The directors are regretful and chagrined. They always are, when it turns out people they were supposed to be supervising are living inappropriately high. But why didn't they stop it before it started? It's not like there aren't dozens of object lessons from the nonprofit world that show these kinds of things are all too likely.

The current case study is the Smithsonian Institution, where officers were living jet set lifestyles and took positions of blatant conflict of interest with an outside vendor. Yesterday another officer resigned, and directors expressed their mea culpas. Lawrence M. Small, Smithsonian's top boss, was found to be blowing huge amounts of money on trips, home furnishings, parties etc. The museum argued it was all part of Small's job, and he has not been accused of criminal wrongdoing. Directors seem to have approved all the items. But Sen. Charles Grassley, who spearheaded an investigation, accused Small of enjoying "a Dom Perignon lifestyle" at taxpayer expense. (The Smithsonian gets big government money and is also a nonprofit organized under section 501(c)3 of the tax laws.) Small was also a paid board member at Chubb Group while the company was selling insurance to the Smithsonian.

Memo to all big nonprofits. Heed the words of Smithsonian regent Patty Stonesipher to the New York Times:

“It’s never easy to do this kind of self examination, and we wish we’d been doing it on an ongoing basis.”