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The International Journal
of Not-for-Profit Law

Volume 10, Issue 2, April 2008

A publication of the International Center for Not-for-Profit Law

Table of Contents

Letter from the Editor

Ethics and Civil Society

More Lies Than Meet the Eyes: Organizational Realities and Deceptions in Nonprofit Organizations
David Shulman

The Penalty of Nonprofit Leadership
Michael Bisesi

Articles

"Philanthrocapitalism" and Its Limits
Michael Edwards

Defending Civil Society
International Center for Not-for-Profit Law and World Movement for Democracy

Violence, Spin, and "Otherness" in Arab Civil Society
Ibrahim Saleh

Discriminatory Property Inheritance Under Customary Law in Nigeria: NGOs to the Rescue
Reginald Akujobi Onuoha

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More Lies than Meet the Eyes: Organizational Realities and Deceptions in Nonprofit Organizations

David Shulman1

This essay offers an elementary categorization of different types of deception in nonprofit organizations. Using a perspective drawn from organizational sociology and my own research into workplace lying, I suggest that understudied forms of deception in nonprofit organizations can be explained by distinct organizational constraints within which nonprofits work. In particular, I argue that early-exit labor markets, small size, constant pressure to acquire financial resources, and an overwhelming sense of moral calling together explain why my respondents reported more deceptions in nonprofit than in for-profit organizations.

Introduction

For my recent book, From Hire to Liar: The Role of Deception in the Workplace, I researched how employees at for-profit and nonprofit organizations encountered and engaged in deception in their everyday work. I noticed that respondents from nonprofit organizations seemed to report observing more deceptive behaviors than their counterparts at for-profits did. This finding raises questions about why deceptive behaviors might, paradoxically, be more pervasive in ostensibly unselfish organizations than in profit-seeking ones. Here, I offer some tentative answers and informally explore deception in nonprofit work as a general area for further research.

We are all familiar with moral proclamations that people should never lie, and that lying (other than telling “kindly” white lies) is viewed as an unprincipled behavior. In this essay, I do what many find objectionable: separate moral condemnation from the analysis of lying. A sociological perspective adopts a practical character rather than a purely ethical stance. The goal is not to assume idealistic frameworks but to study people’s real behaviors and identify the conditions under which their conduct falls short of cultural ideals. To that end, this essay explores different types of nonprofit deceptions and identifies the inducements and organizational contexts that may explain the relative prevalence of lying in nonprofit organizations.

In the working context of a nonprofit, career mobility is likely limited, people burn out, they face pressure to accumulate financial resources, the organization may be driven by a motivating righteous fervor, and the typical organization's small size enables a less bureaucratic approach with more discretionary autonomy. Given these circumstances, it is not unreasonable to expect to find pressures and opportunities to act deceptively. The same factors are often noted to play a role in deception in for-profit organizations, where people face competition, encouragement to be team players, pressure to identify with the organization’s goals, and often freedom from scrutiny. When similar circumstances exist in nonprofits, perhaps even to a greater extent, then deception is, from a sociological standpoint, a perhaps predictable outcome.

Categorizing Deceptive Behaviors among Nonprofits: the Big Crimes

As a starting point, I offer some elementary distinctions among deceptions that may exist in a nonprofit organization. In Figure 1, I divide such deceptive behaviors into three non-exhaustive categories: understudied nonprofit deceptions; universal workplace deceptions that occur everywhere, as part of working in general; and criminal deceptions, which tend to attract the most media and scholarly attention. The bottom right column in Figure 1 identifies traditional scholarly approaches to analyzing these types of deceptions among nonprofit organizations.

By far, criminal deceptions are the most harmful. This category includes theft and embezzlement, financial conflicts of interest, misrepresenting the amount of money that goes to overhead, defrauding the government and the public, fake charity scams, and other dummy organizations that act as deceptive fronts for lobbying or for-profit interests. Explanations of such deceptions often include individual immorality and greed, predatory marketplace tactics, and poor auditing, enforcement, and social controls. Reviews by Greenlee et al. (forthcoming) and reports by ACFE (2006) provide examples of such crimes. Millions of dollars are no doubt lost from them. These crimes also produce damaging publicity fallout that makes it vital to assure the public and the government that most nonprofits are trustworthy.

Nonprofits are also victims of deceptive and corrupt schemes by outsiders. Bribery, theft of supplies by third parties, and corrupt clients and government officials warrant greater attention, particularly in an international context where nonprofits operate under dramatically varying conditions. Deceptions by predatory insiders within nonprofits are just one side of the criminal equation.

I should also note an important qualification to the crime category. For a variety of reasons, published assessments and newspaper articles may be skewed toward reporting major criminal scandals in the United States. If so, we need greater information on global variations of criminality and nonprofits, to qualify any conclusions based solely on the US context. Compared to the United States, other countries' punishments, offenses, and controls are likely to differ. The distinctions between the public, private, and third sectors in the United States are not uniformly applicable, either. Studies of global variations in crime and lying among nonprofits would offer a valuable contribution, even if only for establishing analytic frameworks that would make meaningful comparisons possible. In this essay, I stress organizational structure and context as one basis of comparison, but I recognize that there are others.

FIGURE 1: AN INFORMAL CLASSIFICATION OF DECEPTIONS AMONG NONPROFIT ORGANIZATIONS

{1} Understudied Types of Nonprofit Deception

Explanations for Deceptions that Are More Understudied Among Nonprofits

 

  • Favoritism Among Clients
  • Misleading Donors
  • Withholding Information from
  • Competitors
  • Budget Diversion to Pet Causes
  • Smaller and Diverse Organizations

{2} Traditional Forms of Workplace Deception

  • Shirking/Goofing Off
  • Hiding Exploiting Workers
  • Passing Off Work
  • Feigning Deference
  • Hidden Gender and Race Discrimination
  • Exaggerating Accomplishments Avoiding Blame for Problems

 

 

  • Early-Exit Labor Markets
  • Smaller Size
  • Pressure for Resources
  • Moral Pressures
  • Autonomy

 

{3} More Infamous Deceptions Among Nonprofits

  • Theft/Embezzlement
  • Fraud Through a Fake Charity Scam
  • Financial Conflicts of Interest
  • Duplicate Grant Making
  • Lobbying with a Misleading Name
  • Commercializing the Nonprofit in
  • Partnership with For-Profit Partner
  • Tax Evasion
  • Hiding Overhead Versus Cause
  • Spending
  • Misreporting Donation Amounts
  • Bribery in Order to Operate
  • Theft by Clients or Corrupt Parties

Traditional Criminology and Conventional Wisdom Explanations

  • Predatory Marketplace Tactics
  • Unprincipled Individuals /Greed
  • Poor Controls/Misplaced Trust

 

The Understudied Nonprofit Deceptions

My focus here is on forms of deception that are less apparent and more widespread than outright criminality, though perhaps less damaging too. In From Hire to Liar, I argue that scholarship on workplace deception is hampered because researchers primarily spotlight major acts of deception, such as white collar financial crimes that are not typical of everyday workplace lies, such as shirking work and lying to clients. While people may lie to commit economic crimes, that is just one aspect of deception that may exist in the workplace. People may lie for all sorts of reasons unrelated to economic crime. In nonprofit and for-profit organizations alike, workers may lie to avoid criticism, take undeserved credit for successes, goof off, feign a sick day, and pretend to like coworkers and clients more than they really do. Such deceptions are pervasive, and some are actually helpful in carrying out the day’s work, but their significance is often overlooked.

Understudied workplace deceptions among nonprofits fall into two principal categories: universal workplace deceptions and deceptions that are more immediately applicable to nonprofit organizations. Regarding the former, analysts should recognize the nonprofit as just another type of workplace, with typical forms and magnitudes of deception. Workers in many organizations, including the interns and volunteers commonly associated with nonprofits, may shirk work, pretend to like difficult coworkers, feign deference to bosses, cover up transgressions that could lead to negative public reactions, and hide discrimination and exploitation of various kinds – or at least witness such behaviors on the part of others. Whether the organization is nonprofit or for-profit, workers must still put on a show, worry about how supervisors perceive them, try to avoid blame for mistakes, and appear to be doing what they are supposed to be doing even if they are not. Everyday, mundane, informal deceptions such as these have been the subject of little research in general, much less research comparing for-profit and nonprofit settings.

The third category in Figure 1 covers deceptions that are particularly common in nonprofits. These include favoritism (and hiding it) in treating or serving certain clients, seeking funds through misleading pitches or elaborate exaggerations, withholding information from competitors about grant sources, and diverting funds to favored pet causes. Despite their pervasiveness, these deceptions have received scant attention among scholars.

It is important to note that nonprofits vary greatly, from gigantic NGOs to neighborhood volunteer organizations. Their missions likewise vary, from promoting arts performances in a community to preserving forests. The sort of scandal that rocked the National Capital United Way, in which Oral Suer stole hundreds of thousands of dollars, cannot happen in an organization with a budget of a few hundred dollars a year. Variations in organizational context and social controls make different forms of malfeasance possible, as well as different types of lies. Although the media and scholars tend to focus on crimes in large NGOs, less noticeable but pervasive deceptions exist among thousands of smaller nonprofit organizations around the world.

Data from Nonprofit Respondents and Distinct Organizational Contexts of Nonprofits

Respondents in From Hire to Liar provided many examples of understudied or less noticed deceptions among nonprofits. These included misrepresenting how donations would be spent when making pitches to potential financial donors; misleading actual donors about how their funds were being spent; making claims of working to solve problem X but instead working on problem Y; lying about other budgetary aspects; mistreating lower-level staff; deceiving others concerning racism and sexism; and mistreating clients that a nonprofit serves. While for-profit interviewees provided analogous tales of serious deceptions, a difference emerged: the deceptions seemed to play a more critical role in the economic viability and day-to-day running of nonprofits. I cannot prove that this distinction is ubiquitous, nor do I wish to do so. This distinction just manifested itself in my interviews and observations across dozens of organizations and raises issues that merit further study.

In general, nonprofits face greater organizational vulnerabilities and dependencies than for-profit organizations, such as uncertain budgetary prospects. I believe that this difference helps explain the greater reports of deception among nonprofits. A further explanation may be the notion that the means justify the ends: a mission to do good may rationalize and obscure deception. Nonprofits may face greater obstacles than for-profits in pursuing successful outcomes and achieving publicity. Would it be so surprising that deception may be a tool for overcoming those obstacles? For example, are problems always as bad as some nonprofit agencies portray them? Are all statistics accurate? Consider how some debates between advocacy nonprofits and their targets are wars of persuasion, in which corporate lobbyists and nonprofits engage in battles of exaggeration and selective misrepresentation to a potentially uncritical news media that are attracted to sensationalism and conflict.

There are entrenched nonprofit giants, such as some colleges and religious organizations, and then there are smaller and more localized nonprofit organizations. Non-criminal deception is most commonly overlooked in the smaller nonprofit organizations that pursue a distinct mission. That mission may be environmental or developmental, or it may focus on arts and humanities. Such a nonprofit may comprise local activists who seek to address a local problem, such as poverty, environmental racism, drug abuse, homelessness, domestic violence, or high school dropouts.

Many respondents at these nonprofits reported deceptions in the universal category – that is, the category that applies equally to for-profit enterprises. They noticed people who passed off work to colleagues, such as by suddenly disappearing when it was time to organize and implement mass mailings. Many respondents reported people who pretended to like others more than they actually did. Many, too, reported workers who took credit for someone else’s work. Some employees and volunteers gave themselves ornate titles though their work was relatively mundane, such as secretaries who termed themselves administrators. These types of deceptions involve managing social relationships and workplace status, and they occur in many organizations. In other words, workers commonly attempt to stay out of trouble, advance in an organization, and lie to deal with unpleasant people and situations.

Deceptions that are more applicable to nonprofits, I believe, rest partly on four factors that set nonprofits apart from for-profit enterprises: nonprofits have early-exit labor markets and high turnover; they are smaller and always in search of resources; they can involve a strong ideological commitment among members; and they may operate under less scrutiny and social control.

I begin with turnover. Several of my respondent organizations were large, but even there, most had no more than three or four longtime, full-time employees. These were generally middle-aged men and women who depended on part-time volunteers, interns, and low-paid employees to carry out tasks. For the intern and the low-paid employee, work at the organization provided the gratification of seeking to do good things, but also, importantly, it provided a way to earn an experiential chit that would help the individual get into college, graduate school, or a better job. Also, low-level positions were sometimes filled by people who had been in trouble of some kind and were working themselves out of that trouble. Though these two groups of low-level workers differ in nature and prospects, both could be cycled quickly in and out of the organization, moving away at a semester’s end or as other opportunities (or troubles) beckoned. Funding shortfalls, too, could propel those at the low end of the hierarchy on their way.

These factors illustrate several structural vulnerabilities to deception. Short-term employees typically lack knowledge about how things work, and thus must depend on the longer-term boss. When lower-level people leave after a semester or a few months while the boss remains, the result is a perpetual asymmetry of knowledge. The intern or low-level employee also has little incentive to challenge the boss, because of ignorance or inexperience, or because of fear of reprisal, respect for the commitment of the boss or the desire to cultivate a potential reference.

The infusion of new blood primarily at low levels, while midlevel managers stay entrenched, often produces great discretion for these managers, particularly in smaller organizations. These outfits become known as “one-man” or “one-woman” operations, where a committed individual claims to be doing nearly everything. Control of information confers a tremendous advantage in operating the organization and in seeking publicity.

Size also helps foster deception in nonprofits. Small organizations often operate in an environment with limited funding, and they compete with other nonprofits to get it. People who sought new sources of funding often complained that professionals at other nonprofits withheld information or even misrepresented them to funders. A further factor is that nonprofits often are populated by moral entrepreneurs, who believe strongly in their cause and are surrounded by compelling evidence of crises demanding quick action. Improperly diverting resources may come more easily when one can morally rationalize it as the only way to address a dire crisis. In a working environment where worst-case scenarios are seared into people’s minds, combined with strident calls to action, an impulse to contribute in any way possible may be overwhelming.

This helps explain the apparent paradox that more lying occurs among altruistic nonprofits than among assumedly greedy corporations. A deeper assessment, though, reveals that complete honesty is a costly luxury. While a nonprofit seeks to ameliorate a crisis, its funding, at least among smaller organizations, is often meager. As Brecht noted in Threepenny Opera, “first comes food, then morals.” If serving the mission requires shortcuts, the impetus to use any means necessary may become overwhelming – and the result may be more altruistic than not.

Consider also that salaries at nonprofits are lower than at for-profits; payment at nonprofits in part comes from a sense of taking action and doing good work. Identification with the organization can lead to a greater commitment to the cause, which may in turn produce the same energetic pursuit of money as for-profit organizations exhibit. The drive to profit may be measured in different currency, but both involve maximizing returns. The industry of professional fundraisers who employ a variety of tactics to solicit donations further blurs the distinction of deceptive “sales techniques” between nonprofits and for-profits.

Favoritism in Shaping the Direction of Work

Workers favored by higher-ups often receive more interesting and challenging assignments than other workers do. I heard accounts of this type of favoritism over and over. My explanation is that managers in nonprofits have more discretion in assigning work than their for-profit counterparts do. Perhaps profit-making organizations also are larger and produce more fixed services, whereas nonprofit organizations are typically smaller and produce more abstract and variable products that are open to discretion.

Favoritism in nonprofits also took the form of diverting resources to the pet causes of high-level workers. There were two variations here. One occurred when higher-ups wanted to devote more resources to a pet cause than were already allocated. The other type occurred when high-level workers favored some clients of the nonprofit over others. The first was mainly budgetary, the second more individualized, but both involve deception.

In the first case, respondents favored causes in several fashions. The general pattern was to shift resources from one cause to another. In the case below, money for a favored program is siphoned off secretly:

Well, I think that what the person who signed the checks, the executive director, his whole action was deceptive for the funders. That, you know, they represented that they have all these type of programs that were working great; here is what the children's program is doing. And they were using what the children's program was doing and pretending like they wholeheartedly supported it, in order to get these huge funds, because that's where the money is, in children's programs. And then they would actually use those funds for their own programs, for the literacy training, for the jobs program.

In this case, one program's money is diverted to another. All informants at nonprofits observed money from one donation or grant diverted to a different initiative. Sometimes this diversion was written into the plan of the donation or grant, so that donors knew that their money might be distributed elsewhere. But informants also gave accounts of money being redirected in undisclosed ways. For example, one community organizer noted:

Somewhere in the neighborhood of $10,000 was supposed to be used on video equipment, tapes, whatever, to be used to make educational films and documentaries on the problems. No money was spent or allocated for that. No equipment was purchased. And the explanation was that all the other programs required so much more time and resources so that we couldn't do that.

Respondents who provided these accounts never believed that people took any money to line their own pockets; nobody engaged in deception to get rich. They just wanted to support favored causes, which again rests on a moral motive that may not exist in the for-profit sector. Switching money to other causes sometimes led nonprofit workers to hoard money, hide funding sources, and fight over resources. Shifting funds in this fashion is clearly a form of shadow administration involving deception. For example, some informants described bait-and-switch schemes in which money was sought for project A but actually devoted to project B or to a general fund from which all projects drew. An environmental fundraiser explained:

I think there's also misrepresentation to people who give money that they think they're giving money to a specific project, when in fact it's going into a general fund. That had happened to some donors I've seen, and it infuriates me, especially, I've been involved in pitching a proposal, saying, hey, we're going to use your money to do this work, and then when it gets to the door, it's swiped up by the general fund.

Another informant described deceptions within organizations about leads on potential sources of funding:

Just, people withholding, or not sharing, information about upcoming projects and leads, or donors, with other people. So that, you know, somebody says, "Hey, I heard you got a good lead on, you know, some money for doing the same kind of work that we've been interested in doing." And people have said, "Well, you know, it's not, nothing's said, I don't know what's happening yet." So, when it comes to donors and getting cash, there's an incredible amount of deception, until the money's actually in the door. And even when it's in the door, there's a hoarding of that, as a sugar daddy, for that program. And that goes straight up to the top. The president actually hoards a certain set number of foundations and organizations that give money, as his own pet sources. Nobody can touch them, and everybody knows that it's up to him.

These deceptions also occur between organizations:

These other groups in our coalitions ... we see as being deceitful. And one common method of doing this is, yeah, they're sending in grant proposals to foundations, including our organization and other small organizations' names on them, saying, yes we were working with these guys. And getting money to do that, without actually including us in on the take. And we find out, through whatever channels and mechanisms we can, we see actual grant proposals with our names included on them, as working with these organizations, and then they do grants for $350,000 and we get zero of that money. So there's a lot of distrust between organizations.

In some nonprofit organizations whose primary mission is serving troubled individuals, certain clients may be favored over others. For example, one intern observed favoritism at her nonprofit based on client behavior. If a client acts in ways that make him or her easier to manage, she said, then that client is favored over others:

A: Here was a huge example, which I continued to think about for quite a long time, when two individual kids were being decided upon at the same time.

Q: "Decided upon" means allowed to stay or forced to leave?

A: Yes. And one of them, even though he had had sex with five other females on the unit – which only one of those would be grounds for immediate dismissal – was allowed to stay on because he was a personal favorite for the site head. And I would presume I could say that he was because, he was – smiled, funny, always allowed the staff members to forget – in other words, was funny to the extent that he was a release for them, and allowed them to kind of forget the pressure....

Q: So he eased your day on the job?

A: Yes. Much easier to handle. Whereas, the person they were deciding upon simultaneously was, uh – had not committed any crime that was as great as this other guy, but there was a general dislike for him because he didn't happen to acknowledge the staff members. He would mumble. He was kind of dirty. He just didn't communicate with them at all, and you know, openly showed dislike for them, but he never made any comments or insults or anything like that. But he had kept a solid job for a while, but the fact that they did not like him, as a sort of consensus, they were ready to dismiss him and keep the former person.

Q: What grounds did they use to justify it?

A: Very, very few grounds to justify it.

Q: But they would never say that it was done based on subjectivity?

A: I don't think they would say that. That would be admitting that there were no grounds for their decisions, that there were no set policies. However, in the middle of a meeting, they would just say, "How do we all feel about X." And they would sit there talking about him in almost a sort of – in again, almost a sort of gossipy way. Almost – Oh, I like this, I don't like this. And I felt that none of these decisions were based on any sort of technical grounds, whatever.

Small size, meager resources, and greater discretion for managers may encourage greater deception. An exacerbating factor is that nonprofits are moral entrepreneurs, so deceptions can often be morally rationalized.

Conclusion

Respondents I interviewed in From Hire to Liar who worked in nonprofit organizations observed more serious deceptions than those working in for-profit organizations did. By serious, I do not mean criminal, but deceptions that were more actively tied to running and maintaining the organization as a whole. For-profit organizations featured a great deal of deception associated with trying to secure upward mobility and lying about one’s accomplishments. A competitive environment and market also spurred deception in both cases. However, the different constraints on nonprofit organizations – such as the need for money to address problems, the moral aspect of the work, and the different hierarchical structure – may help explain why deceptions occurred there more frequently than they did in for-profits.

To offer this conclusion is not to state that nonprofits are more exploitative than for-profits are. Rather, the situation of nonprofits is direr, which may lead to deception to survive and serve a mission, an organizational-level issue. By contrast, the situation of for-profits can be more stable economically, which may prompt workers to lie to get ahead as individuals rather than to secure the organization's survival. Ironically, lying in nonprofits may be altruistic lying.

This essay is meant to offer food for thought. Further comparisons of deception in for-profit and nonprofit organizations would be useful. I also believe that cross-cultural variations and the varying organizational and situational constraints can illuminate the intriguing paradox that deception may be more pervasive in nonprofits. If those deceptions enable nonprofits to survive, perhaps a return to the first principles of moral debate is in order: does a socially valuable end – namely, the continuing viability of meeting the organization’s goals – justify deceptive means?

References

ACFE. 2006. Report to the Nation on Occupation Fraud and Abuse.

Greenlee, Janet, Mary Fischer, Teresa Gordon and Elizabeth Keating. Forthcoming. “An Investigation of Fraud in Nonprofit Organizations: Occurrences and Deterrents. Nonprofit and Voluntary Sector Quarterly.

Shulman, David. 2007. From Hire to Liar: The Role of Deception in the Workplace. Cornell University Press.

Office of the Attorney General , State of California. “What's in a Nonprofit's Name? Public Trust, Profit and the Potential for Public Deception – A Preliminary Multistate Report on Corporate Commercial/Nonprofit Product Marketing Advertising of Commercial Products," April 1999

1 David Shulman, shulmand@lafayette.edu, is a professor in the Department of Anthropology and Sociology at Lafayette College in Easton, Pennsylvania. He is the author of From Hire to Liar: The Role of Deception in the Workplace (2007). Copyright 2007 by David Shulman.

 

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