Where Were The Charity Watchdogs?

by Gary Snyder

The Ohio Department of Education missed some early warning signs that could have helped it rein in a local charity accused of misappropriating $1.7 million in taxpayer money through its administration of Karla Randall Ministries. With the failure to disclose on a 2005 state application that a key administrator had been convicted of embezzlement, the ODE blithely signed off on awarding millions to the charity to administer a U.S. Department of Agriculture program even though a majority of the charity’s board was made of up of the CEO/President Karla Randall’s immediate family members, most of whom were also well-paid charity employees.

A state study concluded that KRM misspent the $1.7 million in tax money between 2009 and 2011. State officials have accused KRM of paying Randall’s son while he was in jail; paying for the same son’s child support payments; awarding unauthorized bonuses to herself and family members; billing the state for food that wasn’t delivered; and using tax money to renovate a building it owned, among other alleged misspending.

A special ODE audit also found that KRM claimed and received $225,000 more in reimbursements from the state than the charity’s books show it spent.

This is another example of self-regulation at its best. This scandal is another reminder of how incompetent government overseers have been at detecting fraud. It also points out how successful the charity sector has been in knocking down any regulation of charities. A complete audit of any kind probably would have detected malfeasance as early as 2006.

The state does not perform background checks on the people who run the organizations that run food sites. Karla Randall checked a box indicating that neither she nor anyone else in the organization had been convicted of any business integrity-related crimes during the seven previous years. Had anyone performed a background check or an Internet search on the two principals included in KRM’s 2005 state application, officials would have learned that one had a criminal past. She was convicted in 2002 and 2003 of embezzling more than $120,000 from two Dayton-area companies by forging checks and altering payroll records, according to court and police records and media reports.

Ohio Superintendent Stan Heffner said in a statement that ODE would review its oversight procedures…to determine what additional safeguards can be put in place. Now a criminal investigation by the U.S. Department of Agriculture Office of Inspector General into the misappropriation is underway.

The state requires non-profits to be certified by the IRS as tax-exempt charitable organizations in order to receive state funding…an unchecked process where virtually all applicants are given the favorable tax status. No one checked the mandatory 2009 and 2010 IRS submissions that showed that KRM had a six-member board of trustees that approved all charity expenses. Four members were CEO Karla Randall, who doubled as board president, her husband, Merle Randall and two sons. The IRS says it frowns upon non-profits with governing boards comprised mostly of family members.

In KRM’s 2005 application with the state it failed to describe how the charity would appoint board members, or how it would hire or pay employees. Reviews in 2007 and 2009 make no mention of the charity’s questionable board setup.

No one checked expenses or they would have found that son Benjamin Randall reported $98,200 in income from KRM in 2008. He spent about three months in jail that year, according to court records.

Karla Randall said that she couldn’t afford to reimburse the state.

This is the precise environment that charity leaders have fought for. No oversight of any kind. Failure by the various Ohio regulatory bodies as well as the Internal Revenue Service and the Department of Agriculture lead to theft with impunity.  It is an environment where all rules and regulations have no teeth because the resources behind them are not there. It is a setting of self-regulation…just what they strive for.

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 (2006) Silence: The Impending Threat to the Charitable Sector (2011)

Councilman Convicted of Charity and Government Fraud

by Gary Snyder


City Councilman Larry B. Seabrook, a mainstay of Bronx politics for nearly three decades, was convicted of orchestrating a broad corruption scheme to funnel hundreds of thousands of dollars in city money to his relatives, friends and a girlfriend through a network of nonprofit organizations that he controlled.  He was charged with engaging in a series of schemes that defrauded the city of more than $1 million in taxpayer money. 


Mr. Seabrook installed Gloria Jones-Grant, his girlfriend, as executive director of the nonprofit organizations even though he knew she was “incompetent,” and that through those positions and consulting, she received more than $300,000 in city money. He was charged with embezzling over $1 million of city money. A government trial exhibit shows the nonprofit groups made payments of more than $600,000 to Mr. Seabrook’s relatives and friends, including two of his sisters, a brother, two nephews, a granddaughter as well as Ms. Jones-Grant. Mr. Seabrook arranged for the nonprofit groups to rent office space through another company he controlled, which then billed the city at a higher price. The inflated rent scheme defrauded the city of about $100,000. (link) Seabrook was a former assemblyman and state senator and has served on the City Council since 2002.




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 (2006) Silence: The Impending Threat to the Charitable Sector (2011)

Mortenson Names Board

By Gary Snyder


The charity co-founded by Greg Mortenson has named seven new board members as part of a settlement over accusations the "Three Cups of Tea" author mismanaged the organization that builds schools in Afghanistan and Pakistan. 


The Central Asia Institute announced that the new board members were named during a meeting in San Francisco last week. They include philanthropists, academics, businessmen and an attorney. Mortenson and two others previously had been the sole board members. 


A Montana attorney general investigation concluded last spring that Mortenson's control went unchallenged by the board and led to the charity spending millions on Mortenson's books, travel and personal items. The settlement called for Mortenson to reimburse the charity $1 million, his removal from a position of financial oversight and an expansion of the board. (update)








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 (2006) Silence: The Impending Threat to the Charitable Sector (2011)

Another Breast Charity Goes Under

by Gary Snyder


They had more than 20,000 people who helped raise more than $2 million by participating in the Y-Me’s May 13 race and walk. Weeks later the Chicago-based nonprofit, which operated a nationwide hot line offering counseling to breast cancer patients, fired its staff and shut its doors.


Now Attorney General Lisa Madigan’s office said it intended to open a “review” of the charity’s finances but stopped short of saying it had any evidence of impropriety or wrongdoing.


IRS forms filed by the charity show contributions plummeted from $16.7 million in 2007 to $5.2 million in 2010. An audit released by Attorney General Madigan’s office showed Y-Me’s investments carried a value of $803,204 as of June 30, 2011, down from $1.5 million a year earlier. This indicates either investment losses, money was used to pay expenses or something more sinister.


Management is under assault. A Y-Me volunteer and founder of the group’s signature fund-raising race, said “incompetence and mismanagement,” especially under previous leadership, led to Y-Me’s downfall. Y-Me had over expanded and leased office space it could not afford here and in other cities. Some acknowledged that the organization had “liabilities from many, many years ago.” Others added that the weak economy, lower than expected race receipts and short-term debt were other contributing factors to the closure.


This is another breast cancer charity that has had problems. The credibility of the Susan G. Komen Foundation has tanked as has donations. Its founder, board leader and executive has been under attack and not been seen in a professional manner in months. Many others such as  Coalition Against Breast Cancer has become the norm in the breast cancer charity world. Many other scams are discussed here.


As these frequent uncoverings of malfeasance by media and regulators are ripping out the heart and soul of breast cancer charities that are legitimate. 

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 (2006) Silence: The Impending Threat to the Charitable Sector (2011)

Oops; Got Caught, Again

by Gary Snyder


Terri Crisp agreed in a 2007 settlement with California officials not to “serve as an officer, director or trustee or in any position having the duties or responsibilities of an officer, director or trustee, with any nonprofit organization” for at least five years. It seems that Ms. Crisp’s handling of $8-million raised by Noah’s Wish to rescue and care for animal victims of Hurricane Katrina in 2005 ended up with an agreement that the charity to return $4-million in donations. 


Crisp headed that California-based animal rescue charity. It is alleged by insiders that Crisp hired her daughter and used the money as if it was hers. Both made six-figure salaries. 


A CNN investigation into SPCA International found that the charity raised close to $27 million to help animals worldwide but spent nearly all of that money on fund-raising expenses paid to a direct-mail company.


In 2010, SPCA International owed $8.4 million to Quadriga Art and its affiliated company, Brickmill Marketing Services, according to publicly available Internal Revenue Service 990 tax records. Of the $14 million raised in 2010, SPCA International reports it spent less than 0.5% -- about $60,000 -- in small cash grants to animal shelters across the United States. 


Now the California attorney general’s office is reviewing whether SPCA International impermissibly gave a leadership role to the former head of an animal-rescue charity who was ordered to return millions of dollars in donations to her old organization.






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 (2006) Silence: The Impending Threat to the Charitable Sector (2011)

Shock! Reckless charity investing

by Gary Snyder

Charities worldwide were hit with massive losses and some were forced to shutter as a result of the Madoff Ponzi scheme. You might think that post-Madoff charities have reflected on the organizational weaknesses that led to that disaster and embraced remedial measures with respect to their investment programs that will prevent similar occurrences. If so, you would be wrong.

Forbes says charities are losing millions annually as a result of mismanaging their investments they should focus more upon management of existing donations, as opposed to soliciting new donor funds. 

“The lessons of Madoff have not been learned,” says Ken Berger, President and CEO of Charity Navigator. “The overwhelming majority of boards do not take their responsibilities seriously and many operate like social clubs. Investments are not managed as thoughtfully as they should be—very conservatively and with great care. If the board is asleep at the switch with respect to investments, trust me, they are not minding the store in other areas. Especially in the current economic environment with less government support for charitable causes, squandering precious charitable dollars is unforgivable and is, unfortunately, leading to donor fatigue.”

Charities continue to pile into high risk, high cost, opaque investments, such as structured notes, hedge funds and private equity and are prone to be victimized by other investment scams because they have failed to acknowledge and address the unique vulnerabilities related to managing the investment portfolios of these types of organizations. Charities are subject to unique pressures, especiallly with respect to their investments.

Any examination of the management of a charity’s investment program must begin with and include a review of the board members and the members of the investment committee of the charity, as well as the investment service providers and investments held. 

Another serious question to ask is whether the charity has any history of investment malfeasance or substantial losses? You need to know all the facts about any past blunders. Was a thorough investigation of the cause of the loss, including whether anyone associated with the charity recommended the investment, or may be culpable in any way, undertaken? It’s easy for the charity to say a matter was investigated, so ask to see the investigative report. It probably doesn’t exist. For a variety of reasons, true investigations of investment malfeasance related to charities are extremely rare. 

Absent a thorough review of any malfeasance, significant losses or sustained underperformance, there can be no assurance that the past mistakes will not be repeated. What remedial measures were instituted following the loss and the thorough investigation of the loss? Unless you see hard evidence of subsequent safeguards, hold onto your checkbook. 

Fiduciary standards related to managing investment portfolios have been heightened in recent years. The overwhelming majority of charities, unfortunately, have failed to respond to these changes, or even institute protections against the next Madoff. If you choose to contribute to charities that are not good stewards of their investment portfolios, expect to give lots of money and often, says the thoughtful article.

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 (2006) Silence: The Impending Threat to the Charitable Sector (2011)

Should We Trust the IRS to Do What Is Right in the EO Area

by Paul Streckfus, Editor, EO Tax Journal

Is recent criticism of the IRS’s EO function just politics as usual? After all, criticizing the IRS always wins a member of Congress huzzahs back in his or her district. Nevertheless, the series of letters written to the IRS this year about its EO function, from both Democrats and Republicans, intimate a lack of trust in the IRS to do the right thing in its regulation of tax-exempt organizations.

As someone who has followed the EO function for forty years, first as a tax law specialist in the IRS’s EO Division in the seventies and now as a journalist exclusively covering EO tax matters, I’d like to be able to say the folks at the IRS are to be trusted to do the right thing without favoring one political party over the other or without favoring certain powerful groups.

My problem is that I do not know what is really going on at the IRS and Treasury in regard to tax-exempt organizations. Lois Lerner, the current director of the EO Division and the IRS’s most frequent public speaker on EO matters, remains an enigma, at least to me. While Lois is always touting the “transparency” of the EO function, the reality is that we in the press -- and hence the public -- get mostly propaganda in the form of superficial, wistful workplans and canned speeches.

What we in the press do not get is access to Lois or to any of her subordinates. Theoretically, we do have access through the Media Relations office of the IRS. In reality, this office’s mission is to keep the press at bay, usually by ignoring press calls or taking so long to respond that stories have long since gone to press. (True story: I’ve had a request to interview Lois pending for over five years, which must set some kind of record.)

Over the years I have suggested that the EO function have periodic press conferences where the members of the EO tax press (there are only a few of us!) could come to the IRS and ask Lois and members of her staff questions. I believe that the reason such a request has never been responded to is because Lois -- and her predecessor and mentor, Steve Miller -- would find such encounters terrifying. Imagine having to answer hard questions from us obnoxious press people! Yet, no matter how you feel about the press, we represent the public, the folks who pay Lois’ salary and to whom she and her fellow EO managers should be accountable and transparent.

Meanwhile, certain groups have easy access to Lois and the IRS. Should I begrudge Independent Sector its access? The Council on Foundations? The EO Committee of the ABA’s Tax Section? Members of the ABA’s EO Committee get to spend a day with the IRS and Treasury each year before their May meeting. In addition, Lois usually picks at least one member of the EO Committee to serve on her EO Advisory Subcommittee.

I think most people of whatever political persuasion are not blind to the fact that the EO function at the IRS has a double standard when it comes to access to its staff. Groups perceived as friendly get the royal carpet treatment. Those of us who are perceived as troublesome are left standing at the door or required to sit in the back of the bus.

I believe this obvious double standard is one of the reasons there is a lack of trust in the IRS to do the right thing in its regulation of tax-exempt organizations. As a former IRS employee and as someone who supports the work of the IRS, I’d like to be in a position to defend the EO function from attacks on its integrity, but even I -- who, as I said, have been involved in the EO area for 40 years -- have no idea what is going on at the IRS.

In addition to the EO Division, the other function at the IRS that is involved in EO matters is the Office of Chief Counsel. When it comes to lack of transparency, the Office of Chief Counsel is even worse than the EO Division, in that it routinely ignores the disclosure laws.

As an example, last year I requested information on EO cases in litigation, which is public information, under the Freedom of Information Act. Not surprisingly, the request was denied. I then asked a new federal agency, the Office of Government Information Services, which has been set up to mediate FOIA disputes, to intervene. That office asked me if I would accept the information I requested in whatever manner or format that was convenient for the Office of Chief Counsel. I said sure, something is better than nothing. Again, not surprisingly, the IRS told the federal government’s mediators that they would not respond in any fashion.

The reality is that the IRS has become a law unto itself. The agency constantly uses section 6103 of the Internal Revenue Code, which protects only individual taxpayer information, to shield all its operations from public scrutiny. The result is that no one knows what really goes on at the IRS, but I do know, at least in the EO function, some favored folks are getting access while the rest of us are ignored.

How can anyone, even those who are getting preferential access, have confidence in an agency that operates this way? Is the Obama Administration, through the Treasury Department, manipulating the IRS to rule favorably in the case of exempt organizations supporting Democratic causes and to rule adversely in the case of EOs supporting Republican causes? I certainly don’t know, but I am becoming increasingly suspicious, in view of their deliberate efforts to keep the press away while favoring certain groups. 








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 (2006) Silence: The Impending Threat to the Charitable Sector (2011)