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Trust and Corruption

March 03, 2014

(Mark Rosenman is emeritus professor at Union Institute & University and a frequent contributor to PhilanTopic. He lives in Washington, D.C., from where he drew many of the examples of the national problems cited below.)

Rosenman_headshotSelf-serving and dishonest actions in both the public and private sectors are severely testing the trust and confidence of Americans. That's a problem for government, for courts and the criminal justice system, for corporations and business leaders, and, yes, for the nonprofit sector.

It's a much more significant problem, however, for the larger society. Are we destined to slide further toward the pernicious levels of corruption so prevalent in other parts of the world? Can the already strained fabric of American society hold as growing numbers of public, private, and charity officials scramble to profit, legally and otherwise, from their positions? What happens when the fundamental American belief in fairness is undermined by declining confidence in the institutions we all rely on?

Make no mistake, confidence in our institutions is declining. Since the early 1970s, those of us who have a "great deal" or "quite a lot" of confidence in our institutions, including banks, newspapers, and the medical establishment, has fallen dramatically – in some cases by more than 50 percent. Confidence in religion, the Supreme Court, schools, organized labor, and the presidency has fallen by 25 percent or more, while fewer than 25 percent of us have a "great deal" or "quite a lot" of confidence in big business.

Charitable organizations don't fare so well, either. Following a precipitous drop more than ten years ago, a recent survey found that over a third of Americans have "not too much" or no confidence in nonprofits. Meanwhile, Congress's approval rating has fallen to an all-time low of 10 percent.

Interestingly, the few institutions that have shown gains in public confidence include the military and the police and criminal justice system. But while the military is the most respected of American institutions, a series of recent incidents is beginning to take a toll. They include a scandal involving two Navy officers and a senior agent with the Naval Criminal Investigative Service, and a series of misconduct charges leveled at senior military officers for abusing their positions and accepting illegal gifts. His confidence shaken, Secretary of Defense Chuck Hagel has demanded a broader investigation.

Police departments around the country also have experienced problems in recent years, and the number of incidents seems to be growing. Ten metro Atlanta police officers and others in D.C. and Baltimore have been charged or found guilty of using their badges, guns, and positions to launder drug money or facilitate drug deals. In the District of Columbia, three police officers recently were arrested on charges of child pornography, prostitution, and theft. In 2012, a Kansas City officer was charged with coercing women into sex, while in November a Maryland police lieutenant was arrested on rape charges involving a minor. Just a few weeks ago, Tulsa settled a police corruption and cover-up case for hundreds of thousands of dollars.

The courts and criminal justice system face scandals of their own. In November, more than twenty corrections officers in two state-run Maryland jails were arrested for corruption, including racketeering and drug- and money-laundering charges. That case parallels a more recent case in Hawaii and a couple of older ones in Texas, including a case involving a district attorney who accepted cash for favors. In D.C., the chief administrative law judge is alleged to have steered a contract and a job to friends and lied to investigators.

A few years back, a D.C. tax office manager and her co-workers were convicted of stealing more than $48 million, and just last week a D.C. human service worker pled guilty to stealing over $800,000. Ninety other staffers in the district were charged in an earlier $800,000 unemployment fraud, while in September prosecutors also charged fourteen D.C. Department of Employment Service workers with stealing more than $250,000. And just last week federal agents seized contract and procurement records from a suburban Washington public utility.

Before those of us in the nonprofit sector start casting stones, we should take a look at our own sector. In January, the leaders of a nonprofit charter school in D.C., including at least one of its board members, were accused of siphoning more than $3 million to private shell companies they had set up, all with the assistance of a senior public official at the D.C. Public Charter School Board. Last May, the founder of Cape Cod's Touched by Angels was found guilty of embezzlement and fair labor violations, while earlier this month a popular Philadelphia sports figure was accused of diverting thousands of dollars from the Special Olympics.

That's just the tip of the iceberg. The Washington Post has reported on internal financial corruption at more than a thousand nonprofit organizations. In aggregate, millions and millions of donated dollars have disappeared from all kinds of charities, often without any public disclosure. All of this has moved government officials in seven states and Congress to call for investigations. Our nation’s charity leaders have declined to condemn these practices.

Still more corruption in the sector was exposed when CNN headlined a Center for Investigative Reporting and Tampa Bay Times report on "America’s Worst Charities" that chronicled dozens of charities run by people who had enriched their friends and cronies at the expense of the clients they were supposed to serve. One of those charities, the Kids Wish Foundation, allegedly used nearly $110 million in contributions to pay fundraising solicitors and steered an additional $4.8 million to the charity's founder and his consulting firms — while spending less than 3 percent of its revenue on sick kids.

Sadly, self-serving abuse can be found in all sorts of nonprofit practices. Cronyism and avarice at the top of many nonprofit organizations has allowed executive pay in the sector to soar, even as the wages of line staff stagnate, and the CEO compensation differential at some nonprofit organizations is as large as at high-profile for-profit corporations. Meanwhile, scores of college officials take home more than $1 million a year, even as 22 percent of their work force toils at poverty-level wages. At many nonprofit health institutions, the disparities are even more extreme.

The litany of confidence-busting problems doesn’t even begin to speak to unpunished corruption on Wall Street or egregious abuses perpetrated by pharmaceutical companies, chemical storage facilities, or unscrupulous manufacturers. Nor does it speak to the illegal acts and abuse of authority by state governors (recently indicted and otherwise), the pay-to-play favoritism of corporate lobbyists, or the crimes and moral lapses of D.C. council members and possibly its mayor.

All of this has taken a toll — in and beyond the nonprofit sector. Fewer than 25 percent of us have confidence in American financial corporations and their top managers. And that lack of trust is hobbling the broad-based economic recovery we so desperately need.

Let me be blunt: fraud and corruption must be addressed if our key institutions are to retain the support of most Americans. But while we know that strengthening the institutions that enforce the social contract is important, not much of it is happening.

What can be done? For starters, nonprofit leaders must step up and lead. They must condemn corruption and abusive practices wherever they occur — starting with the nonprofit sector itself. They need to help the public better understand what is at stake and demand that the authorities root out and punish corruption in all sectors of society.

More broadly, the nonprofit sector must lead in demanding that government bureaucrats, elected officials, corporate managers, and, yes, nonprofits be held to a reasonable standard of behavior and that corrupt conduct anywhere is vigorously prosecuted. Without decisive action, many more of us will be caught up or swept under in the spreading eddy of corruption. And that's in no one's interest.

-- Mark Rosenman

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