United Way Case Study

Running head: Fallen by “United” Way Side 1 Fallen by “United” Way Side By Kasongo Kalumbula Legal Aspects Non-Profits Professor Ruscitti Spring 2013 Fallen by “United” Way Side United Way Worldwide United Way of America (UWA) is a non-profit organization that in 1992 networked with more than 2,100 community-based organizations dedicated to the financing of local community charities through a single community-wide fundraising campaign (Lorch and Watson, 1993) Today United Way Worldwide (UWW) is the leadership and support organization for the network of nearly 1,800 community-based United Ways in 45 countries and territories It envisions a world where all individuals and families achieve their human potential through education, income stability and healthy lives To advance the common good and mobilize the caring power of communities around the world, UWW will: Ignite a worldwide social movement, and thereby mobilize millions to action — to give, advocate and volunteer to improve the conditions in which they live Galvanize and connect all sectors of society — individuals, businesses, non-profit organizations and governments — to create long-term social change that produce healthy, well-educated and financially-stable individuals and families Raise, invest and leverage billions of dollars annually in philanthropic contributions to create and support innovative programs and approaches to generate sustained impact in local communities Hold ourselves accountable to this cause through our steadfast commitment to continually measure — in real terms — improvements in education, income and health (UWW, 2013) Scandal In the about us section of Unitedwayorg (UWW, 2013), UWW indicates that to be able to advance the common good and mobilize the caring power of community around the world it will hold itself accountable Much more transparency has transpired since this was not the case of the early 1990s when this large philanthropic organization went through a scandal that’s been deemed as perhaps one of the most infamous case of executive theft in recent history Aramony a former UWA president was convicted and sentenced to a seven-year prison term for numerous violations of federal laws for defrauding the United Way of America of over six hundred thousand dollars Aramony used the money to pay for “vacations, luxury apartments and other benefits for himself and his teen-age girlfriend”118 Two former financial executives of the charity were also found guilty of diverting charitable funds119 The thefts occurred from the mid-1980s to the early 1990s120 and went undetected by the board of United Way of America until the media started making inquiries121 In addition to hiding the thefts, Aramony also convinced the United Way board or executive committee to approve the creation of several spin-off corporations, even though the information he gave was insufficient and the rationale he gave for creating the spin-offs unsound122 Once the spin-off activities were incorporated, the board essentially lost control123 The spin-off boards, recruited by Aramony, were composed of a group of Aramony’s friends, which hired the children of United Way officers at substantial salaries, including Aramony’s son, who was hired as the first president of one of the spin-offs124 The United Way board, which included leading figures from the corporate world,125 could have easily detected (and possibly prevented) Aramony’s activities if they had ensured that an audit committee function, operating under standard guidelines, was in place A report prepared by an investigative firm and a law firm to examine the allegations against Aramony concluded that internal control procedures present in most organizations were not in place at United Way, and that decisions made by management were not brought before the proper board committees126 The report noted that there was no travel and expense policy, that officers made unsubstantiated payments to individuals, and that the chief financial officer filed no expense reports supporting reimbursed expenses foran entire year127 The cost of the board’s failure to provide oversight was significant in terms of lost donations and damage to United Way’s public image Lessons learned Discussion The charitable sector must recognize and address the need to hold boards accountable Public policy and trust has allowed charities to largely regulate themselves, and enables charities to pursue a variety of missions at the lowest possible cost If the charitable community is to maintain the public’s trust, then change is necessary to demonstrate that charitable organizations are worthy of this trust without the need for increased government regulation Oversight by an audit committee should be standard practice in any nonprofit organization Audit committees have been an institution in the corporate world for some time, and well-run charitable organizations already use audit or financial oversight committees Industry-wide adoption of audit committees is the lowest-cost, most effective way to prevent, or at least detect, executive and employee theft or misuse of funds, and, in the long run, maintain and improve Reference Hopkins, B R (2005) Nonprofit Law Made Easy John Wiley & Sons Lorsch, W J & Watson, H A (1993) The United Way of America: Governance in the Nonprofit Sector (A) (Case study) Boston: Harvard Business School Publishing United Way Worldwide (nd) Retrieved April 14, 201, from http://wwwunitedwayorg/pages/about-united-way-worldwide/