According to a recent Wall Street Journal article by Andrea Fuller, nonprofits are becoming increasingly generous in their executive compensation. A searchable IRS database containing 2014 data, showed more than 2,700 executives received over $1 million in total compensation for that year.
The highest total compensation shown was over $17 million. Most of the top earners were a combination of doctors in various nonprofit hospital systems, and collegiate athletic coaches at private universities such as Duke and Baylor; or, coaches at public universities paid out of a separate auxiliary nonprofit such as Florida. The amounts included both base compensation and total compensation. It’s important to note, that the data could be misleading in a year where an executive retired or took a large deferred compensation payment during that one-year period.
In any regard, pay for executives at both nonprofit charities such as 501(c)(3)s, which was the subject of the article and associations largely 501(c)(6) organizations, is clearly trending upward for top level employees. Many of these organizations are large complex entities and pay must be competitive to attract the talent necessary to operate them. Whether the IRS or contributing public would regard the amounts as excessive is an open question. Any organization would be wise to establish safeguards around CEO pay such as using compensation consultants, comparing their packages against peer organizations, CEO review by independent Board members, and specific performance evaluation criteria for CEOs.
For more information or questions, please contact Craig Stevens at 301.231.6200.
In part one of our six-part series on fraud considerations for nonprofit organizations, we looked at the statistical realities of the prevalence of fraud. Today we focus on the most common fraud schemes among nonprofit organizations. This list, while certainly not exhaustive, can help organizations begin to build a dialogue about warning signs and potential areas where internal controls can be improved.
Ponzi Schemes | With names like Bernie Madoff making headlines, most people have heard of these schemes. It is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. The organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little to no risk.
Diverted Contributions | In this scheme, contributions intended for certain programs are directed elsewhere. This may include pocketing incoming contributions or making deposits to personally-controlled bank accounts.
Misrepresented Fund Drives |This fraudulent activity revolves around deceptive fundraising whereby there is some kind of deceit or misdirection as to what the donor’s gift will be used for, or lack of compliance with donor-imposed restrictions on the gift.
Phantom Vendors | In this scheme, an employee establishes a fictitious vendor and submits false invoices for processing.
Other Disbursement Schemes | These can cover a wide range of territory – everything from payroll schemes to kickbacks from vendors and many others.
Collusion | This is defined as secret cooperation between people to do something illegal or underhanded. For example, a vendor receives preferred bidding status or pricing in exchange for a kickback.
Excessive Compensation |This is defined as compensation that is above the fair market value of the employment services actually being provided. This is an important concept because of possible intermediate sanctions, but also potentially a very subjective standard.
Fraud can be devastating to nonprofits because of the impact it has on the public trust and perception. Learn more about what the warning signs of fraud are, where the highest risks are, and what to do about it in our recordered webinar offered through Lorman Education Services available on demand here: http://www.lorman.com/training/ondemand-webinar-fraud-considerations-in-nonprofit-organizations-394415EAU
The first 50 people to register for this webinar using promo code CompSet will receive a $10 discount.
Find out more and register here.
It must be tough to be a member of the board of directors for the Metropolitan Washington Airports Authority (MWAA) lately. There are numerous headlines blasting insider deals and lax travel policies. A former board member has gotten the boot after headlines ballyhooing how she obtained a full-time job with a salary of $180,000 a year to be an “advisor” with full benefits. The airports authority is adopting stricter travel policies and spending policies in the wake of such embarrassing details as a $9,000 plus ticket for one board member to travel to Prague. A stricter ethics policy is also being discussed by the board. Link to the NBC article: http://www.nbcwashington.com/blogs/first-read-dmv/Airport-Authority-Setting-New-Rules-168596246.html
The Federal Form 990 informational return filed by most nonprofit organizations, which is open to public inspection, covers every area mentioned above. Transactions with interested parties, conflict of interest polices, compensation of former board members are all revealed in the public return filed annually by nonprofit organizations. Good governance suggests the entire board should review a Form 990 before it is filed with the IRS, and during such a process issues such as these come to light for the first time for many board members. If the MWAA were a nonprofit organization required to file a Form 990, these shady deals and lax policies may have come to light for the board members much sooner, and possibly without all the headlines.