Ethics Violations Among Non-Profits

Survey: Many Non-Profits Fall Short on Ethics
By Aliah D. Wright

If you’re a nonprofit, the last thing you want is even a whiff of scandal.

However, fraud is as prevalent in nonprofit organizations—those often seen as having altruistic goals—as it is in business or government, and misconduct in these organizations is at the highest level on record, says an Ethics Resource Center (ERC) survey.

The ERC, an 85-year-old Arlington, Va.-based group devoted to research and the advancement of high ethical standards, used the Opinion Research Corp. to poll 3,452 employees and received telephone responses from 558 employees in the nonprofit sector between June 24 and Aug. 15, 2007.

Fraud, in the Ethics Resource Center’s National Nonprofit Ethics Survey, consisted of lying; the alteration of documents, including financial records; and the misreporting of hours. Additionally, the survey found, six types of misconduct posed high risk to the nonprofit sector: discrimination, sexual harassment, misuse of confidential information, lying to stakeholders, improper hiring and safety violations.

The ERC surveyed employees in business and government during the same period as well. In the business sector, 56 percent of employees surveyed said they observed misconduct, as opposed to 57 percent in the government sector and 55 percent in the nonprofit sector.

“Nonprofits are different from a lot of organizations because they are mission driven,” says ERC President Patricia Harned. “They exist to address a social need. But, that said, nonprofits also face a tremendous amount of pressure on a regular basis,” and “very often where there is pressure there are also pressures to compromise the standards to do the job.”

The survey shows that rate of observed misconduct in nonprofit organizations is at the highest level since the ERC began measuring it in 2000, when it was reported by 46 percent of respondents. In 2007, more than half (55 percent) of nonprofit employees observed one or more acts of misconduct.


Funding, Public Trust at Issue

The ramifications are enormous, experts say. Without the veneer of high morals, nonprofits, especially charities, could see the erosion of funding and lack of public trust.

“More than ever, and with good reason, people are concerned about the use of their contributions,” said Tom Tuohy, president and founder of Dreams for Kids, a children’s charity based in Illinois. “If someone is making a contribution to a cause, which touches their heart, they want to know that the intent of their gift is being fulfilled.”

“It isn’t that businesses [or nonprofits] are bad,” says Al Gini, professor of business ethics and chairman of the Management Department in the Graduate School of Business at Loyola University Chicago. “It’s that human beings are weak. They are frail, and they are apt to make mistakes and commit errors.”

Additionally, the survey found, employees in small and mid-sized organizations were more likely to report ethical misconduct than those in larger organizations (those with 100,000 employees or more).

However, the report states, many nonprofit employees, rather than report the abuse to their supervisors directly, opted to use hotlines. About 47 percent chose to reveal the abuses in this way, while on the other end of the scale only 11 percent chose to tell their supervisors directly. However, the report found, 66 percent of employees opted to stay silent about ethics violations out of fear or futility. At least 33 percent said they didn’t feel their report would remain anonymous.

That didn’t surprise Gini. He says “there’s a stigma attached” to whistle blowing. “Here’s the HR question: You know that Joanie turned in Mary, but who is going to talk to Joanie again?

“We talk about the blue wall with cops … well I think that’s true in every profession,” he continued. “People are very reluctant to turn in a colleague.”

But the news isn’t all bad for nonprofits. Harned said nonprofits should put ethics and compliance programs in place, focus on building strong ethical cultures in their organizations, and not assume that ethics violations aren’t going to happen in their organization.

“It’s both having a program and having a culture,” she said. “You can have the best of all programs in the world, but if nobody pays attention to the program, you’re still going to have misconduct taking place.”

While Gini agreed that leadership “sets the tone,” he added that “codes of ethics are never enough—they have to be implemented, reinforced and maintained by leadership. I think what we’re talking about is not disaster control,” he said, “but setting up clear parameters of hoped-for behavior.”