Monday, July 30, 2012

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,, Responsive Philanthropy Magazine, New York Times...and many more Nonprofits: On the Brink (2006) Silence: The Impending Threat to the Charitable Sector (2011)
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