The National Rifle Association keeps getting in trouble by flouting best practices that all nonprofits should follow.
As I often explain to college and graduate students learning the basics of nonprofit management, all nonprofit boards should ensure that these groups maintain their missions without wasting money. silver.
These students also learn that it is illegal for nonprofit board members or staff to benefit from the personal use of group assets.
I started using the NRA as a case study when serious allegations of its mismanagement emerged in 2019.
The gun group’s wobbly finances and other misfortunes make it the epitome of a poorly run nonprofit, as it violates four key legal and management principles.
Going forward, I will rely on new information from the NRA bankruptcy lawsuit, which a Texas federal judge dismissed on May 11, 2021.
The dismissal of the lawsuit means the NRA cannot proceed with its attempt to use bankruptcy protection to avoid being sued by New York state authorities for alleged wrongdoing.
No one directs or oversees a
nonprofit should make a profit
During the NRA’s bankruptcy trial, Wayne LaPierre, its top executive, admitted that he personally benefited from the organization’s assets beyond reasonable levels of compensation.
He also hinted that he stopped doing it – after “auto correction.”
Information disclosed by the NRA in its 2019 tax returns shows that LaPierre, who was paid US$1.9 million by the NRA that year, reimbursed him $300,000 plus interest for improper expenses. , and that he faced an additional $75,000 in federal tax penalties.
Those same documents indicated that current and former NRA leaders had received at least $1.3 million in “excess benefits” because the organization had unduly paid for their meals, travel and sporting events.
New York authorities allege that LaPierre and others embezzled millions of dollars for themselves that should have been used to fund NRA operations.
Among the allegations in the lawsuit are that LaPierre frequently took personal trips on private jets at the expense of the NRA. He provided personal benefits, including lucrative contracts, to board members, vendors and former employees.
On LaPierre’s list of inappropriate expenses were golf memberships and millions of dollars in home security measures, including an unlikely $800 for mosquito treatment on his property.
In 2019, the NRA began negotiations to buy him a $6.5 million mansion in Dallas before the deal fell through.
The New York complaint also alleges that the NRA engaged in improper business dealings with board members and their businesses.
About a quarter of the 76 council members had contracts or entered into agreements with the NRA, a practice that is only legal as long as the council determines the deal is “fair, reasonable and in the best interest of society”.
A board of this size is not recommended. Experts recommend that nonprofit boards have between eight and 14 members so they can act as one group, with each member feeling accountable.
After critics blamed the American Red Cross scandals in the early 2000s on the board’s large size, it was downsized. This council now has between 12 and 20 members, compared to about 50 in 2005.
Not-for-profit boards are accountable
for good governance
The fiduciary duties of a nonprofit board of directors include overseeing operations and ensuring that missions are met. Members must act in the interests of the organization rather than their own. They hire, supervise and, if necessary, fire the senior manager.
If the NRA board had done its job, I doubt the weapon group would have had all this trouble.
Instead of providing good governance, the NRA board let it function as “Wayne’s Kingdom” in the words of Phillip Journey, a Kansas judge and NRA board member who testified in the bankruptcy trial. LaPierre actually hid the bankruptcy filing from most of the board members, the NRA’s top lawyer, and its chief financial officer. In his decision to dismiss the bankruptcy case, Judge Harlin Hale said he found this lack of communication “nothing short of shocking.”
Board members who have asked about NRA activities say they have lost committee assignments and were told, on one occasion, to “Sit down, close [your] mouth, stop asking questions and trust that the NRA leadership had everything under control.
LaPierre was also granted a $17 million post-employment contract, without the knowledge of the board, according to the New York lawsuit.
Of the additional details regarding these transgressions that have come to light during the bankruptcy trial, perhaps the most astonishing concerns the 108-foot boat from a seller called Illusions.
LaPierre said he sailed to the Bahamas on this yacht because he “was looking for a place to be safe” following mass shootings like those at Sandy Hook Elementary School in Newtown, Connecticut, and Marjory Stoneman Douglas High School in Parkland, Florida.
The New York NRA’s complaint reads like a textbook case of governance failure.
She alleges that the board failed to follow its own procedures or document its compensation decisions.
Its audit committee ignored its duty to oversee internal controls, failed to review related party transactions and brushed off whistleblowers. It’s no wonder that several board members have resigned since 2019, when irregularities became harder to ignore.
The NRA now says it is moving in the right direction with a “a renewed commitment to good governance.
But with LaPierre remaining in charge and a council still loyal to him after all these allegations, I wonder if the organization can completely clean up its act.
Nonprofit leaders need to pay attention to the
finances of their organizations
Unsurprisingly, the NRA’s finances have suffered and its dues have fallen in recent years.
The NRA’s legal troubles cost $100 million from mid-2018 to mid-2020, according to a leaked recording reported by NPR. This figure, of course, does not include expenses related to the dismissed bankruptcy lawsuit.
Other signs of financial mismanagement are surfacing. Former NRA chief financial officer Woody Phillips refused to testify in the bankruptcy trial.
When his successor, Craig Spray, testified, he said he had not been informed in advance of the decision to file for bankruptcy and that he had concerns about the accuracy of his tax returns. the NRA for 2019. Spray left the NRA in January 2021.
Nevertheless, the NRA has insisted that he is in his “Strongest financial position in years.” In turn, Hale said that solvency would mean the NRA should be able to pay its creditors in full.
The purpose of a non-profit organization is to advance its mission
American nonprofits are free to support tough or soft gun regulations, as long as they don’t break the law or flout the regulations. gguy44/iStock via Getty Images Plus
Whatever you think about this mission, it’s not related to the NRA’s legal issues. Because the nonprofit sector has room for opposing opinions or causes, it includes both groups that support abortion rights and groups that want to ban abortion, just as there are organizations that want more restrictions on gun ownership and those that seek fewer such rules.
But all nonprofits have something in common. They agree to continue their mission in exchange for tax benefits.
Any nonprofit that loses sight of this mission, as the NRA did, runs the risk of losing this exemption and even the right to continue operating.
Given that the New York lawsuit is seeking dissolution and the Internal Revenue Service has initiated the bankruptcy proceedings as a creditor – indicating that it is reviewing the NRA’s actions – these results have now become a real possibility. .
Elizabeth Schmidt is Professor of Practice, Nonprofit Organizations; Social and Environmental Enterprises at UMass Amherst.