How can you secure government grants and avoid prison in the midst of a corrupt state or other regulatory environment? New York nonprofits and many others are famously susceptible to fraud. The NY literature (NPQ:02/2014) is filled with names of politicians such as Shirley Huntley, Efrain Gonzalez, jr. Sheldon Silver, Hiram Monserrate, Pedro Espada, fr., and others who were convicted of misdeeds with nonprofits or controlled non profits while pursuing criminal activities. The Nonprofit that decides to base its financing around contracts needs to approach funding mechanisms with political capacity.

5 Thoughts on Corruption, Connections, and Compulsory Crime

  1. Let us accept right from the start that connections matter. A Danish study of ‘clean nonprofits’ found that political connections led to more cash for agencies and better bottom lines on the income statement. (Amore and Bennedsen, 2013:1)
  2. Corruption is the willing agreement of organizational leaders to participate in a corrupt plan that benefits two parties. For example, William Rapfogel in New York overpaid insurance premiums for Metropolitan Council on Jewish Poverty. An insurance executive kicked back the excess payment with cash provided to both parties. He stole $3 million with this strategy.
  3. Tolerated semi public corruption breeds a corrupt culture which is hard to avoid. NYS Assembly Sheldon Silver intimidated some in the legislature and ruined the career of Michael Bragman and others who tried to make a change. Vito Lopez founded a senior center that was investigated for misdeeds while he continued to steer member items to the agency. It can be hard to exist in the same industry if a government official has a favorite project for funds.
  4. Tolerated corruption leads to extortion (Compulsory Crime) where unwilling participants from non profits have to participate in the corrupt practice in order to stay in business. IBM, GE, and many others have been caught in bribery schemes because they wanted to be in business in a certain jurisdiction. Non profits can face the same pressure if a majority of their funding originates in government.
  5. Corruption can be in the form of
    1. A simple cash kickback from the contract money
    2. a required donation to a non profit in which the politician has an interest or receives funds
    3. a donation may be made to your nonprofit by someone else who needs access to the politician and a compliant non profit to wash the money.

 

How To Avoid – A Beginning List

It’s good to develop your political capacity before you sail into deep waters of public money. If simply caught by any of this, your two defenses are stupidity or secret need. Neither are sufficient to keep you from being fired or in jail.

Since this is an article still not fully written, I welcome any suggestions to add or improve it.

Petty Extortion –

  • People generally don’t want to go jail for stealing $10,000. They may make a hint about your $50,000 grant offer, but it’s not worth entanglement if you have a defense. You can try one of these push backs:
    • Mention that you are getting a more severe A133 audit – in other words, just give us the cash, because the audit will catch any disappearing funds.
    • Stop the conversation before any illegal proposal is out in the open and save face for both parties with a legal offer. Maybe Senator X can get legitimate free publicity from the grant. Its not illegal. It’s expected.
    • Refuse the grant. This is not always possible since presumably you are meeting important needs with the money that you want to secure
    • Involve more community partners. Centrality is a concept from academe where several departments cross list a course to protect it during a budget cut. The Academic Dean decides to cut Communications 157 and suddenly discovers that it’s cross listed with Psychology and Sociology departments and will still be offered 100 years from now.

In this example ……..

Community partners can be legitimate subcontractors for a small amount and you promise to be their subcontractor in a similar circumstance. For example, the grant is for a school and you involve a food bank to subcontract the snack and the YMCA for a 3 week soccer class. Now the senator has three agencies involved and the sunlight becomes a disinfectant.

 

  • Larger Corruption
    • Hire a lobbyist. If you need a clinic and the only path is through corrupt electeds, you need a strategy. Making your own rolodex isn’t sufficient. A lobbyist who works at the level of the funding (city, state, county, federal, regional) can draw a safe map from you to funds.
    • Develop a cause in your nonprofit. If you are a vocal Cause (Al Sharpton, Bernie Sanders. Martin Luther King, and Eva Moskowitz are examples) you develop public support that may open the door for you even if it does not bring structural justice and reform the funding process. People like to fund projects with publicity value.
    • Examine your board of directors. Use LinkedIn, Facebook, and Google to understand any connections that they have that would be a conflict of interest. Make sure that no one is acting as a quiet agent in ways that are not transparent. Hire a private investigator if necessary. Then use the Board as a spokesperson. Even if you are not a firebrand, the entire board giving a press conference is unusual enough to get some publicity.

In Buffalo, my close friend and non profit leader was attracting money and doing things. During the build up, he got an unusual offer of money from the mayor. His comment was that he had to be wise because the funding would come with snares that would compromise his work.

If you are ready to grow, make sure you have the political capacity to do good and avoid jail

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Notes

Amore, Mario, and Morten Bennedsen. “The Value of Local Political Connections in a Low-corruption Environment.” Journal of Financial Economics (2013): 19-20. Web.

Cohen, Rick. “New York’s Nonprofit Culture—“Corrupt at the Core?”.” Nonprofit Quarterly (2014): n. pag. Web. <https://nonprofitquarterly.org/2014/02/07/new-york-s-nonprofit-culture-corrupt-at-the-core/?gclid=Cj0KEQjw_9-9BRCqpZeZhLeOg68BEiQAOviWAhGhn_Fto85pvtpHuErLkoGiu-SOyuefS303Cui6bCgaAuEZ8P8HAQ>.

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