The 60 Minutes takedown of Three Cups of Tea author Greg Mortensen a couple weeks ago is a lesson to all nonprofits that are less than transparent about their financial situations.
We imagine that nonprofit leaders and board members who saw the piece or read subsequent news accounts of the story must have taken a deep breath.
Mortensen turned his stories of mountain climbing into a multi-million dollar empire and founded the Central Asia Institute, whose mission is to build schools (mostly for girls) in Pakistan and Afghanistan. However, as 60 Minutes correspondent Steve Kroft and best-selling author Jon Krakauer (a former supporter of the institute) discovered, it turns out that none of the money from Mortensen's book tours goes to the institute. The report also makes a credible case that much of Three Cups contains stories that are either fabrications or outright lies. Mortensen refused to talk to 60 Minutes about the allegations, and only belatedly acknowledged that his account of his descent from K2 was a "compressed version of events that took place in the fall of 1993." That, of course, makes the narrative of his experience inaccurate. In his book, Mortensen says that he became separated from his climbing partners and wandered into a small village. Once befriended and nursed back to health by the people, he gratefully promised to come back and build a school. It turns out that these dramatic details never happened. He actually visited that village a year after his descent, according to Krakauer.
An even more important aspect to this scandal is the lack of financial accountability on the part of Mortensen and the Central Asia Institute.
A few years ago, the American Institute of Philanthropy sent a certified letter to the charity requesting copies of its financial documents, including audited financial statements. When it failed to receive a response after many months, it followed up in November 2009 and was told by CAI's operations director that there were no audits. In mid-2010, CAI did finally publish audited financial statements for its fiscal year-ended 2009. That report indicated that CAI "has an economic interest in a book written by its executive director, Greg Mortensen ... During the fiscal year-ended September 30, 2009, the organization paid $1,729,542 for book-related expenses associated with outreach and education." It also noted that CAI did not report receiving any revenue from book sales in its audit or tax form.
In other words, it appears that CAI is underwriting Mortensen's travel and other expenses but is not receiving proceeds from the book sales in order to build and operate the schools.
Transparency should have been a goal of Mortensen's from the outset. Had there been financial controls in place, and had CAI responded to the philanthropic institute in a timely manner, it is likely the huge blowup could have been avoided.
Since the 60 Minutes report, CAI has taken some steps to answer questions about its finances. A statement says, "Central Asia Institute's goal is full transparency. CAI intends to show that our supporters' donations have been used to further our mission of education, especially for girls, in Pakistan and Afghanistan." It also has posted 990 tax forms on its site. And it has a goal of spending no more than 15 percent of donor dollars on overhead, with 85 percent of every donor dollar going to programs.
So it seems that negative press and diminishing donations forced Mortensen and his institute's board to learn the hard way that donors deserve accurate and timely financial information.
There are lessons here for all nonprofit leaders and board members: a charity's credibility is everything and transparency should be a guiding principle of the agency's board. Right now we're at the height of spring benefits in the Bay Area, and donors should certainly check up on an agency or organization before making a donation. And if an organization can't answer basic questions about its finances, there are many other deserving groups to support.
And those organizations that are in financial trouble should be honest with the public, and not react by stonewalling and denial. All agencies must be accountable to their donors and they have an obligation to their clients and the people they claim to be supporting. Financial records may be delayed, but the information will come out sooner or later. Once that happens, these agencies will either be forced to close because they have run out of money or make a concerted effort to elicit community support. In our own community we've reported recent examples of each. Then there are organizations that continue to hang on and hold events, without making payments to their beneficiaries or releasing financial information. But examining 990s, which are public documents, is not enough to get an accurate and current idea of an organization's financial situation. The average 990 tax forms are nearly two years old by the time they are filed, making the information outdated in many cases.
While we don't have the resources of 60 Minutes , we will strive to keep the community informed about local organizations. Transparency keeps everyone informed and honest, as Mortensen is learning.