Ethics of Governance

In August of 2006, David Wren of the South Carolina Sun News newspaper initiated an investigation of the nonprofit, Five Rivers Community Development Corporation. What Wren uncovered from that time to as recent as February 2007, is a truly shocking and unfortunate consequence of ineffective board governance. The organization had mismanaged 3.5 million dollars of public funds leading to a state criminal inquiry and ultimately the dissolution of the nonprofit. There are key questions hanging in the air as one reads through misdeed upon misdeed. Where was the board in all of this? How did such gross negligence go undetected for ten years? How did the board respond to this growing crisis? How are they responsible? Finally and most importantly, what could been done to avoid these results? By exploring these questions this paper seeks to address not only the importance of board governance but argue that governance itself an ethical practice.

The Five Rivers Community Development Corporation was founded in Georgetown County, South Carolina in 1995 to provide affordable housing and enhance economic growth for the counties low, to moderate, income residents. Their programs included workshops for guidance on buying homes, credit counseling, and loans for new small business owners. As part of their programs, the organization purchased land for development of affordable housing and had been working to garner additional funds from the U.S. Department of Housing and Urban Development for the creation of a large training and retail facility. Five River’s bylaws state that they will maintain a board of seven members. At the time Wren’s investigation began, the board had only four board

officers. The organization operated on an approximate annual budget of less than $500,000, two thirds of which had been coming from state and federal grants.

Key indicators that the organization was on a dubious path was the consistently inaccurate financial reporting brought to the board, to funders and inconsistent to absent 990 tax returns. In addition, the first sweep of investigation revealed the exorbitantly high expenses toward staff salaries, fringe benefits, travel, insurance and other personally beneficial costs. The Sun Times reports soon revealed that the organizations chief financial officer was the daughter of the executive director, that the organization has two

other children of the executive director on payroll without board knowledge. Further reporting exposed a plethora of disturbing details pointing towards blatant malfeasance. Further disquieting is that fact that the organization is located in a poor community that is in need of community support to create access to opportunities for improvement. The organization’s records showed only 9.5% of the budget going toward client financial assistance and 5.1% toward training. Training fees were going to the trainers, the executive director and