Nonprofit
Imperative
…your nonprofit browser
April
2013
The
twice-monthly newsletter dedicated to:
- exposing the crisis in nonprofit
fraud leadership…a crisis of pervasive and monumental waste, fraud, abuse,
mismanagement, and malfeasance throughout the charitable sector which
costs taxpayers and contributors tens of billions of dollars annually;
and,
- seeking reforms that will restore
the public’s lost confidence in the sector.
What’s
Included:
Skunk of the Month:
LGBT Charity Fraud
Charity Check Up:
Vermont #1 in
Fraud?
A Thought or Two:
Background
Checks, Please
Nonprofit News-In Case You Missed It:
Newton-Sandy Hook
Foundation; Salary Caps For Nonprofit Execs…more
Political/Official Chicanery:
CA; NC; TX; MS; MO
What Do You
Think?
It is the very rare and very
unlucky nonprofit thief who gets caught. Less than one percent of all nonprofit
tax returns are even reviewed. And nonprofit theft is pervasive. (author Ken
Stern in With Charity for
All)
_________________
Charity
fraud or charity scams is one of the newest forms of committing identity theft. Basically, it
consists of an individual or a group of persons who willingly misinterprets
their fundraising intentions to solicit money from their victims using their
fraudulent causes. While legitimate charities aim to raise money to be given to
those who they promised to give it to, charity scammers aim to get as much
money as possible from people thinking their funds are going to for a good
cause. (Source)
_________________
“Has embezzlement become part of our culture?”
(VT Digger.org)
Skunk
of the Month…
Skunk of the Month is the
twice-monthly designation made by Nonprofit
Imperative, the organization dedicated to eliminating waste, fraud, abuse
and mismanagement in nonprofits and government. The Skunk of the Month award
is given to charities and government officials who show blatant disregard for
the interests and trust of contributors and taxpayers. This month’s example is:
“They
came to do good and they did very well indeed.”
LGBT Charity Organizations Caught in Frauds
Charity fraud is so
pervasive, but few areas evidence it more than with LGBT organizations
according to the Edge which points out the magnitude of problem.
With outsiders
throwing their donations behind organizations leading fights on various fronts,
insiders are pilfering tens of thousands of dollars. In recent years, gay
organizations have been the victim of embezzliment. Those who were supposed to
be husbanding the organization's resources were instead using the money to pay
for lavish lifestyles that ranged from Caribbean vacations to pricey dog
walkers.
The most recent
malfeasance was the former director of the Bronx Community Pride Center in
New York City. Lisa Winters was sentenced to at least two years behind bars for
embezzling more than $338,000. Court documents show that she used the money for
vacations with her partner, $15,000 to a dog walker, and thousands on fine
restaurants and shopping trips. The center was forced to close last June after
16 years serving a diverse population in desperate need of its services. This
recent case, The Bronx Community Pride Center, is
the most recent and one of the largest such incident of embezzlement at LGBT
and AIDS organizations.
Here’s a depressing litany of such
cases of LGBT people preying on their own:
· A few months ago, a federal investigation found that a former employee
at the Nebraska AIDS Project may lost in an embezzlement over $60,000 of
federal grant money.
· In 2011, the former executive director of Boston Living Center, an AIDS
service organization, pleaded guilty to embezzling more than $125,000. Only a
merger saved the organization from disappearing altogether.
· Also in 2011, the volunteer treasurer and board member at the Billy
DeFrank LGBT Community Center in San Jose, Calif. was caught embezzling
$40,000.
· In 2009, the former executive director of Philadelphia’s largest black
LGBT organization was found to have embezzled $138,000 in government-allocated
funds.
· In 2011, the former executive director of Verbena Health, a Seattle
health clinic and health center that catered largely to lesbians, was convicted
after having gambled away $500,000 in Las Vegas. The clinic was forced to close
its doors.
· From 2007 to 2008, the head of People of Color in Crisis, an AIDS
service group in Brooklyn, N.Y., spent $80,000 on items that included gym
memberships. POCC was forced to close in 2008.
The swindling happens in a number of
ways: bogus payroll claims, skimming, inflated reimbursements, and kickbacks
with vendors.
The ramifications nonprofits face
after embezzlement scandals nearly always put their future in jeopardy. As was
the case in the Bronx, Brooklyn and Seattle, the organizations simply can’t
recover and must close their doors.
A Charity Check Up:
A Snapshot of Fraud In Just One State
Vermont
Bar Journal ( Spring
2012 issue):
"Vermont is the number one state
in the nation for embezzlement thefts from corporations and nonprofits. It
appears that living well on other people’s money has become a way of life for
some Vermonters."
·
Iona College, saw
Sister Marie Thornton (yes a nun) plead guilty to having embezzled $850,000
from Iona where she had been the college’s V.P. of Finance
·
The treasurer of the
Richford (VT) Parent Teacher Organization took an estimated $3,500. She was
relieved of her teaching job in the same district.
·
Dartmouth College’s
former auditor, 79-year-old Vermonter, Bruce McAllister, allegedly betrayed his
fellow employees at the New Hampshire college by stealing over $800 thousand.
·
Southern Vermont
College’s CFO/COO, allegedly embezzled over $500,000 from the college. Much
about this embezzlement will never be known. The 58-year-old alleged embezzler
took his life with a self -inflicted gunshot wound
·
A long serving Weybridge
Town Clerk and Treasurer admitted that over a six-year period, she stole
$400,000 from her town.
·
A
lady was given an 18-month prison
sentence for embezzling $80,000 from the Algiers Fire District.
·
Nor are Vermont’s
neighboring towns immune to the wrongful deeds of employees. The former
Treasurer of Charlton, N.Y. (near Saratoga) admitted embezzling nearly $500,000
from the Charlton volunteer fire department.
·
In nearby Troy, N.Y.
the former executive director of a nonprofit agency, was charged with allegedly
stealing $200,000 from his employer, Father Young’s Rehabilitation Center. (source)
Fraud Examiners and Your Church
Association
of Certified Fraud Examiner’s 2012 Report
to the Nations…
The information is particularly
insightful for church leaders who are focused on minimizing the risks of fraud
and embezzlement with church money. It was in Managing
Your Church.
ACFE releases its report every
other year. Of note from the latest one:
1. Between January 2010 and December 2011, ACFE tracked 1,388
cases of “occupational fraud” worldwide:
2. Of the cases, 10.4 percent occurred within a not-for-profit
organization, up from 9.6 percent in 2010, but down from 14.3 percent in 2008;
3. The median theft involved with the cases was $100,000, up from $90,000
in 2010, but down from $109,000 in 2008;of all the cases, 87 percent involved
first-time offenders with no prior criminal records.
These details are
interesting because they validate several things we consistently observe in the
church world:
4. At least two to four media headlines nationwide each month involve an
arrest or prosecution of a bookkeeper, accountant, or pastor suspected of
embezzling from their church.
5. An average theft amount of at least $100,000, and usually between
$200,000 and $400,000, all stolen over a period of
several years.
6. A perpetrator who has no prior criminal record. Personal debt, a medical
crisis, or the unexpected loss of a spouse’s job creates unexpected pressure,
with many rationalizing their acts as “temporary loans” that they intend to
repay—but never do.
7. Or, some believe they are underpaid and are “owed” the additional
compensation.
A Thought or Two:
Please…Please Do Background Checks…Another Sad Example
A convicted felon who became chief financial
officer of the Brighter Choice Foundation pleaded guilty to ripping off close to
$203,000 from his own organization, which funds 10 Albany public
charter schools.
Ronald A. Racela, whose 2011 conviction for stealing $53,000 from Key Bank
somehow did not deter the foundation from hiring him, faces five to 10 years in
prison when he is sentenced May 17. Brighter Choice officials said
they were unaware of Racela's felonious background when they hired him as
financial director of Brighter Choice Foundation---just seven months after his
bank conviction. The agency first flagged the problem 18 months after he had
started working. His background checking process was obviously not exemplary
because it is possible that the convicted intercepted a warning mailed to the
charity. Clearly the procedure did not work. This is a warning for others in
like circumstances.
Nonprofit News…
In
Case You Missed It:
1. California’s state campaign watchdog agency, Fair Political
Practices Commission, is supporting sweeping changes to California’s political
finance laws, including proposals to lift the veil of secrecy from nonprofit
groups that are spending record amounts of money on political campaigns in the
state. They voted to back pending legislation that would address concerns about
an Arizona nonprofit organization that contributed $11-million contribution to
a ballot measure campaign fund before November's election. The bill would require nonprofit groups that spend 10%
of their money in a year on California elections to disclose contributions they
make and the names of the original donors who provide $10,000 or more to the
group. “It is important to the
public to know who is funding campaigns,” Commission Chairwoman Ann Ravel said
in a statement. ``Disclosure of political contributions and expenditures is the
essence of the Political Reform Act, which was enacted to restore confidence in
government through such disclosure.’’ (see related story #4 below)
2. An overwhelming majority of the relatives of those slain at Sandy Hook Elementary School in Newtown say an independent, single
administrator should be brought in to oversee the distribution of more than $11
million donated to the United Way after
the tragedy. The revelation comes on the heels of an announcement this week
that the Newtown-Sandy Hook Community Foundation established to distribute the money
will immediately begin, under pressure from the governor's office, allocating
$4 million to families and others affected by the shooting. A letter from the Governor suggested an administrator,
"like Ken Feinberg, to ensure that the process would be swift and fair." Feinberg
states in the letter that while the United Way "has great credibility and
a track record of success in assisting citizens of local communities," it
may not be the best vehicle to distribute the money because of possible
conflicts with the nonprofit's "ongoing charter and mission."
3. According to the Internal Revenue Service (IRS) Data Book for
2012, there were 10,000 fewer registered tax-exempt organizations in 2012 than
in 2011. There were 1,484,818 501(c) organizations for the fiscal year ending
in September, compared with 1,494,882 in 2011 – a decrease of 10,064, or about
0.68 percent. The IRS approved 52,615
organizations for tax-exempt status, out of 60,793 applications – an approval
rate of 86.5 percent. The overwhelming majority of applications came from
501(c)3 organizations, classified as religious and charitable, which numbered
more than 1.081 million last year. By comparison, there were 909,574 501(c) 3’s
in the 2002 data book – a difference of 170,546, or 18.75 percent.
Overall, the number of tax-exempt organizations and nonexempt
charitable trusts dropped by more than 13,000 (or 0.8 percent), from 1,629,149
in 2011 to 1,616,053 in 2012. Nonexempt charitable trusts were down by 3,000,
or 2.26 percent, to just less than 131,000. The number of 501(c) 3
organizations climbed by 0.163 percent, or 1,761, from 1,080,130 in 2011 to
1,081,891 in 2012.
4. Sen. Sheldon Whitehouse, D-Rhode Island,
said at a campaign finance hearing yesterday
that there were “numerous instances” in which nonprofit groups may have made
false statements to the IRS about whether they planned to be involved in
federal or local elections. He is pushing for an investigation of nonprofit
groups that told the Internal Revenue Service they would not engage in
political activity — and then spent millions attacking or praising candidates
in 2012 elections.
5. A group of
N.C. legislators introduced a bill that would
call for a commission to study $100,000 salary caps for employees at state-supported
nonprofits, as well as research into whether lawmakers should ban the use of
tax dollars for salaries. The assault continues after the governor proposed a
budget that bundles sharp cuts, about $85 million worth, for powerful economic
nonprofits: the Golden LEAF Foundation, N.C. Rural Economic Development Center
and the N.C. Biotechnology Center. The latter two were among the state-funded
nonprofits with the highest-paid leaders, according to data provided.
Furthermore, an October 2010 report from the left-leaning N.C. Justice Center
found overall state funding for nonprofits plunged more than 25 percent in the
2009–2010 fiscal year, roughly 10 times greater than overall cuts in the state
budget that year. According to a 2011 survey by advocates at the N.C. Center
for Nonprofits, more than 60 percent of nonprofits reported cuts in state
grants in 2009, 2010 and 2011.
6. The D.C. and Massachusetts Catholic
Charities organizations failed to provide adoption services to same-sex
couples; a the lawsuit filed in Illinois accusing the organization of
discriminating against gay couples; and now, the Palo Alto Community
Development Block Grant (CDBG) $500,000 to the local Catholic Charities seems
to be in jeopardy. Just the tip of a big iceberg.
7. The Internal Revenue Service issued a warning to taxpayers in
Watsonville, Santa Cruz County, and across the United States to avoid charity
scams in the wake of events in Boston and in Texas. "It's sad but
true," IRS officials said in a statement. "Following major disasters
and tragedies, scam artists impersonate charities to steal money or get private
information from well-intentioned taxpayers. Fraudulent schemes involve
solicitations by phone, social media, email or in-person."
Justice Watch
Judges, prosecutors and others have
coddled criminals convicted of charity fraud in their sentencing…and it is
rampant. All use jail overcrowding and other spurious excuses for lenient
prosecution and sentencing. Restitution is frequently ordered in lieu of
prison, but it is seldom discharged with less than 50% of the criminals even
paying one penny. This result is a free pass for the criminals. We are
watching!! (just a few examples).
1. A woman who said that she was duped into stealing more than $60,000 from
two volunteer groups to pay for a Jamaica-based mail scam will spend two years
on probation. Ethel Andrews, the former treasurer for both the Institute
Volunteer Fire Department and the Kanawha chapter of the West Virginia State
Alumni Association, pleaded guilty earlier this year to two felony counts of
embezzlement.
2. It
is clear. He betrayed the community’s trust. Former
Highland Park (MI) emergency financial manger Arthur Blackwell II was accused
of improperly paying himself about $264,000 after agreeing to be paid $1 a year
as emergency financial manager. He also was accused of refusing to turn over
the city’s financial records. Nevertheless, he pleaded down from embezzling from
the city to pleading
no contest to one count of safe keeping of public
money, a misdemeanor. A no-contest plea is not an admission
of guilt but is treated as such for sentencing. The judge ordered Blackwell to
a two-year probation term and restitution. Based on studies, the chance of
fully discharging the restitution is 5%.
We
flagged these few examples of nonprofit mischief
1.
Grand Island Community
Foundation (NB) $27,000
2.
Arkansas City Senior
Citizens Center, $100,000 or more
3.
Next Stage Inc. (TN)
more than $360,000
4.
Salvation Army (LA) more than $30,000
5.
Historic Downtown North
Wilkesboro Inc. (HDTNW) (NC) $45,546.
6.
Glendale Elementary
School District (AZ) more than $14,600
7.
Sandy Youth Football (OR) $23,000
8.
Workforce Investment
Act (WIA) (AL) $52,539
9.
Training Thru Placement (TTP) (RI)
unknown
10. Lakewood Police Independent Guild (WA) $151,000
11. Junior Waverly Warrior Football League (MI)
over $17,000
12. Porter Foundation (MO) $19,500
13. Ashland Little League (VA) $20,000+
14. United Medical Center (DC) $400,000
15. Wake Forest Baptist Medical Center (NC) $100,000
16. Frontier Culture Museum (VA) $40,000
17. Bronx (NY) Community Pride Center more than
$338,000 (see story above)
18. PTA at Blue Hills Elementary School (KS)
$22,000
19. Aliviane (TX) $100,000
20. Youth Services America (DC) $1 million
21. Blue Hills Elementary School's Parent Teachers
Association (MO) $22,000
22. Lusher Charter School (LA) $25,800.
23. Roseville Youth Soccer (CA) $173,000
24. Idaho County Food Bank $50,000
25. Milwaukee (WI) Health Services, Inc. $5,935,960
26. Cedars HOPE (IN) $30,000
27. Benicia Old
Town Theatre Group (CA) <$15,000
28. Woodruff Arts Center (GA) $1.4 million
29. Indian Knoll
Elementary PTA ($12,500); the Sequoyah High School Girls Soccer Booster Club ($5900)
(GA)
30. Virginia Angus Association at least $40,000
Political/public official chicanery (just a few):
1.
A former Santa Barbara
County firefighter is under investigation for allegedly embezzling funds from Santa
Barbara County Firefighters Local 2046.
2.
The City
of New Bern (NC) tax clerk has been charged with embezzlement. The warrants
alleged that she embezzled $5,766.22 in 2011, and $3,270.05 in 2012.
3.
Ross Valley (CA) Sanitation
District's executive director has disappeared. He is wanted on nine counts
including money laundering and embezzling. There is also a $1 million warrant
out for his arrest.
4.
The elected chief of
police in Sallisaw (CA) is charged with embezzling public funds after he
admitted to taking cash last year.
5.
A
former Love County (TX) under sheriff has been charged with embezzlement.
6.
Southaven (MS) Mayor Greg Davis' trial
for embezzlement and false pretense has been scheduled
7.
The ex-finance director
of San Mateo (CA) County's Mosquito and Vector Control District pleaded no
contest to 10 felonies for stealing at least $450,000 from the agency's
coffers.
8.
The former treasurer
for Multifest will spend the next 21 months in federal prison after admitting
to stealing more than $300,000 from the long running multi-cultural festival to
fuel a gambling addiction and failing to report that money on her tax
returns.
9. Former Edwardsville (MO) Police Chief James Bedell pleaded
guilty to federal charges and admitted stealing roughly $138,000 from the city,
prosecutors said. Bedell pleaded guilty to four counts of embezzlement and
theft and admitted that from July 2009 through September 2012, he took cash and
money orders from a department lock box that contained vehicle impound fees,
prosecutors said. The city charges a $300 fee for towed vehicles.
10. A former Pontiac (MI) school associate
superintendent and acting chief financial officer for the district has been
sentenced to a year in federal prison for using $236,000 of district money to
buy a luxury vehicle and travel, according to the FBI. Upon the initial
investigation in Pontiac, he resigned to take the second highest position at
the Inkster school district. The FBI is currently investigating
mismanagement of $157 million reported in an audit ordered in fall of 2009 for
the Inkster district by the Superintendent that hired the Pontiac accused.
11. A member of the St. Johns (MI) City
Commission, a member of the board of the Clinton County Chamber of Commerce and
its former president as well as a board of St. Johns Mint Festival Steering
Committee has been charged with embezzling more than $250,000 from a funeral
home where he worked as a consultant. The discovered discrepancies are from
pre-paid funeral accounts. Investigators say he embezzled the money
over a six-year period
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
there is money missing.
Cites
in various media:
Featured
in print, broadcast, and online media outlets, including: Charity Navigator,
Vermont Public Radio, Miami Herald, National Public Radio (NPR),
Huffington Post, The Sun News, Atlanta Journal Constitution, Wall
Street Journal (Profile, News and Photos), “Betrayal”, (a movie), NBC (on Charity
Fraud…TBD), FOX2, ABC Spotlight on the News, WWJ Radio, Marie Claire,
Ethics World, Aspen Philanthropy Newsletter,
Harvard Business Review, Current Affairs, Charity Navigator, The Chronicle of
Philanthropy, St. Petersburg Times, Board Room Insider, USA Today Topics,
Accountants News, Newsweek.com, Responsive Philanthropy Magazine, New York
Times, Portfolio Magazine, The Virgin Islands Daily News, NANKAI (China)
BUSINESS REVIEW, National Religious Broadcasters newsletter, The Charity
Governance Blog, American Chronicle,
Palm Beach Post, Detroit Free Press, Oakland Press,
Nonprofit World, Socially Responsible Business Forum, PNNOnline, Ohio Nonprofit
Resources, Nonprofit Good Practice Guide, Nonprofit Startup Guide, Nonprofit
Blog, National Coalition of Homeless Newsletter, The Michigan Nonprofit
Management Manual, Finance and Administration Roundtable Newsletter, MichiganNonprofit.com,
CORP! Magazine, Crain’s Michigan Nonprofit, ncrp.org, PhilanTopic, Nashville
Free Press, Nonprofit Law Blog, Seniors World Chronicle, Carnegie Reporter, Assoc. of Certified Fraud Examiners Examiner, msnbc.com,
Worchester (MA) Telegram and Gazette, Carnegie Corporation of America, EO
Tax Journal, Wikipedia: Non-profit Organizations; Parent: Wise Austin,
Accountants News, Veterans Today, Answers.com, Far-roundtable, #Nonprofit
Report, nonprofithelpnews, nonprofit news; National Enquirer
- Silence: The Impending Threat to the Charitable Sector
(Xlibris, 2011)
- Nonprofits: On the Brink (iUniverse, 2006)
Our intent is to
keep you informed.... You may be removed from our
contact list and future mailings by emailing to garysnyder4@gmail.com with the word "remove" in the subject line.
Gary
Snyder is the author of Silence: The Impending Threat to the Charitable
Sector (Xlibris, June, 2011) and Nonprofits: On the Brink
(iUniverse, February, 2006) and articles in numerous publications. The book can
be bought at amazon.com, barnesandnoble.com, Barnes and Noble (store)
© Gary R. Snyder, All Rights Reserved, 2013
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)
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