The March 10, 2005 issue of the San Francisco Chronicle included an article entitled “$1.1 million in dubious spending by nonprofits.”  The article stated that state auditors called into question more than $1.1 million in spending from state grants and that they concluded that the state lacks adequate safeguards to ensure that grant money is spent in accordance with its stated intent.

In the March 9, 2005 issue of The Mercury News, the editorial “Non-profits work up reforms – responding to pressure: industry has solid plan for policing itself” describes the Panel on Nonprofit Sector’s response to the Senate Finance Committee’s contemplated reforms.  The editorial concludes:

“There’s no shortage of proposals to broaden public oversight, close loopholes and make it easier to ferret out wrongdoing. The danger is overload, a crush of extra rules and expenses on an industry composed of tiny non-profits and huge foundations, in reaction to a few bad actors.”

In contrast to the Mercury News editorial, the March 9, 2005 issue of the San Francisco Bay Guardian took a rather mean-spirited bash at the nonprofit sector.   The cover story: “The nonprofit gold rush – S.F. spends billions on nonprofit contracts without adequate oversight. It’s a recipe for disaster.”  Among the other articles in this issue:  “Nonprofits gone wild!  A guide to bad behavior, scandals, and shenanigans at local nonprofits” and “Help wanted – The less-than-stunning success of Goodwill’s jobs program.”  The issue also contained the editorial “Ending nonprofit secrecy.”  The editorial captured the common theme of the issue, stating that “the city doesn’t exercise anywhere near the level of oversight necessary to avoid waste and outright fraud.”  Unfortunately, it then irresponsibly asserted “[t]here are endless cases in point.”

Accountability and oversight are the buzz words of the day and rightfully so.  There is obvious room for improvement for many organizations in the nonprofit sector just as there is obvious room for such improvement for many entities in the public sector and the for-profit sector.  True, there have been serious abuses by a few nonprofit organizations, but there are bad apples in every sector.  The difference is that the public expects more from nonprofits, and partly because the scandals involving nonprofit organizations are given heightened media scrutiny, many Americans perceive that nonprofits are not managing their finances as well as they should.

More regulation of nonprofits is one possible solution to increasing accountability and oversight.  The California Nonprofit Integrity Act that became effective on January 1, 2005, is an example of increasing regulation on the state level.  Currently, the Senate Finance Committee is considering reforming regulation on the federal level.  As the Guardian recommends, we can pass more laws on the local level too.  However, what the Guardian failed to address is that there is a cost to such regulation.  The vast majority of nonprofits operates legally and ethically, not necessarily because of applicable regulations, but because they are trying to do the right thing.  With increasing regulations on all levels, nonprofits may have to divert resources away from service provision and towards compliance, including the costly and time-consuming preparation and filing of complex reports to different agencies that are often redundant and never closely examined.  Thus, new regulations may be counterproductive; as a result, organizations may become less efficient and more likely to run into trouble.  It’s a shame that the Guardian did not further pursue this dilemma that is ripe for real discussion.  Perhaps in a future issue (even if it is unlikely to be given the same coverage as a list of old scandals).