Jan 1, 2005 12:00 PM

, By Karen H. Putnam, principal and director, Philanthropic Advisory Services, Bessemer Trust, New Yor

By Karen H. Putnam, principal and director, Philanthropic Advisory Services, Bessemer Trust, New Yor

After a year of scandals, the not-for-profit community might find inspiration in Shakespeare's aphorism: “Sweet are the uses of adversity.” Charities and private foundations recently vowed to turn public scandals and congressional inquiries into opportunities for self-improvement. They can't afford to fail. The public, appalled by seemingly endless revelations of greed and wrongdoing at corporate behemoths like Enron and WorldCom, have no patience for more abuses — especially those that involve organizations traditionally viewed as trustworthy, like charities. So what adversities did charities and private foundations face in 2004? And what is the philanthropic world doing about their problems?

One theme dominated the past year's scandals in charities and foundations — self-interest. Some examples: On the charity side, the United Way and the Nature Conservancy were prominent targets of investigation. The long-time chief executive of the Washington-based United Way, Oral Suer, was charged with defrauding the charity of almost $500,000. The Nature Conservancy's troubles began in 2003, when The Washington Post ran a series of articles on apparent financial irregularities and potential conflicts of interest, including loans to board members and employees and questionable land deals involving trustees and supporters. In 2004, the Internal Revenue Service audited the Conservancy; shortly thereafter the Conservancy convened an independent panel of governance experts to review its practices. The panel's far-ranging recommendations included a call for transparency in all financial transactions, disclosure of executive compensation, and description of the organization's programs — details that exceed current Service reporting requirements.