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Herschel Walker’s nonprofit ‘problem’ highlights real problems faced by Georgia nonprofits

Image via teamherschel.com

By Guest Columnist DAVE PAULE senior consultant at Our Fundraising Search and Georgia State University instructor.

It’s hard to avoid political messaging in Georgia during campaign season. This election is no exception, with some of the most extensive messaging surrounding Herschel Walker’s controversial involvement with Patriot Support. This story has legs beyond the campaign; it highlights many of the challenges nonprofits face when they associate their brand with another. Especially, when that brand is a celebrity’s.

Nonprofits are big business in Georgia. CauseIQ lists 58,688 nonprofits in Georgia. Combined, those organizations employ more than 480,000 Georgians, nearly 5 percent of the state’s population. They earn more than $77 billion in revenue each year and control assets of $175 billion.

This controversy is not unique. Many nonprofits unwittingly find themselves embroiled in similar controversies every year. Before discussing Patriot Support, let’s talk about the challenges nonprofits face in general, and how these kinds of problems arise.

The basics of nonprofit

There are a lot of nonprofits in this country. In our state, there is one for every 170 Georgians. But their business model is not well understood. Nonprofits exist because (1) they provide a service that society values, but that (2) society is not willing to be taxed to provide, and that (3) cannot be done profitably by private industry. Because the service they provide cannot be conducted profitably, nonprofits are granted certain incentives to take on this work.

  • Nonprofits can accept donations from third parties to help pay for the work.
  • They do not have to pay income taxes on the revenue they make from operations and donations.
  • They can grant tax write-offs to donors on the behalf of the IRS for those donations.

Ultimately, nonprofit is a tax status. It is not a license to lose money. Just like for-profit entities, these organizations must produce more revenue than they consume.

An important distinction that most people miss is that no one “owns” a nonprofit. Nonprofits are “owned” by society as a whole and held in trust by their boards of directors. If anyone tells you they own a nonprofit, that is a warning sign that something is amiss.

Herschel Walker and Patriot Support

Walker and Patriot Support face legitimate questions. First of all, Walker claimed he created Patriot Support, but records show he did not. Instead, he was a paid, celebrity spokesperson for the program. In 2021, Patriot Support paid the former football player a salary of $331,000. 

Second, Patriot Support was never a nonprofit to begin with. It was a program of Universal Health Services. Universal Health Services is an American Fortune 500 company that provides hospital and healthcare services. Based in King of Prussia, Pa., its annual revenues were $12.6 billion in 2021. 

So, why did people think it was a nonprofit?

As MSNBC reported in May 2022, eight years ago Walker competed as a celebrity contestant on a game show, and he won a $50,000 prize for his charity of choice. He picked Patriot Support, the program he claimed to help create. It’s unclear whether the money was actually donated. And, while Universal Health Services did not represent itself as a nonprofit in this case, they don’t appear to have clarified the position either. What is clear is that, two years ago, Universal Health Services reached a $122 million settlement with a coalition of state and federal prosecutors who accused the healthcare giant of attempting to defraud the government by hospitalizing patients that did not require it.

Dave Paule is an instructor of management at Georgia State University’s J. Mack Robinson College of Business, and senior consultant at Our Fundraising Search, a consulting firm supporting nonprofit organizations.

Risks and implications for nonprofits

Because so few people understand nonprofits — sometimes including nonprofit leaders themselves — they tend to be at greater risk for fraud. Scammers take advantage of people’s trusting natures just as often as they take advantage of their fear. In 2021 the Federal Trade Commission reported that imposter scams — which include fake charities soliciting donations — accounted for more than $2.3 billion of losses reported. This was up from $1.2 billion in losses reported in 2020.

To make matters worse, nonprofits are often the victims of scams involving themselves. Nonprofits, especially small ones, frequently fail to adequately invest in back-office, financial-management processes. Many times, their boards of directors misunderstand the findings of the annual audit, mistakenly believing that those auditors search for fraud. Unless auditors are specifically engaged to search for fraud, they do not. They audit for compliance with the company’s financial processes. If the company’s processes are insufficient to prevent fraud, they will say so, but still verify compliance with them.

The Herschel Walker scenario underscores an additional risk for legitimate nonprofits, that is aligning their brand with another, especially the brand of celebrity spokespeople. When that celebrity “trips up” — and in this world of social media where everything is recorded, most eventually will — it places that nonprofit’s integrity on the line. 

Perhaps the best example of this was the association of the Livestrong Foundation with Lance Armstrong. When Armstrong was stripped of all his titles after an investigation revealed that he was the key figure in a wide-ranging doping conspiracy, the Livestrong Foundation practically went under because its brand identity was almost entirely tied to him. In the last few years, accusations associated with the #MeToo movement have also sent more than a few charities scrambling for cover. So many, in fact, that a small cottage industry of PR firms has arisen that specialize in helping nonprofits survive a celebrity scandal.

What should nonprofits and donors do?

This is perhaps easier to answer for donors. Many organizations offer advice on how to determine whether a charitable organization is a scam. Because many scammers especially target older individuals, AARP offers great resources on how to evaluate a charity before donating to them. 

This is more complex for nonprofits. Any organization considering some form of celebrity brand association needs to follow a few best practices.

  1. Obviously, before partnering with a celebrity, thoroughly research the celebrity. Their reputation, work, and organizational affiliations need to be scrutinized to ensure they’re consistent with the organization’s brand, mission, and values.
  2. All contracts with spokespeople must include a “morals clause.” Specify triggering events and ensure your organization retains the right to terminate the agreement without notice at your own discretion.
  3. Every organization should have a crisis public relations plan. Make sure the leadership team of the organization knows who to call, including lawyers and consultants. Don’t assume the CEO is, will be, or should be the voice of the organization. In fact, the PR plan should specifically contemplate what to do if the crisis is perpetrated by the actions of the CEO.
  4. Always have a relationship with a qualified PR agency that you can call up should a crisis arise.

 

2 Comments

  1. Billie Brown September 18, 2022 7:18 pm

    This is important information. Can you please bottom line it for the a ersg Georgia reader? (Not me—I get it!)Report

    Reply

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