When I recently blogged about the New Statesman’s critique of “philanthrocapitalism”, one thing I didn’t address – but should have – was fraud.

Based on studies published in the Nonprofit and Voluntary Sector Quarterly, a NY Times article recently reported that fraud and embezzlement in the non-profit sector account for roughly $40 billion a year or around 13% of all philanthropic giving.

This is a gigantic number. Church-related organizations, government nonprofits, $25 million from Goodwill in Santa Clara County, all of them seem to be teeming with fraud.

The most costly cases, the study found, involved male executives earning $100,000 to $149,000 a year. In these examples the executives had generally been with the organization the longest. Perhaps the greatest reason why this is not being talked about more openly and publicly is the reason that one accounting professor gave,

‘This has been going on for years, but there’s a feeling that it shouldn’t be discussed,’ because of the effect it might have on donations.

Is this a case against philanthropic giving? Not necessarily. It certainly makes giving feel less secure, even though total U.S. giving is nationally on the rise. The original study, of course, lumped government and non-government “nonprofits” together, making it difficult to distinguish which forms of giving are more sound.

The Very Rich Philanthrocapitalists (VRPCs) donate large sums of their income to charities and foundations, which in turn are being appropriated by accounting frauds on a massive scale. When a private philanthropic foundation becomes a bureaucracy, not a privately-funded public interest organization, the risk of fraud increases. This seems to happen whenever large monetary surpluses are siphoned off to organizations with little or no oversight.

The article that I critiqued in on Saturday expressed disgust whenever philanthropists pay too much attention to the social returns from their giving, as if it were a contest. This study suggests that this expression is ultimately unfounded. With such high risks of fraud, greater accountability to the philanthropists makes more sense.

It is not feasible in my view to attack the intentions of philanthropists, or their social position in society, unless their positions were unjustly obtained. I don’t assume, like many seem to, that their positions in society are ipso facto evidence of injustice. There is an important burden that must be met, as I explained in the comment section in Philanthrocapitalism. I do, however, think that the philanthropy sector itself can indeed be scrutinized and attacked for all its deceptive accounting practices and overt breaches of contract.

This study should sound the alarm for Very Rich Philanthrocapitalists, and perhaps everyone should be less careless about what happens with their stocks and flows.