Nonprofit
Imperative
…your nonprofit browser
June
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:
Embezzlement ‘bigger and
bigger’; United Catholic Credit Union
Charity Check Up:
San Francisco
Schools
A Thought or Two:
Ridgewood
Bushwick Senior Citizens Council; Colorado National Guard Foundation
Nonprofit News-In Case You Missed It:
N.Y. Social Welfare
Agencies; IRS; CT School Fraud; Park City Police Department…more
Political/Official Chicanery:
VA; ND; OK; CA; PA; MI; NC; CO; MA; NM;
ME; WV; OH; GA; IN; AK; MD
What Do You
Think?
“Nonprofit and religious organizations are highly vulnerable
to employee theft given their relative weak business [practices].” (THE 2012 MARQUET REPORT ON EMBEZZLEMENT)
_________________
Embezzlement -- especially by women
bookkeepers -- is rising sharply. The Marquet report found, noting that the amount embezzled each year seems to be
getting "bigger and bigger."
_________________
"I learned a lot from prior travels to sites … about how
a lot of money that doesn't get where the donor would like to get it and huge
salaries are taken out of by the folks delivering the donations," (Foster Friess, $1 Million donor to
help those affected by the tornado in Moore, Oklahoma)
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.”
Up, Up And Away Goes
Charity Fraud
Embezzlement --
especially by women bookkeepers -- is rising sharply. The report
found that 2012 cases represented a five-year high. The number of new cases has
been growing steadily by about 10 percent each year since 2010, the Marquet report found, noting that the amount embezzled each year
seems to be getting "bigger and bigger." In fact, the theft cases likely
represent just the tip of the iceberg. Many cases go unreported to authorities,
"due to embarrassment or a philosophy of forgiveness," according to a study
published in 2010 by the Journal of Forensic & Investigative Accounting. That study
notes that previous estimates have found as many as 15 percent of all U.S.
churches have been victims; another 2007 study found that a whopping 85 percent
of Roman Catholic dioceses surveyed reported that embezzlement had occurred in
their dioceses within the last five years.
It Has All The Makings Of An Easy Fraud
With No Oversight
The
embezzlement case with the longest reported duration involved 61-year old
Sharon Ruth Broadway, of Toledo, Ohio, who issued checks to herself or for her
benefit over a period of at least 27 years, embezzling a total of $2,598,000
from United Catholic Credit Union in Temperance, Michigan, where she had been
employed as “manager, secretary, board member, and sole employee,” according to
prosecutors.
Broadway
was able to hide her scheme for so long because she employed a “complex money-laundering
scheme involving multiple aliases and forged checks.” In January 2013, Broadway
was sentenced to a minimum of 45 months in prison after pleading guilty to
felony counts of financial institution embezzlement and racketeering. Sadly,
her actions caused regulators to shutter the credit union. This case
illustrates that when you have what appears to be zero business controls, you
are inviting trouble.
We note
that the Broadway case is only one of 6 that exceeded 20 years in duration. In
fact, there were a full 35 cases that exceeded 10 years in duration. (THE 2012 MARQUET REPORT ON
EMBEZZLEMENT)
A Charity Check Up:
San Francisco School’s Fraud…$15 million
Six current and former
San Francisco school district employees are facing charges that they embezzled
some $15 million in grant money from the district. District Attorney George Gascon and
Schools Superintendent Richard Carranza announced the felony grand theft and
embezzlement charges. Prosecutors say the six diverted the federal and state
grant money into hidden slush fund accounts through several nonprofits over a
10-year period. Among those facing
charges are a former associate superintendent and two former senior executives.
(source)
The scheme occurred during a
period when the district faced a $113 million deficit, had to give layoff
notices to teachers, and summer programs were being reduced or slashed
altogether. Gascon says about $4.7 million
of the grant money has been recovered so far. The investigation is continuing.
A Thought or Two:
Another Politician Uses Charity For Own Benefit
Powerful Vito Lopez
resigned from the New York state assembly as well as the Ridgewood Bushwick
Senior Citizens Council. He founded it in 1973 as a multi-service nonprofit
providing everything from affordable housing subsidies to education to
emergency shelter for homeless youth. It is a broad network that employs over 2,000 people and
boasts an annual income of roughly $19 million.
Unfortunately, Lopez used his
position to enhance himself and his friends and lovers. Ridgewood Bushwick
Senior Citizens Council executive director, Christiana Fisher, who also
served as Mr. Lopez's campaign treasurer, was forced out. Ms. Fisher was found by the city's Department of
Investigation to have recreated missing documents to justify her $782,000 pay
in fiscal 2009. That same year Angela Battaglia Mr. Lopez's longtime girlfriend pulled in $343,000.
After news, in 2012, about Mr. Lopez's sexual
harassment scandal broke, the New York Times reported
about the group's unusually close relationship with the assemblyman.
The nonprofit would produce its own newspapers with fawning coverage of Mr.
Lopez, and would close its doors on Election Day so employees could vote for
Mr. Lopez and his favored candidates.
Competing nonprofits have long complained that
Ridgewood Bushwick got the lion's share of funding and contracts because of Mr.
Lopez's influence behind the scenes.
The assemblyman, who for years chaired the Assembly housing committee, was
known to advocate and act on the nonprofit's behalf. Rivals, who lacked such
politically powerful champions, may find the playing field more level as
agencies and elected officials need no longer fear retribution from Mr. Lopez
for funding other organizations in Ridgewood Bushwick's northern Brooklyn
domain.
Nonprofit Imperative has documented politicians pocketing nearly $1 billion of
taxpayer’s money through ‘friendly’ charities.
Lesson Learned: Monitor the Charity’s Funds, After $350,000
Missing
A former Colorado
National Guard Foundation volunteer has been charged with stealing more than
$350,000 from a Centennial-based charity that helps struggling military
families with financial assistance in the form of grants and loans. The
chairman of the foundation said
“Our top priority has always been to protect the funds, and if there is one
lesson we’ve learned from this, it’s that small business and charities are
really quite vulnerable — you’ve really got to have strong safeguards in
place.”
The NGF’s treasurer is
thought to have pilfered money from not only the CNGF, but the Colorado
Military Family Relief Fund as well.
Inconsistencies with the organization’s
finances surfaced more than a year ago during an internal audit, according to
the board chair.
“There were just a lot of things that
didn’t make sense,” he said. “Ledgers didn’t balance with bank statements,
unauthorized purchases and even NGF gift cards being cashed out in Las Vegas.”
Nonprofit News…
In
Case You Missed It:
1.
New York Attorney General
Eric Schneiderman has expanded an investigation into tax-exempt social welfare
groups to see whether they are crossing permissible boundaries from educating
the public into influencing national politics, according to officials familiar
with the inquiry. The officials, who spoke on condition of anonymity because
the probe has not been publicly announced, said the roughly two-dozen
organizations are both pro-Republican and pro-Democrat, and the issue is
whether they should qualify for tax-exempt status.
2.
The IRS’
Exempt Organizations Division staffing slid from 910 employees during fiscal
year 2009 to 876 during fiscal year 2012, agency personnel documents indicate.
In 2010, IRS officials projected exempt division staffing at 942 employees. But
IRS officials cut the number to 900 after the agency began slashing its budget
in response to fiscal woes affecting most corners of the federal government. It
has processed significantly more tax exemption applications by so-called
501(c)(4) “social welfare” organizations — 2,774 during fiscal year 2012 —
since at least the late 1990s, according to an analysis of IRS records by the Center for Public Integrity. IRS records show that applications of the most
common nonprofit organizations — 501(c)(3) educational nonprofits, private
foundations, charities and the like — have dropped this decade after reaching a
high of more than 85,000 in fiscal 2007. Generally, this type of nonprofit
entity must remain apolitical. Acting Internal Revenue Service Commissioner Steven T. Miller resigned at the
demand of President Obama as the administration took steps to quell the furor
over the tax agency’s screening of conservative organizations seeking nonprofit
status. Lawmakers have criticized Mr. Miller for failing to notify Congress
after he learned of the problem last year, despite inquiries by Republican legislators.
3. New York City prosecutors say a woman
has been charged with fraud for posing as the aunt of a Connecticut school
shooting victim and soliciting donations. Nouel Alba was indicted on identity
theft and fraud charges in the Bronx. Prosecutors say she pretended to be the
aunt of 6-year-old victim Noah Pozner. She was accused of using her Facebook
account, telephone calls and text messages to seek donations for what she
called a "funeral fund." Alba was first arrested in December on
charges she lied to federal officials about the case.
4. The Utah Attorney General's Office arrested a
former Park City Police Department sergeant on charges that he embezzled upward
of $65,000 over a five-year span from the department and two fraternal police
organizations. Most of the money --
approximately $60,000 -- was taken from the Fraternal Order of Police lodge in
Park City. The money was taken between 2007 and 2012, he said. The person
charged once was the president of the Park City lodge. The Summit County Attorney's Office said
in its statement he "became the target of several embezzlement-related
criminal investigations after a routine audit conducted by the Park City Police
Department."
5.
A decade’s worth of research suggests that board
performance is at best uneven and at worst highly dysfunctional. A majority of
executive directors are at least somewhat dissatisfied with their board’s
performance; many are very dissatisfied. Large numbers of trustees report low
levels of engagement across almost every area of board responsibility. For far
too many people, serving on a board is a frustrating and daunting experience,
and many trustees wonder whether their service is making a difference. The
experience of serving on a board—unless it is high functioning, superbly led,
supported by a skilled staff, and working in a true partnership with the
executive—is often quite the opposite of engaging.
6. The U.S. scored 4.6 on a scale of one
through five for philanthropic freedom, finishing second to the Netherlands,
according to a study produced by the Hudson Institute’s Center for Global
Prosperity in Washington, D.C. The pilot study, called Philanthropic Freedom,
measured 13 countries in three broad categories: the ease of registering and
operating a civil society organization (CSO, the study’s term for nonprofit);
domestic tax regulation; and cross-border flow regulation. The Netherlands
scored 4.8 out of 5. Other high-scorers were Sweden, Japan and Australia, all
with scores of 4.3, and Mexico with a score of 4.1. China had the lowest score
of the 13 countries at 2.2, followed by Egypt with 2.3 and Russia’s 2.5 score.
Other countries in the study and their scores included: South Africa (3.9),
India (3.8), Brazil (3.4) and Turkey (3.1)
7. According to the Wall Street Journal, the Internal Revenue Service unit under fire for its reviews of
conservative organizations has a long history of targeting groups with extra
scrutiny, including foreclosure-assistance charities, credit-counseling
services and New York Jewish charities, interviews with current and former
employees show. The clustering model has been used officially and
unofficially for years, and IRS officials called it "centralization."
In some cases, it was facilitated by a "Be On The Lookout" Excel
spreadsheet, which flagged groups that could be problematic or simply were growing
fast in numbers, according to a document released by Congress. The IRS's questionable handling of the tea-party cases
follows a long line of other groups selected for extra scrutiny. In the mid-2000s, the IRS revoked or terminated the
tax-exempt status of more than a dozen credit-counseling firms after finding
they operated as businesses that weren't providing counseling or education. The
agency developed a more stringent process for reviewing applications in the
years following, including guidelines that advised IRS workers to seek to learn
whether counselors collected complete financial information.
8. Readers of Nonprofit Imperative should not be surprised that
the American Red Cross has a problem in effectively distributing hard sought
after money in time of crisis. Seven months
after Superstorm Sandy, the Red Cross still hasn't spent more than a third of
the $303 million it raised to assist victims of the storm, a strategy the
organization says will help address needs that weren't immediately apparent in
the disaster's wake. (Wall Street Journal) The Red Cross was also
the No. 1 recipient of donations after Sandy. The organization said it still
had $110 million remaining from its pool of storm donations as of mid-April,
which were the most recent figures available. Red Cross officials pledged that
all the money in its Sandy fund will eventually be spent on the storm recovery
and not diverted to other disasters or used to support general Red Cross
operations. Over the next few months, the Red Cross expects to spend as much as
$27 million of its remaining Sandy donations on a program providing
"move-in assistance" grants of up to $10,000 to families displaced by
the storm. The program has assisted about 2,000 households so far, with an
additional 4,000 waiting for an eligibility determination.
9.
Nike,
which helped build Lance Armstrong's Livestrong cancer charity into a global
brand and introduced its familiar yellow wristband, is cutting ties with the
foundation in the latest fallout from the former cyclist's doping scandal. The
move by the sports shoe and clothing company ends a nine-year relationship that
helped the foundation raise more than $100 million and made the charity's
bracelet an international symbol for cancer survivors.
10.
Remember when Nonprofit Imperative told you about the
Michigan Attorney General charging a man that created fake veteran
charities and tricking people into donating
through telemarketing. The man was later sentenced to a year and a half to 10
years in prison and ordered to pay restitution. Bill Schuette is at it again---to his credit. He now ordered Southfield Michigan based
professional fundraiser Associated Community Services to cease and
desist its use of 'misleading telemarketing tactics.' The AG investigation
identified 230 alleged ACS violations, including telemarketers' response to the
people who expressed reluctant to donate to charities by using a credit card
over the phone. The ACS telemarketers then said, according to a script:
"For that very reason, we are on file with the state Attorney General's
Office."
According to the release by the AG's office, the "rebuttal" misled donors into thinking the ACS could be trusted with credit card information because ACS was "licensed" by the state. Being on file with the Attorney General's Office, however, means only that the company is licensed to fundraise on behalf of charities in Michigan, and does not endorse the company's ability to protect credit card information of donors. Schuette plans to bring a civil action suit with fines up to $10,000 for each of ACS's alleged violations "unless ACS satisfactorily responds to this notice within 21 days," according to the news release. It looks as though Schuette is on a path to clean up Michigan charity corruption similar to the efforts of New York AG Schneiderman.
According to the release by the AG's office, the "rebuttal" misled donors into thinking the ACS could be trusted with credit card information because ACS was "licensed" by the state. Being on file with the Attorney General's Office, however, means only that the company is licensed to fundraise on behalf of charities in Michigan, and does not endorse the company's ability to protect credit card information of donors. Schuette plans to bring a civil action suit with fines up to $10,000 for each of ACS's alleged violations "unless ACS satisfactorily responds to this notice within 21 days," according to the news release. It looks as though Schuette is on a path to clean up Michigan charity corruption similar to the efforts of New York AG Schneiderman.
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 admitted that she embezzled more than $100,000
from the city of Westfield (MA) while working in the city collector’s office
has avoided prison time. Susan Duffy was sentenced in federal court in
Springfield to three years of probation, including a year of house arrest. She
was also ordered to repay the money.
2. A former Warren County (OH) Career Center clerk was placed on house
arrest for 120 days and ordered to pay restitution of $4,753 she embezzled from
the school.
3. A
Double Dipper: A Bonney
Lake (WA) woman who pleaded guilty
to embezzling $26,000 and $10,600 from a former employer and her
homeowner's association, respectively, was sentenced to 30
days community service and 15 days
house arrest.
4. After admitting to stealing more than
$14,000, she received a five-year suspended prison term and was ordered to make
restitution.
We flagged these few examples of nonprofit mischief
1.
Barboursville Volunteer
Fire Department (VA) $91,000
2.
Fireside Condo
Association (ND) $40,000
3.
First United Methodist
Church (OK) more than $141,000
4.
California Teachers
Association $18,000
5.
Oklahoma City YWCA
$280,000
6.
Berry Metal Employees
Association (PA) $13,496
7.
Schoolcraft Memorial
Hospital (MI) <$100,000
8.
Western North Carolina Down Syndrome
Alliance $27,000
9.
Center High School
Associated Student Body (CA) unknown
10. Transformation Center of the Carolinas $70,000
11. Larimer County Child Advocacy Center (CO) $15,000
12. Lots of Love $6.6 million
13. May Institute (MA) nearly $350,000
14. VCU Dental Faculty Practice Association more than
$100,000
15. Eastern New Mexico University $18,000
16. Brunswick Dixie Youth League $200+. ; Lawrenceville
United Methodist Church. $200+
17. York County Community Action Corp (ME) $1 million
18. HealthNet (WV) $58,000
19. IAFF
(International Association of Fire Fighters) Local 512 (OH) unknown
20. Linden Sportsmen Club (MI) <$20,000
21. Mechanicsville Advent Christian Church (VA) $80,000
22. E. Rivers PTA and Education Foundation (GA) $80,000
23. Colorado National Guard Foundation; Colorado
Military Family Relief Fund more than $350,000
24. Muncie’s (IN) Union Chapel United Methodist Church more than $130,000
25. Fayette County Memorial Hospital $20,000
26. Western
North Carolina Down Syndrome Alliance $27,000
27. Hanford West High Associated Students (CA) $200,000
28. Mountain Ridge Band Parent Association (MD) $14,000
29. Mechanicsville Advent Christian Church (PA) $80,000
30. Berks County Fraternal Order of Police (PA) $92,820
31.
Maryland State Bar Association $25,000
Political/public official chicanery (just a few):
1.
William F. Boyland Jr.,
the Brooklyn legislator who had already been charged with soliciting more than
$250,000 in bribes and filing false travel vouchers to the State Assembly worth
tens of thousands of dollars, is now facing a new charge. The latest charge —
that Mr. Boyland steered taxpayer money to a nonprofit agency and misused it to
pay for self-promotional swag — merits special consideration, not only because
it further indicts him, but also because it provides additional evidence that
pilfering from nonprofit agencies is the crime of choice for corrupt New York
lawmakers.
2.
A former Michigan State
police lieutenant has pleaded no contest for his role as the “ringleader” in a
racketeering scheme. Investigators say 50-year old Luke Davis of Monroe worked
with two others to embezzle property and money seized from suspects from
March 2006 to December 2008. Among the items prosecutors said were
taken for personal use or sold for personal profit were steroids, pain pills,
jewelry, designer purses, mobile phones, TVs, cars and a golf cart.
3.
Rep.
Tyrone Brooks misappropriated funds from Universal Humanities, a charity he
founded in 1990, and the Georgia Association of Black Elected Officials. The
indictment charges that from the mid-1990s through 2012, Brooks solicited
contributions from donors to combat illiteracy and fund other charitable
causes. He then used about $1 million to pay personal expenses for himself and
his family. "Mr. Brooks exploited two charitable organizations for his own
personal financial gain which came at the expense of the intended beneficiaries
of the charitable donations," said Veronica Hyman-Pillot, Special Agent in
Charge of the IRS Criminal Investigation. "IRS Criminal Investigation is
committed to investigating individuals who use charitable organizations for
their personal gain. Mr. Brooks defrauded not only the donors, but also
the American taxpayer by evading his tax obligations. Tax compliance should and
must be equally shared among all Americans."
4.
Indianapolis
City Councilman Paul Bateman has been
sentenced to nearly three years in prison for his role in a scheme to use $1.7
million intended for charity to buy personal luxuries. The ordained
minister pleaded guilty to 13 counts of money laundering and fraud.
Bateman helped persuade a doctor to donate money to the Russell Foundation, but instead used it for vehicles, entertainment,
jewelry and travel for themselves and others.
5.
A
federal grand jury indicted two St. Louis Parks Department employees with
embezzling nearly $500,000 from the city.
The indictment released accuses the city’s chief park ranger and deputy
parks commissioner of three mail-fraud counts, alleging they men used various
schemes to spend $465,000 on vehicle leases, credit card bills and other
expenses.
6.
A former Kentwood Parks
and Recreation Department employee has been charged with embezzling more than
$300,000 over at least the last eight years from the city. She worked at
the front counter of the Kentwood Parks and Recreation Department, taking cash
payments for 15 years.
7.
The
ex-technology chief for Detroit's public libraries and two former business contractors
are charged in a $1.4 million bribe and kickback scheme. Federal officials say the library system paid out $4 million to two
companies for information technology services. They say $1.4 million was
returned in kickbacks.
8.
The
former City of Sinai (SD) finance officer who embezzled more than $76,000 has
been sentenced to 20 days in jail and 18 months of supervised probation.
According to court documents, she was accused of stealing from Sinai’s public
funds between January 2006 and September 2012. All the stolen money has been
repaid.
9.
The
former water department manager for the city of Marion, Illinois pleaded guilty
to three counts of theft and embezzlement of $500,000 over three years.
10.
The
Lehigh County (PA) District Attorney's office has charged a couple with
conspiring to embezzle $854,497 from the utility account of the South Whitehall
Finance Department between 1999 and 2012.
11.
Massachusetts
Lt. Gov. Timothy Murray and his political committee appeared to violate state
law by accepting campaign contributions raised by former Chelsea Housing
Authority director Michael McLaughlin, according to the state agency that
regulates political fundraising in Massachusetts.
12.
Admitting mistakes,
Murray stepped down and will be taking a job as
head of the Worcester Regional Chamber Of Commerce.
13.
Del
Norte (CA) County’s chief probation officer has submitted a letter of
resignation after pleading no contest to a single count of embezzlement
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, 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, Northwest Herald
- Silence:
The Impending Threat to the Charitable Sector (Xlibris, 2011)
- Nonprofits:
On the Brink (iUniverse,
2006)
- The Michigan Nonprofit Management Manual, Governance Section
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
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