Kids’ Charity Is Damaged By Penn State Scandal

Barely a month after an explosive grand jury presentment, investigations into the Penn State University child sex abuse allegations abound in a scandal that within a week cost a half-dozen high-ranking officials their jobs.

In addition to the initial Pennsylvania Attorney General’s Office criminal investigation that’s been going on for almost three years, Penn State has formed a special committee to determine what went wrong. The Second Mile (TSM), a charity founded by former Penn State defensive coordinator Jerry Sandusky, will conduct an internal investigation, and the U.S. Department of Education said it would investigate whether the university failed to comply with a federal act requiring disclosure of crimes. Civil lawsuits by potential victims and their families haven’t even started.

Sandusky, a former player and then a coach under legendary Penn State football coach Joe Paterno, is the key figure in the scandal, accused by authorities of abusing as many as eight children during a 15-year period beginning in the mid-‘90s. He has maintained his innocence. Paterno led Penn State football since 1966, building it not only into a perennial winner but an iconic brand that generated hundreds of millions of dollars for the university. University trustees fired Paterno within a week of the allegations going public. It came one day after he apparently tried to short-circuit the trustees’ move by announcing he’d retire at season’s end. The trustees also fired the university’s president, Graham Spanier.

Paterno has been criticized for apparently not reporting allegations of child abuse to the proper authorities after a graduate assistant in 2002 told him he allegedly saw Sandusky sexually assaulting a child in the football locker room showers.

Sandusky was Paterno’s defensive coordinator until 1999 and at one time was thought to be his successor. The 67-year-old is fighting the charges of alleged sexual abuse. Athletic Director Tim Curley and Vice President for Finance and Business Gary Schultz, who oversaw the university police force, have been charged with perjury and failing to report suspected child abuse and are both on administrative leave.

Through The Second Mile, Sandusky had “access to hundreds of boys, many of whom were vulnerable due to their social situations,” according to the 23-page grand jury presentment, which details the allegations of abuse of eight victims. It includes testimony from Jack Raykovitz, CEO of Sandusky’s charity, that he was informed by Curley in 2002 that someone had reported being uncomfortable seeing Sandusky in the locker room shower with a youth.

In statements released since the news broke, the charity indicates Curley told the organization that the incident was reviewed internally, with no finding of wrongdoing, and that it was never made aware of the “serious allegations” in the grand jury report.

In 2008, The Second Mile barred Sandusky from activities with children after he informed them of allegations – which he denied – made against him by an adolescent. Sandusky officially retired from the charity in September 2010 and the Attorney General’s office contacted the charity early this year.

“Certainly, this ought to alert boards throughout the country, particularly those working with at-risk children, about receiving full reports from their key administrators, about any complaints or potential complaints,” said Peggy Outon, executive director of the Bayer Center for Nonprofit Management at Robert Morris University, outside Pittsburgh, Pa. Learning to deal with a scandal is not something most nonprofits have had to do and most likely don’t have a crisis communications policy or training in place, she said.

The board of The Second Mile appointed its vice chairman, David Woodle, to oversee day-to-day operations of the charity after Raykovitz resigned. He had been CEO for 28 years. Outon said an interim director from among the staff would have been preferred, to allow board members to focus on management and governance. “It will prove challenging going forward, as far as what’s the staff’s role and what’s the board’s role,” she said. The Second Mile also has replaced its general counsel, hiring former Philadelphia District Attorney Lynne Abraham, and launched an internal investigation, which it hopes will provide recommendations on future operations by the end of the year. Woodle did not return messages by presstime.

Wendell Courtney was general counsel for The Second Mile until he resigned in the week after the scandal broke. According to the grand jury presentment, Schultz, who oversaw the university’s police force, testified that as university counsel, Courtney reviewed allegations against Sandusky as far back as 1998. Courtney, who did not return a message seeking comment, disputed that to a Pennsylvania newspaper, indicating he was not counsel for both organizations at the time, but only in 2009.

Nils Frederiksen, a spokesman for the Pennsylvania Attorney General’s office, said the agency cannot identify potential targets of an investigation, be it The Second Mile or Courtney. The Sandusky case “remains an ongoing and active criminal investigation,” he said, and declined to discuss any specific individuals.

Even the U.S. Department of Education has launched an investigation, trying to find out if the university failed to comply with the Clery Act, which requires disclosure of the number of criminal offenses on campus reported each year. In certain cases, an institution must issue a timely warning if a reported crime represents a threat to the campus community. For instance, Virginia Tech was fined $55,000 earlier this year for two violations of the act during a 2007 campus shooting, including waiting too long to notify students.

“If it turns out that some people at the school knew of the abuse and did nothing or covered it up, that makes it even worse,” Education Secretary Arne Duncan said in a statement. The most important thing for any nonprofit to do — whether it’s child abuse or other crimes — is to implement a mechanism to report wrongdoing, including reporting information anonymously, said William Devaney, a partner in the New York City office of Venable, LLP. For large organizations, that could be a hotline, or for small organizations something like a lockbox. There has to be a component that allows people to report anonymously if they don’t feel comfortable going to a supervisor or compliance officer, said Devaney, who could not speak to the specifics of the Penn State case, but offered suggestions in general on how organizations can be prepared. It could be as simple as knowing the number of the hotline, or posting the hotline number where employees will see it.

Any compliance program has to be properly monitored to make sure people are doing what they’re supposed to be doing. Devaney said such a policy should be examined frequently, perhaps quarterly, to ensure it’s working. Exactly how often depends on the organization and its mission. “A manual that sits in people’s desks is almost as bad as not having any at all. It must be a living, breathing program, and that requires monitoring,” he said.

For instance, that a hotline hasn’t received a call all year might not be out of the ordinary for a small nonprofit but for large organizations it could be unusual, he said. If that’s the case, a charity might want to review whether a hotline has been effectively publicized and whether staff have been trained.

There also has to be effective discipline appropriate to the level of the offense, he said. “Whatever part of program it is, needs be some disciplinary measure, to make sure program adhered to,” said Devaney.

The Second Mile is no small, fly-by-night charity, especially for one based in central Pennsylvania. As recently as 2008, the organization had total revenue of more than $4.1 million, with contributions of more than $3.2 million. That was the last year that Sandusky was paid by the organization, also the year it barred him from activities involving children. As director and consultant, Sandusky earned $57,000 in compensation, broken down on the Internal Revenue Service’s Form 990 as $36,521 for programming, $11,857 for fundraising, and $8,892 for management.

“The thing about nonprofits is relationships. But when you have a scandal, it’s a huge deal to have relationships not play a role,” said Outon. The Second Mile has some longevity, operating since 1977, she said “but whether they can weather this or not, I think it’s really a challenge.”

In examining the Form 990, The Second Mile’s fundraising has diminished in recent years. “That’s just one signal that they’re going to struggle mightily with fundraising,” said Outon. “These folks are dependent on the public perception of the agency,” she said.

Last year, the charity reported revenue of $2.187 million, with contributions of $1.227 million, a combination of donations and special events revenue, which was down from $3.282 million and $2.272 million, respectively. The organization had a $228,000 loss in net cash flow for operations, according to its annual report for 2010. The annual report also lists dozens of $50,000+ donors, including foundations, corporations and individuals.

Outon expects the charity to have an “uphill climb” because there’s no core of funding to support its primary programs, like government contracts which are more prevalent for health and human services organizations.

“The interconnection between volunteers to work, donors to write checks and others to give in-kind donations for auctions, there’s an alchemy in all that, that’s all fed by goodwill. If there’s not a sense of goodwill, optimism and gratitude, they’re going to have a tough time with all components of the fundraising equation,” said Outon. NPT