Mercury Rising 鳯女

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Corruption in privatization of compassion

Posted by Charles II on March 29, 2008

We are told endlessly that government is inefficient and wasteful. Let charities take care of the poor, they say, because there’s better oversight.

So, exactly how good is private charity?  Well….

Stephanie Strom, NYT (via t/o) describes a report done by four accounting professors:

But what is getting the attention of nonprofit leaders is the report’s estimate of the overall cost, which the authors put at $40 billion for 2006, or some 13 percent of the roughly $300 billion given to charity that year.

The new report is based on data from the Association of Certified Fraud Examiners, which, the report said, found that “all organizations,” whether government, for-profit or nonprofit, “lose on average 6 percent of their revenue to fraud every year.” Applying that percentage to nonprofits’ total 2006 revenue of $665 billion – donations, government payments and other income – the authors came up with the $40 billion estimate.

If the $40 billion figure is accurate, then the money lost to fraud equaled the combined giving by corporations and foundations in 2006, said Diana Aviv, president and chief executive of the Independent Sector, which represents nonprofit groups.

So, is it higher at non-profits or in government? That’s not yet clear. But the dollar costs of frauds at non-profits that are cited are huge. So, one can predict that the estimate is probably not far from wrong.

7 Responses to “Corruption in privatization of compassion”

  1. Michael said

    Charles, it says right there that according to their data: “all organizations,” whether government, for-profit or nonprofit, “lose on average 6 percent of their revenue to fraud every year.”

  2. Charles II said

    Precisely, Michael. In other words, private non-profit could be below the average, while government and/or private for-profit could be above the average.

    If one reads the article in full, the author says it’s not yet clear what the full meaning of this report is. But when one reads it, it cites so many cases of known fraud that it’s a wonder any money at all gets to the poor.

  3. CMike said

    That paragraph with the “all organizations” claim was poorly written – or perhaps poorly edited. A newspaper story should give the reader a heads up if a startling claim is going to be contested two paragraphs later:

    But Ms. Aviv expressed skepticism about the report, noting that it relied on the fraud examiners association’s estimate of overall fraud across all sectors, including government and corporate.

    “They’re lumping all those sectors together, and it could be that the for-profit sector experiences a higher level of fraud, while the nonprofit sector and government experience lower levels,” Ms. Aviv said.

  4. Michael said

    Sorry, I did misunderstand. The average for all sectors was 6%, but it wasn’t broken out into sectors. That doesn’t tell us very much.

  5. Anyone who’s compared the privatized pension plans of other nations, such as the UK and Chile, to our very own Social Security, could have come to the same conclusions as this article.

    Consider that Social Security’s overhead costs are less than 1%. Most privatized plans average between 14% and 17%. Yet another reason to keep the SS fund out of the mitts of the brokerage firms.

  6. Charles II said

    It is poorly-written, CMike. Alas, so are most newspaper articles.

    When one weighs the totality of evidence presented in the article, one would conclude that the not-for-profits probably have a higher level of fraud because: (1) there are so many reports of non-profit fraud, and (2) oversight at non-profits is weaker than at either government or for-profits, both of which have auditors going through their books regularly (unless they’re the Pentagon).

  7. opit said

    There are also problems with ‘charity’ being ripped off by thugs in the recipient country ( some of whom are military and government ) and in some cases wrecking native businesses because it undercuts their trade.

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