The philanthropic press in the USA (e.g., here) — and not only it (e.g., here) — is currently abuzz about accusations levelled against Greg Mortenson, former mountaineer turned successful book author turned philanthropic entrepreneur and co-founder of the Central Asia Institute (CAI).

For a quick primer, see here.

The CAI has raised tens of millions of dollars and claims that it has built and/or supported over 170+ schools and school library projects and provided education to over 68,000 children, including 52,000 girls, in the remote regions of Pakistan and Afghanistan where few education opportunities existed before CAI did all the good deeds it reports having done (see here.) But did it? And did Mortensen benefit in unseemly ways from the considerable donations that CAI managed to attract?

It is not clear at this point what exactly the truth is but a class-action suit has been filed that alleges fraud, deceit, breach of contract, racketeering, and unjust enrichment on the part of Mortensen and CAI. See here for the gory details. The evidence that has emerged so far suggests that there is something to the accusations and that, at the minimum, Mortenson and CAI played fast and loose with the facts.

Whatever the evidence turns out to be, this affair is of the high-visibility kind and hence very likely to have already damaged the reputation of the not-for-profit sector in the USA as such; it has rightly generated more questions about the efficacy of the monitoring solutions that the not-for-profit sector in the USA adopted a few years back under the threat of legislative action. See here. I would be very surprised indeed if Senator Grassley — who back then single-handedly prodded the not-for-profit sector in the USA to take action — will not have some further questions to ask about this latest indication of the not-for-profit sector’s inability to monitor itself. And I am sure he will ask them very publicly.

It is, of course, an interesting question whether a similar development could take place in Australia. The Mercy Ministeries, albeit on a much smaller scale, is an example that, yes, it could. See here.

A set of recent experiments of colleagues in Australia further illustrates the potential for abuse well. In “Economic and Intrinsic Motivations for Dishonesty: An Experimental Study”, Friesen & Gangadharan, senior lecturer at the University of Queensland and professor at Monash University, respectively, conducted two incentivized lab experiments
with students. In their “Theft experiment”, their subjects were asked to find in given tables pairs of two-digit numbers that would add up to 100 and to then report anonymously how many of the 20 matrices they had been able to “solve” this way; their pay was the self-reported number of correct decisions and the pay was real cash provided by the experimenter. In their “Reporting experiment”, subjects were asked to make potentially hazardous “production decisions”. The probability of hazards could be reduced at a cost to the “producer” under conditions of compulsory and voluntary reporting of “accidents”.

(Before you read what the results were of those experiments, you might want to predict them.)

In the Theft experiment, one third of subjects took more money than they were entitled to; of that third, one quarter took all. In the Reporting experiment, nearly everybody was dishonest at some point. (Note that in the compulsory treatment that requires outright lies.) Less than ten percent of the subjects always reported an accident! Reporting occurred more often in the compulsory treatment than in the voluntary.

Dependent on your belief in human nature, these results may be surprising but they should, in any case, provide some food for thought: If in an environment where relatively little is at stake you see such massive cheating, what can you reasonably expect in an environment where lots is at stake and hence the temptation to misbehave is correspondingly so much greater?

Another interesting “experiment” was recently reported by the IRS of the USA which on June 2008 revoked summarily the tax-exempt status of no less than 275,000 nonprofits that failed to file reports for three years in a row. In numbers of existent entities that action shrunk the US Third Sector overnight by more than 20 percent. See here. These numbers are truly stunning and illustrate the utter lack of accountability and transparency of the sector in the USA. I am almost certain that Senator Grassley will have many a question to ask about these developments. As well he should.

These developments also suggest that how important it is for the nonprofit, or third sector in the USA and Australia, to catch up with its attempts to become accountable and transparent so that developments like the ones mentioned at the outset cannot possibly happen again. The Australian Third Sector is not accountable and transparent and current discussions on how to change that sorry state of affairs are curiously uninformed by discussions and events elsewhere; it is particularly noteworthy that the changes currently discussed in Australia have quite some similarities with the failed US system of self-reporting and self-monitoring.

I have written about the problem of the lack of accountability and transparency of the not-for-profit sector in Australia, and the insufficient current attempts to reform it, elsewhere (e.g., here), so simply leave it at that for here and now.