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There Is No Such Thing As A Free Lunch
By Putnam Barber, June 2005
This article was first published in the June issue of the Nonprofit Online News Journal.
One of the very early posts to the newly created newsgroup US-NONPROFIT at the start of the 1990s was the query "Does anyone know how my nonprofit can get a free copy of the Catalog of Federal Domestic Assistance?" In those far-away days, this guide to federal grant programs was only available as a printed volume. Now, of course, it is searchable online. Meanwhile, online discussion of nonprofit questions continues in both email and UseNet form.
Several posts followed the initial query. There were despairing comments about the price charged by the General Services Administration for the book, and suggestions, such as "ask your Congresscritter", for ways it might be obtained for free. Then Don Homuth weighed in with a post titled "TINSTAAFL."
His comments started by observing that the price of the book was very low and could not come close to covering the government's expenses in producing it. He went on to question the premise of the original question. "There Is No Such Thing As A Free Lunch," he wrote; if your organization can get a "free" copy, that simply means that somebody else has paid for it.
The search for a free lunch continues among nonprofits, online and off. Its benign forms are no more than an extension of the resource scouting that fills a good measure of nonprofit people's consciousness: anything I don't have to pay for is something I don't have to raise money for. Ubiquitous "special offers" for nonprofits fuel the expectation that just about anything can be had for less, or even for nothing at all, with a little scrounging.
Then there are the totally virtuous communities of reciprocity that flourish in some parts of the nonprofit world. Think of the energy brought to sharing excellent software by the legions of IT people who develop open source tools for use in nonprofit settings. They create attractive alternatives anyone can consider and make it possible for community workers in impoverished communities to take advantage of technological efficiencies that would otherwise be beyond their reach.
But there is undoubtedly a darker side to this pattern of parsimony. Some people who work in nonprofits slip into the error of justifying not playing fair by a claim of a higher moral purpose. They "save" on compensation by insisting on hiring staff as "independent consultants", knowing that doing so may tempt the employees into cheating on their personal income taxes and certainly allows the nonprofit employer to escape its share of payroll taxes. Talk with any bona fide consultant who works with lots of nonprofits and you'll hear tales of woe about disingenuous requests for special pricing, difficulty collecting fees, and just repeated failures to pay what's due. Some active consultants who work largely with nonprofits insist on deposits and pay-as-you-go contracts to minimize the risk of being stiffed at the end.
Observers of software licensing scandals note that nonprofit organizations are among the most prone to the practice of installing one copy of key desktop software on multiple machines. When challenged about this, the answer is often a diatribe about the "market hegemony" of software publishers, as if secretive misappropriation of these products represented a significant political act.
Tax evaders and passionately anti-tax ideologues convince themselves that enjoying the fruits of community life on the cheap is somehow or other ok. Listening to their rationales could be grimly amusing if it didn't come with the undertow of knowledge that their criminal cleverness doesn't just increase tax bills for the rest of us, it also diminishes governments' ability to address painful needs and provide community assets. I can't imagine how anyone would find it amusing, though, to listen to the rationale offered by a nonprofit executive who accepted a small share in the booty from a tax-evasion scheme in return for "renting" tax-exempt status as a cover for the scam. When I first read of the Senate Finance Committee's concern about nonprofits as vehicles for tax evasion I was frankly incredulous. I couldn't believe the problem was big enough to deserve serious attention. But I was wrong. IRS Commissioner Mark Everson spent a good proportion of his 14-page letter (PDF) to Senator Charles Grassley's committee earlier this year documenting the forms of tax abuse that are "increasingly present in the sector."
Sometimes, sad to say, the nonprofits' part in a tax-evasion scheme is willful; the managers of the organization are just as deeply implicated in the scam as are those whose interest is in avoiding taxes. It seems likely to me, though, that more often the nonprofit participants in the schemes reflect a grosser form of the attitude of entitlement. "Our cause is so urgent, and the task of finding support in conventional ways so overwhelming, that winking at the damage that's being done to the community as a whole is something we can live with." I've never actually met people who advanced that sort of argument. If I do, I hope I have the courage to tell them to their faces what I think of it.
A CPA friend of mine recently described her firm's approach to dealing with these schemes. They have ready a printed list of criminal defense attorneys whose practices focus on tax issues. "We think you should check with one of these experts about that idea before going any further," they say. Usually that's the end of the matter. Sometimes they lose a client.
Of course, it's not just the lure of profiting by helping someone get out of paying taxes that can lead nonprofit people astray. The San Diego Union-Tribune published a catalog of shameful abuses, and excuses, in an expose of the local Food Bank last February. When a pastor whose church distributes Food Bank goods was found to be keeping some for his own family's use, his response was "We are poor, too." That grubby diversion of a bag or two of groceries is a small part of a staggering record of cash sales of donated products and blank refusal to explain what was being done with tons of food, cleaning supplies, and other products intended for charity.
I know that most of the people who do public benefit work in nonprofit organizations can't imagine themselves being drawn into schemes of this sort. As I reflect on these practices, though, the depressing thought grows in my mind that these outrageous behaviors are linked to commonplace features of our work that are less spectacular, but no less corrosive. Don Homuth was right. There Is No Such Thing As A Free Lunch. Working for a good cause is not a license to stiff a consultant, facilitate avoiding payroll taxes, or skimp on software purchases any more than it is a license to steal from the taxpayers or feast on the generosity of donors. If we allow ourselves to wink at minimal forms of self-righteousness about misdeeds, we undermine our ability to confront gross abuses of the public trust within our ranks. And if we can't confront those abuses ourselves, who will? And how?
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