With a settlement agreement signed between the Montana Attorney General’s office and the Bozeman-based Central Asia Institute, and the U.S District Court’s dismissal of the lawsuit against the institute and its executive director, Greg Mortenson, a sad chapter in botched nonprofit management closes.
What remain open are questions about the implications of the CAI case for nonprofit organizations in general. How could such serious management lapses have occurred? How could they have been prevented?
Despite extensive coverage, scant media attention has been paid to the board of director’s responsibility for what happened at CAI. In the attorney general’s 31-page report, a portrait emerges of a small board, its members reportedly chosen largely for their loyalty to Mortenson, and seemingly asleep at the switch. The report should be a wake-up call to nonprofit boards everywhere.
Reportedly, CAI board members either did not know about, or did not understand, the complicated financial transactions Mortenson entered into. Rather than heed consistent and repeated warnings about lack of financial controls, including those of independent auditors, the board instead stopped auditing CAI’s finances and seemed to turn a deaf ear to concerns raised by internal and external critics. Later, according to the report, even after the board created policies to rectify serious issues, it consistently failed to enforce those policies. Systemic weaknesses went unchecked.
Certainly, these failures are not unique to CAI. In the early 1990s, the then-chief executive officer of United Way of America – the national movement with which local United Ways are affiliated – stepped down amid allegations of fraud and financial mismanagement. He was later convicted and sentenced to prison. More than 20 years later, despite lasting reforms and topnotch scores from charitable watchdog agencies, some skeptics still consider all 1,200 United Way affiliates to be forever tainted. We are acutely aware that, as the CAI report states, when donated funds are not used as givers intend, “the underlying public trust erodes and can be difficult to restore.”
Just as painful lessons learned from management and governance failures transformed United Way of America, the attorney general’s report can help CAI improve, and spur other nonprofits to keep their fiscal houses in better order. Nonprofit boards are stewards of the funds entrusted to them by donors; no matter their size, boards must take this responsibility to heart. They should take care to educate themselves, and ask questions about, their organization’s finances. What policies and internal controls protect against fraud and unauthorized use of funds? Independent audits are expensive – but less costly than the fallout from inadequate controls and systems. Boards should take seriously their auditors’ recommendations, and move quickly to address identified deficiencies.
Sadly, when nonprofits fail to abide by basic principles of sound management and governance – independence, oversight, fiscal and programmatic vigilance – they jeopardize our sector’s collective, vital work to improve and save lives throughout the world.
In response to allegations against CAI and himself, Mortenson wrote, “When it is darkest you can see the stars.” Ideally, the glaring light now shining on CAI will wake up sleeping nonprofit boards wherever they may be.
Susan Hay Patrick is chief executive officer of United Way of Missoula County.