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Charities must bear weight of scrutiny

The report that more than a thousand of the country’s nonprofits have acknowledged the loss of significant sums of money because of theft, investment fraud, embezzlement or other unauthorized activities is an important wake-up call.

It underscores the need for nonprofits to implement better protections and raises the question of whether current regulation is sufficient.

Equally significant, the revelations of misdirected funds emphasize why it is important that the public give careful consideration when deciding where to direct its charity.

An investigation by The Washington Post’s Mary Pat Flaherty and Joe Stephens found that hundreds of millions of dollars were drained from institutions that are underwritten by public donations and government funds.

“Did the organization become aware during the year of a significant diversion of the organization’s assets” is the question on federal Form 990 that formed the basis of the Post’s analysis of the answers from more than 1,000 groups between 2008 (when the question first appeared) and 2012.

Among the troubling findings: The 10 biggest losses potentially involved more than a half-billion dollars, nonprofits routinely omitted important details from their filings, and about half the groups didn’t disclose the total amounts lost.

Some losses were attributable to elaborate schemes with many bad actors, while others could be traced to simple swindle by a volunteer in whom trust had been misplaced. Victims of thefts ranged from high school rowers to Holocaust survivors.

Nonprofits are a growing part of public life; they do important work and often make invaluable contributions to their communities. That’s all the more reason that there be accountability in how they manage what are essentially public assets.

State and federal regulation is loose, and there’s really no strong public watchdog.

The requirement to report significant diversions was a step in the right direction but, as the Post investigation showed, there are still shortcomings with the failure of groups to be completely honest or to pursue wrongdoers.

Nonetheless, for the first time, there is real insight into the extent of the losses and the nature of the problems. Regulators in seven states and the District of Columbia said the Post’s disclosures will prompt them to undertake their own scrutiny. Congress also plans a review.

The holiday season is traditionally a time for giving. We hope people don’t stop contributing to good causes, only that they take steps to ensure their money is being used well.