both relieved and excited to see in the same issue of the Chronicle another letter to the editor from a foundation leader. 

Ben Shute, secretary of The Rockefeller Brothers Fund, also responded to the article on “charity fraud” and addressed this cultural millstone of deprivation with which we all struggle. He encouraged spending on management and administration that supports and fosters mission and urged donors to make general operating grants. The full letter is well worth obtaining and sharing with your board and local funding entities, such as United Way. In the letter, Shute says, “The reliance on many efforts to rate or evaluate charities on the basis of this oversimplified and often misleading distinction between ‘program’ and ‘overhead,’ and the underlying assumption that the nonprofit that manages least, or cheapest, manages best, is harmful to the charities themselves and is a disservice to the donors who rely on such measures.

Under-spending on ‘overhead’ not only can leave a charity vulnerable to fraud, but also can impose other costs that do not show up in the financial ratios: the costs of staff burnout due to lack of professional development opportunities; the costs of a distracted or burned out executive director who has tried to run the organization and do all the fundraising for the sake of perceived ‘fundraising efficiency’; the hidden and sometimes actual financial costs of trying to run an organization without an adequate human resources department; the costs and inefficiencies that result from the frustration of trying to work with inadequate or obsolete equipment and facilities.”

I recognize we are a long way from hearing questions such as: “Are you investing enough in the capacity of your agency to carry the mission forward with quality and in a sustainable manner?” But, thanks to the scholarly works people like Christine Letts and Bill Ryan from Harvard University, Lester Salamon of the Center for Civil Society Studies at the Johns Hopkins Institute for Policy Studies, as well as advocacy such as Ben Shute’s from The Rockefeller Brothers Fund and other voices, the topic has at least been put on the agenda of public discussion, and hopefully on the agenda of nonprofit boards within our network.

Back to the issue of creative and collection solutions to the “cost of awareness.” The Severson Center has material available on a variety of issues related to compliance. A fund development regulatory packet is currently offered and is being updated by the Resource Development Network steering committee. Materials on HIPAA and other issues of regulatory concern and compliance are available. However, we, the membership of the Alliance, can greatly enhance the quality of the Severson Center’s resources if we consistently send in the fruits of our professional labor. Do you have a development office operations manual? A corporate compliance manual? HIPAA manuals and training materials? Information on IRS regulations? Contacts with the Association of Fundraising Professionals (AFP)? If you or your development professional is a member of AFP, they are a wonderful and rich resource for information on regulatory and compliance issues, as well as training and professional development. Their web site is www.afpnet.org.

Any and all of these resources from the membership will further enhance the breadth and depth of the information available at the Severson Center. We now have “member/volunteers” who have agreed to work with Susan Hornung, director of the Severson Center, and her staff in editing, reviewing, and even providing executive summaries on a host of development and other organizational topics. I urge you to take a few moments and share what you’ve learned and developed with the Severson Center and the membership (paper or electronic submissions are welcome). Frankly, there is a wealth of information that rests within our Alliance family of agencies. Reinventing the wheel may be exciting in the moment, but it’s hardly efficient.  

Bob Jones is chair of the Alliance’s Resource Development Services Advisory Committee. He is president and CEO of Alliance member Children’s Aid and Family Services, Paramus, N.J., and a former member of the Alliance Board of Directors.

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