Charities Are Threatened By Fraud

Gary Snyder

The recently released book, Silence: The Impending Threat to the Charitable Sector is a 5-year endeavor to bring to light painful facts that could lead to an imminent catastrophe. And that's not hyperbole – it's validated on virtually every page of this book.

Billions of dollars of donor´s contributions to charities are taken from those to whom it was intended. Fraud is omnipresent in the nonprofit sector and no one cares says watchdog Gary Snyder in his recent book, Silence: The Impending Threat to the Charitable Sector. One out of every $8 is embezzled; a rate almost twice that of the business sector.

Snyder asserts that the direction and future of the charitable sector has been hijacked by greed. "I am disturbed that fraud is sabotaging the underpinnings of giving," he writes. "Donors believe that government, sector leaders, boards and other watchdogs will control this overt pillaging…all have let them down. With no well-defined owners or overseers and few outside constraints, there is little interest is stopping this nonprofit contagion.

The problems are endemic; it is having a corrosive effect. Scandals have forced prominent institutions like the Smithsonian Institution, American Red Cross, many universities, United Way affiliates and hundreds more to undergo changes in operations and leadership and engage in years´ long campaigns to renew public confidence. Moreover, even the most prominent rebuilding campaigns have achieved at best cosmetic changes. The fundamental rot continues.

This book is a powerful depiction of deception of tens of billions of dollars a year. Silence: The Impending Threat to the Charitable Sector is the result of mining vast amounts of data from the largest repository of charity fraud anywhere, reviewing thousands of fraud cases. It also suggests ways to convert bad habits into best practices, averting a huge calamity.

Silence: The Impending Threat to the Charitable Sector is a deep, honest look into philanthropy and its practices and is seeking a broad and demonstrable change in beliefs and thinking. Silence attempts to produce a new commitment to honesty—both intellectually and behaviorally on which a foundation of trust and sustainability can be built.

Silence may be purchased at Amazon (amazon.com), Barnes and Noble (bn.com), or at retail book stores.







Nonprofit Imperative gathers its information principally from public documents...some of which are directly quoted. Virtually all cited are in some phase of criminal proceedings; some have not been charged, however. Cites in various media: Featured in print, broadcast, and online media outlets, including: Vermont Public Radio, Miami Herald, National Public Radio, Huffington Post, The Sun News, Atlanta Journal Constitution, Wall Street Journal (Profile, News and Photos), FOX2, ABC Spotlight on the News, WWJ Radio, Ethics World, Aspen Philanthropy Newsletter, Harvard Business Review, Current Affairs, The Chronicle of Philanthropy, St. Petersburg Times, B, USA Today Topics, , Newsweek.com, Responsive Philanthropy Magazine, New York Times...and many more • Nonprofits: On the Brink (iUniverse, 2006)

Hats Off to the Media in Detecting Charity Fraud

By Gary Snyder

It is so common. It is a tale that most law enforcement agencies see often, but it is a secret that most people do not recognize. As you read this, there is a major one happening now, but for a number of reasons you may not ever know about it.

It is estimated that less that 15% of the estimated $40 billion in charity crimes are reported publicly. Many are kept under wraps by keeping them in the executive suite or a benefactor or insurance company makes the charity whole or the board (when they know about it) suffocates any publicity, all so that there is no embarrassment that would not reflect poorly on the agency or them.

In those few instances in which we get to see the unwinding of charity fraud, it is often the result of the diligent work on the part of the media. Although few in number, those very heartbreaking stories show the importance of the printed media and the message that they can depict.

I have been deeply involved in uncovering a number of very important stories. All would never have been uncovered were it not for the arduous and tenacious work of some terrific reporting.

Many times a major expose results by initially trying to uncover a small story. A few years ago, the Charlotte Observer became interested in some programs, but ultimately unearthed a major story about the United Way of Central Carolinas, its board and its executive. In reviewing financials submitted by the agency, the reporters found “dubious accounting practices”. When the President’s $1.2 million salary and $2 million retirement plan of this relatively small agency was exposed in the press, the board fired the CEO. This is the second time the press uncovered the board’s incompetence with the salary and benefits that exceeded virtually all of the other United Ways. A couple of years prior, the same board’s ineptitude was questioned when the Observer questioned accounting practices and the agency reclassified about $2 million in salaries and benefits.

In a similar vein, the Atlanta Journal-Constitution uncovered that the United Way of Metropolitan Atlanta chief executive secured a seven-figure retirement package of nearly $1.6 million in addition to a roughly $106,000 pension for life.

The American Red Cross has a rich history of deception. This stalwart agency has been dogged, for more than a decade, by the press, particularly the Washington Post. The Post chronicled the board’s failure to properly oversee its leadership with only a small number of members involved in the transitions of its chief executives. There has been substantial turnover—seven CEOs in as many years. This coupled with bureaucratic issues between the Federal Emergency Management Agency and the American Red Cross, its troubling handling of blood donations (with millions of dollars in FDA fines), its misuse of cash both at the local and national levels (misuse of Katrina funds and millions of dollars in charity fraud) lead to a wide-ranging Congressional inquiry. All this media exposure lead to the American National Red Cross Modernization Act of 2007 (Pub. Law 110-26), a bill to strengthen the governance structure and provide the first major overhaul of the organization since its 1947 congressional charter.

Only after federal and media investigations did the Smithsonian Institution rework its policies, procedures and practices. Again the Washington Post startled the public in expose after expose on how the board has mishandled virtually everything from the boardroom and it failed to employ “tone at the top” ethics and compliance. The Post showed how the Smithsonian Institution disregarded an inspector general’s report that stated that there was massive malfeasance, that the agency was devoid of implemented policies and procedures, that the institution was overtly secretive and lacked transparency, that it was rampant with conflicts of interest, that it destroyed documents to cover up its weaknesses and failed any positive standard in its management and governance.

To be sure, these are only a few examples of judicious journalism that is takes large resources to offset substantial pushback from those in power. We have seen it from the Detroit Free Press in its uncovering of Mayor Kwame Kilpatrick’s multitude of indictments including personal use of charity funds. The National Journal and others highlighted how political money is driving charities and benefiting elected officials. There was a series of incredible stories by the St. Petersburg Times about a person that was given the IRS and state approvals to collect over $20 million for a non-existent charity by a person that does not exist, nor can be found. The phantom “Bobby Thompson” used the contributors dollars for political donations and became so well-connected that he was able to have his picture taken with the President of the United States and other national leaders.

There was the compelling series in the Atlantic Constitution-Journal of the Angel Food Ministries minister that abused the public’s confidence by receiving a $2.5 million salary for his family and million dollar loans to family members…all money that was to be used to feed the hungry.

Local media can set things in motion, nationally. There were two stories in the Worcester Telegram & Gazette when the paper shed light on the misuse of funds at the local Boys & Girls Clubs and resulted in a Congressional reaction; the other, was on living accommodations at the Salvation Army which was follow up by other national media including the Los Angeles Times and electronic media. The Sun News in Myrtle Beach uncovering the power of hospital debt collectors filing more lawsuits against patients than any other business and the unveiling of massive corruption at Five Rivers Community Development Corporation forcing a federal and state investigation and the ultimate closing of the agency.

This is not an exhaustive list, but just a few contributions of the large and small print media organizations doing what they do best. However, with the U.S. newspaper industry entering a period of precipitous decline, the public good is going to suffer. Investigative journalists have consistently been way ahead of the authorities, the IRS, state attorneys’ general and watchdog agencies included, in uncovering the charitable sector’s foul play. But with the retrenchment at the newspapers comes the scarcity of journalists that are assigned to charitable investigative reporting. With the loss of the reporters the ability of papers to break great stories is gone.

Even those reporters that occasionally write stories on nonprofits do not have the unique skills to plow through the piles of documents to decipher nonprofit corruption. Without courageous newspapers and journalists and the alarms they generate, charity misbehaving will increasingly become the norm. But one of the bright spots on the horizon is the proliferating number of nonprofits and investigative centers that are, in part, moving into the vacuum.

Here’s hoping!


















Nonprofit Imperative gathers its information principally from public documents...some of which are directly quoted. Virtually all cited are in some phase of criminal proceedings; some have not been charged, however. Cites in various media: Featured in print, broadcast, and online media outlets, including: Vermont Public Radio, Miami Herald, National Public Radio, Huffington Post, The Sun News, Atlanta Journal Constitution, Wall Street Journal (Profile, News and Photos), FOX2, ABC Spotlight on the News, WWJ Radio, Ethics World, Aspen Philanthropy Newsletter, Harvard Business Review, Current Affairs, The Chronicle of Philanthropy, St. Petersburg Times, B, USA Today Topics, , Newsweek.com, Responsive Philanthropy Magazine, New York Times...and many more • Nonprofits: On the Brink (iUniverse, 2006)

Another Abuse Study Group or Real Reform?

by Gary Snyder

The Wall Street Journal updates us that N.Y. Gov. Andrew Cuomo announced that a task force will investigate salaries and other compensation at nonprofit agencies where he says about 2,000 workers are paid more than $100,000 a year. Its creation comes after The New York Times (see yesterdays NI story) reported high salaries at nonprofit organizations receiving Medicaid funding for the developmentally disabled. The newspaper reported that two brothers received nearly $1 million a year and billed their group for their children's college education. The group will also recommend other fiscal controls to "ensure taxpayer dollars are used to serve and support the people of this state, not pay for excessive compensation." Cuomo said a 2010 preliminary analysis by the state found that nearly 2,000 employees had salaries averaging just under $169,000 a year.





Nonprofit Imperative gathers its information principally from public documents...some of which are directly quoted. Virtually all cited are in some phase of criminal proceedings; some have not been charged, however. Cites in various media: Featured in print, broadcast, and online media outlets, including: Vermont Public Radio, Miami Herald, National Public Radio, Huffington Post, The Sun News, Atlanta Journal Constitution, Wall Street Journal (Profile, News and Photos), FOX2, ABC Spotlight on the News, WWJ Radio, Ethics World, Aspen Philanthropy Newsletter, Harvard Business Review, Current Affairs, The Chronicle of Philanthropy, St. Petersburg Times, B, USA Today Topics, , Newsweek.com, Responsive Philanthropy Magazine, New York Times...and many more • Nonprofits: On the Brink (iUniverse, 2006)

Public Charity for the Rich?

by Gary Snyder

They earned close to $1 million a year each as the two top executives running a Medicaid-financed nonprofit organization serving the developmentally disabled. The New York League for Early Learning, had paid them consulting fees of about $50,000 a year from 2007 through 2009, on top of their salaries and other expenses, including lunches and dinners for executives and the $1,468 that was spent to stay for two nights at the Beverly Hills Hotel in 2008, which was said to be for a meeting with a possible donor. They are to receive deferred compensation totaling about $1.8 million for 2008 and 2009.

The Nonprofit organization paid $50,400 for his daughter’s living expenses one year when she attended graduate school at New York University. That money paid not for a dorm room, but rather it helped her buy a co-op apartment in Greenwich Village. In one year, the program provided $132,611 to cover tuition for four children of three executives.

A New York Times expose details the escapades of the brothers, Philip and Joel Levy and the compromised practices in New York’s $10 billion system for caring for the developmentally disabled.

More than half of that money goes to private providers like the Levys, with little oversight of their spending. And the providers have become so big and powerful that they shape much about how the system operates, from what kinds of care are emphasized to how much they will be paid for it. The organization run by the Levys, the Young Adult Institute Network, has been among the most aggressive, and is now the largest operator of group homes for the state, collecting more than $1 billion from Medicaid over the past decade and running homes with a total of 700 beds, along with day programs, a school, dental care and transportation for the developmentally disabled.

Two days after The New York Times asked about the spending for his daughter’s apartment, Philip Levy, 60, abruptly retired as chief executive. Joel M. Levy, 67, also departed in June, after serving as a $250,000-a-year part-time consultant following his departure from the chief executive’s position in 2009.

The prosecutors, from the United States attorney’s office for the Southern District of New York, with assistance from the New York attorney general’s office, brought a federal false claims lawsuit under seal in 2009 against the organization for the practices, which were brought to their attention by a whistle-blower, Richard Fagan, the nonprofit group’s longtime budget director. Mr. Fagan, who was involved in the preparation of the documents, told prosecutors that for years expenses had been pumped up on annual financial reports to win higher reimbursements from Medicaid.

Over all, the organization’s rates for group homes at the intermediate care level, which require higher levels of care and supervision, rose by 48 percent from 2004 to 2010. Rates for similar group homes run by nonprofit providers around the state increased by 37 percent during the same period, while inflation was 15 percent.

Last January, the organization agreed to pay $18 million in restitution and penalties to settle the suit, denying wrongdoing and saying it had made errors “under the complex cost-reporting rules that apply to Y.A.I.’s residential services.” A spokesman last week added that the organization had decided that the settlement would be less costly and disruptive than protracted litigation. In June, the nonprofit group submitted a plan to the state, saying it would repay the money in part by keeping its executive salaries flat for a period of years.

Last month, the state rejected that proposal, saying it expected executive pay to be reduced. No organization in the field in New York has paid its executives as well. Four of its executives received compensation in excess of $500,000 in 2009; none of its competitors had more than one executive at that level, according to a review by The Times of tax returns of the 100 largest providers. The Young Adult Institute also pays for its top executives to lease vehicles for personal and professional use. Accounting obtained by the state showed leases for two Lexuses and a Volvo. A spokesman declined to provide details about the cars, except to say the executives are allowed to select their own vehicles within certain price ranges. Returns filed by every nonprofit organization in the country shows nothing close to the Levys’ compensation.








Nonprofit Imperative gathers its information principally from public documents...some of which are directly quoted. Virtually all cited are in some phase of criminal proceedings; some have not been charged, however. Cites in various media: Featured in print, broadcast, and online media outlets, including: Vermont Public Radio, Miami Herald, National Public Radio, Huffington Post, The Sun News, Atlanta Journal Constitution, Wall Street Journal (Profile, News and Photos), FOX2, ABC Spotlight on the News, WWJ Radio, Ethics World, Aspen Philanthropy Newsletter, Harvard Business Review, Current Affairs, The Chronicle of Philanthropy, St. Petersburg Times, B, USA Today Topics, , Newsweek.com, Responsive Philanthropy Magazine, New York Times...and many more • Nonprofits: On the Brink (iUniverse, 2006)