Monday, August 15, 2011

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, ,, Responsive Philanthropy Magazine, New York Times...and many more • Nonprofits: On the Brink (iUniverse, 2006)
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