A STRANGE PHENOMENON

Almost 35 of the 45 years of my business career were spent in/around the nonprofit association community.  It was a fascinating adventure filled with the excitement of many victories and accomplishments, while facing a great variety of challenges, as well as a few small defeats.

During the last 25 of those years, I tried to maximize my efforts to find ways to expand my income by serving the nonprofit sector as an independent management contractor.  I had been somewhat successful in pursuing this goal but all the while puzzled by a strange phenomenon which seems to permeate much of our society.  Let me illustrate:

  1. On a number of project proposals over the years, I offered to provide a service to some group and finance the project because they had no money.  Based on the success of the program they would get a royalty, in addition to the P.R., etc.  There was not always a profit but that was the risk I was willing to take.
  2. In comparing the results of a nonprofit association offering a trade show or a publication, for example, competing with a profit-making entity, I have heard the inefficiencies and ineffectiveness of the “association” excused many times as “well, they are a nonprofit.”
  3. In a business dispute, a retired judge acting as a mediator said “my sympathies go to the association because you are a profit-making company and they are nonprofit.  I could never figure out what that had to do with the merits of the dispute.

Don’t misunderstand.  The wealth of opportunity which abounds in the nonprofit arena contributed far more to my success than the agony of this frustrating lack of economic understanding.

There are certainly many associations who are both effective and efficient in serving their constituents, but there are many who are neither.  Nonprofit status should not create an aura and a cloak of invincibility which automatically gives it preference in performance over a profit-making entity.

What are our schools and colleges teaching about free enterprise?  What do we need to do to provide a basic education in reality economics?

There is nothing magic about being a nonprofit corporation.  It is relatively easy to attain nonprofit status.  Somewhere, somehow nonprofit organizations are going to have to meet certain standards of accountability just as it is beginning to happen in the education arena.  The educational system is in total disarray and not the least of the contributing factors has been the dogged determination of teachers and administrators alike to resist any/all attempts at performance standards and evaluations of both fiscal and results-oriented achievements.

How far behind is the nonprofit, tax-exempt sector?

The principal advantage of gaining tax-exempt status from the IRS is you don’t have to pay taxes on any excess of revenue over expenses each year.  You can therefore accumulate money over a period of time without that accumulation being taxed.

The unfolding IRS scandal highlighted the illegal harassment and delays heaped upon conservative political groups.  Those actions appear to be criminal.

On a broader picture, I have always felt that nonprofit organizations who get tax-exempt status should have to undergo some kind of audit every three or five years to validate the continuation of their tax advantages.

The audit should make an attempt to measure their fiscal stewardship (no board meetings in Hawaii), their management effectiveness and how well they serve their members, as well as the “industry or public” they are organized to represent.

ArtSchwartzSig

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