Charity Problems for Mary J. Blige

The charity founded by R&B singer Mary J. Blige, the Foundation for the Advancement of Women Now, has been sued for “losing” $250,000 by the lender, TD Bank.  Apparently, the Foundation not only defaulted on the huge loan taken out from TD Bank, but it also has other management problems.  According to a recent NY Post article:

– The Foundation has now been sued by musicians who were stiffed for their performances at a 2011 fundraising gala.

– The Foundation failed to properly file its proper federal tax return with the IRS.

– It cannot account for $60,000 of perfume sales.

– Is presently going a change in “management.”

Some of the big-dollar donors to Blige’s charity have been Wal-Mart, Gucci, and Jay-Z, who sat on the board for a period of time, along with Jada Pinkett Smith.

The news about Mary’s charity raises some interesting issues, including ones I have dealt with in doing legal investigations of charities-gone-awry.  How can you tell if the charity you are giving to is responsible with donations, managed properly, and actually fulfilling the mission it publicizes to the outside word? Here are some warning signs.

Warning Sign #1 – Unusual Tax Records.  This is rarely an issue for large, internationally-known charities, such as Goodwill, Salvation Army, or Red Cross. But with smaller charities, including private foundations, taking a peek at the charity’s tax returns and other IRS documents can be extremely illuminating.  All public charities and private foundations are required by IRS laws to document their donations, distributions, and other activities, and make those records available to the public.  Through the review of IRS documents, donors can gain easy access to the inner-workings of a charity, specifically to identify who actually runs the charity, its members, their contributions, its donations, and its distributions.  These documents are publicly available, and can be accessed from various online sites.   Unusual tax records, such as insufficient documentation, odd donations, or unusual distributions tend to indicate that a charity is not being managed properly, or has lost its focus.  For example, in 2009, Mary J. Blige contributed $25,000 to her charity only, despite having album sale and performances totaling $43.5 million in 2008, according to the NY Post.  The donation of such small amounts to a charity by the principle (and named) donor could indicate that the charity or its mission is not serious.

Warning Sign #2 – High Turnover in Board Members.  The old saying is that charities are always in need of board members who can contribute the “Three T’s” – time, treasure, or talent.  But the relationship is often synergistic – most professionals who serve as board members with prominent, successful charities derive considerable benefits from such affiliations. High turnover among  board members, however, tends to be a bad sign. It could mean that board members who get into the charity find themselves looking for a way out.  It could also be a sign that the charity operates in a way that does not induce directors to stay long-term.  This has bad consequences.  Continuity among board members help give charities long-term stability, direction, and vision.

Warning Sign #3 – Incomplete or Unavailable Accounting Records.  A solid charity should always be able to give its donors, members, or officers a clear and accurate picture of its incoming donations, outgoing distributions, and expenses, including the percentage of its administrative costs vis-à-vis total donations, and what percentage of donations actually directly benefit the charity’s primary beneficiaries.  Bad charities struggle with these basic accounting principles.  Money goes “missing,” donations are not tracked properly, it is unclear where funds are going, and it is entirely uncertain whether the charity is even solvent.  These are signs that the charity is either being negligently overseen by board members who are not paying attention, or that the charity lacks basic financial management.

Warning Sign #4 – Wasted Funds.  Irresponsible charities not only have trouble managing money, they often squander valuable donations.  Some classic  examples involve the charity using significant funds for projects that are not really related to the purpose of the charity, holding extravagant events that seem disproportionate to the goals the charity seeks to accomplish,  or spending funds without the knowledge and approval of board members.  In some cases, charities can be managed so poorly that administrative costs end up eating into the bulk of donations.  Ultimately, charities are expected to serve their intended beneficiaries.  A charity that spends more simply to remain in operation than it does serving its intended beneficiaries could be suffering from irresponsible management.

Warning Sign #5 – Conflicts of Interest.  Another nasty trait of an irresponsible charity is its participation in events, transactions, or dealings that pose an unmistakable conflict of interest. These situations usually involve an individual closely tied to the charity who engages in self-dealing  or undertakes projects that satisfy the individual’s personal interests at the expense of the charity.  For example, a president of a charity that runs his own personal side-business out of the charity’s office, using resources and utilities paid for by the charity’s donations, is engaging in self-dealing.  A charity director who hires a family member that is paid wages from the charity’s donations could be engaging in a conflict of interest transaction.  There are many other examples.  Conflicts of interest among a charity’s leadership can be especially insidious because the individuals involved tend to take steps to conceal their activities, or understate the magnitude of the conflict of interest.  This sort of behavior often manifests itself by the individual taking control  over certain affairs, and then refusing to let anyone else become involved in them, or whitewashing procedures intended to disclose conflicts of interest.

Warning Sign #6 – Widespread Cluelessness.  Finally, an irresponsible charity can usually be identified simply through speaking to its board members, staff, and officers.  The governing body of a charity should not be clueless – they should know basic information about the charity, such as its purpose, mission, major projects, upcoming events, and the identities of all other board members, staff, and officers.  Charities in which there is widespread cluelessness about these facts are often charities that have de-railed off track.  Cluelessness can be a sign that the people involved with the charity are not paying attention or are left in the dark about the activities of the charity.  This can be dangerous not only to the charity’s donors, but to the board members, employees, and officers themselves.  Board members, officers, and employees that are either admittedly or unknowingly “asleep at the switch” expose themselves to liability, should something go wrong.  For some charities, this could mean a lawsuit; for others situations in which significant funds are being funneled, laundered, or misused, criminal charges can  result and jail sentences sought.

Mary J. Blige’s charity may be in some turmoil for the time being, but things could turn around.  For individuals wishing to give funds, goods, or services to charities, there is no reason to be overly suspicious – there are many reputable charities throughout the country that are well-managed and effectively serve their beneficiaries.  But keeping the warning signs above in mind could help identify irresponsible charities that have some growing yet to do.