Misuse, Misdemeanors, and Felonies: The Levels of Nonprofit Malfeasance

This chapter discusses the forms of corruption that can occur in the charitable sector, from the mundane to the newsworthy. In the case of soft corruption, an offending organization can devote little to its supposed cause and yet still operate and collect donations with impunity. On the surface, this misappropriation of funds might be considered a relatively minor violation of donor trust, yet whenever contributed dollars are squandered society is harmed. Hard corruption represents an unmistakable break in the bond between donors and the charities they support and carries the potential for legal ramifications. Ranging from skimming the till on a grand scale to using one nonprofit’s money to pay money owed to another, the most egregious cases share a certain creativity in the means devised for bilking contributors. In most of the cases discussed here, criminal charges were pursued, and many of the perpetrators received lengthy prison sentences. Since the legal framework under which the philanthropic sector operates is ill-suited to controlling subtler forms of malfeasance, wrongdoing that flies under the radar has become widespread. A model is presented here that demonstrates how soft corruption, in which criminal exposure is avoided, is the dominant strategy for malefactors in the industry.