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:
UK Approach to Charity
Fraud
Charity Check Up:
MI’s $2.6 Million
Workers’ Compensation Placement Facility
A Thought or Two:
Is A Decade Too
Long To Catch A Thief?
Nonprofit News-In Case You Missed It:
Boy Scouts, again; Susan G.
Komen, again; Harvard Grads…more
Political/Official Chicanery:
MI; NY; AL; CT; VA; NC
What Do You
Think?
“It’s common to see an increase numbers of fake charities
formed and a raise in charity scams after such high-profile tragedies…. This rise in fraudulent activities has resulted in potential donors
questioning the legitimacy of the charity, how they funds are being used, and
whether the funds are actually being used to assist in the relief efforts of
the selected disaster.” (Are You A Victim Of Charity
Fraud? The Social Observer)
___________________________________________
Theft, fraud and
embezzlement costs U.S. groups more than $400 [sic] billion a year and the
average organization loses about 6 percent of its total revenue to these
crimes. The perpetrator is often someone that others within the organization
know, like and trust… It’s important for them to try to protect themselves from theft
and other financial abuses and to report problems when they occur. …when they do, they can effectively
and efficiently serve their communities and retain the public’s trust. (editorial, lehighvalleylive.com)
______________________________________________
“The
take-away? That nonprofit Board members
who raise substantive concerns may be pains in the ass, but they’re the kind of
pains that warn you’re sitting on a hot seat. It’s fine to dismiss them if they
can’t behave themselves—if they’re rude or disruptive or prevent the Board from
getting anything else done. But whether or not they’re dismissed, their
warnings shouldn’t be—and the primary focus of any investigation should be not
to defend against accusations but to ascertain whether they’re legitimate. (Kelly Kleiman, blogging as The
Nonprofiteer,
about the suffering at The Field Museum of Natural History in Chicago)
_______________________________________
“10%
of all people will never steal. 10% of all people will always steal. 80% of all
people will steal given the right motivation (or opportunity).” (The Association of Certified Fraud
Examiners)
_________________________________
“I have worked in enough nonprofits with
unethical leaders to say without question that we need to get serious about
their existence as more than a rarity (see the book Silence,
by Gary Snyder) (Ken Berger, Charity Navigator)
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.”
Charity Fraud:
Approaching 10% Gets Attention; but Not In U.S.
The National Fraud Authority's
(NFA) Annual Fraud Indicator sampled the larger income charities. The Charity
Commission, which is Independent regulator for
charities in England Wales, wants charities to better protect themselves
against fraud and financial crime
The sample shows that:
* Nearly 1 in 10 (9.1%) charities with high income reported that they had
* Nearly 1 in 10 (9.1%) charities with high income reported that they had
detected fraud in the last financial
year (2011/12);
* The most common types of fraud were highlighted as payment and banking
* The most common types of fraud were highlighted as payment and banking
fraud (47%),
accounting fraud (14.8%) and identity fraud (14.1%); of the
1599 charities
completed the survey, and of the nearly 10% that were a victim of fraud, almost
a quarter (23.1%) said they had suffered insider-enabled fraud.
The difference between the UK and the U.S. response
toward nonprofit fraud is striking. In the United States where charity fraud
amounts to much larger totals, leadership, stakeholders and regulators have
shown a total disregard to its existence.
Again unlike the U.S. the Charity
Commission aims to help charities protect themselves. A wide range of guidance
can be found on its website, including the Compliance toolkit and a
summary strategy for dealing with fraud and financial crime. The strategy emphasizes
prevention, as well as cooperation with the sector and other government
agencies to detect, deter and disrupt fraud in charities.
Caron Bradshaw, CEO of the Charity
Finance Group, said: "Putting anti-fraud measures in place and enforcing
these is absolutely critical for all charities, regardless of size. The high
levels of trust, use of volunteers and reliance on one or only a few people to
deal with finances can all present opportunities for fraudsters. Trust within
the charity sector is an excellent thing, however trust should always be
supported with controls: the two are not mutually exclusive. Actively applying controls means questions can
be asked freely and without fear.”
A Charity Check Up:
Where Is The Oversight?
Michigan Attorney General Bill Schuette says the chief executive and
bookkeeper of a nonprofit agency that coordinates workers compensation
insurance have pleaded guilty to roles in a scheme to embezzle $2.6 million
over 11 years.
The organization gives
administrative and customer service support for the Michigan Workers'
Compensation Placement Facility. It collects data from insurers licensed to
sell workers' compensation insurance in Michigan. It isn't a state agency.
A Thought or Two:
Is Decade(s) to Catch Charity Thieves Too Long?
As we start gathering examples of
charity fraud for this half-month of Nonprofit
Imperative, the first three we found shared a similarity. All were
relatively large examples of fraud. The
abovementioned Michigan Workers' Compensation Placement Facility lost $2.6
million to two criminals that pleaded guilty. Another was at the Monterey Bay Aquarium Research Institute where a former payroll
employee embezzled about $800,000. The third
involved an administrator of Muncie's Union Chapel United Methodist Church that took more than $130,000.
The remarkable point is how long it took to uncover the fraud. It took over 11 years to uncover the first
one at Michigan Compensation; more than 7 years for the second, Monterey Bay;
and nine years at the Methodist Church.
And we must not forget the
embezzlement case in the last edition of Nonprofit
Imperative. The longest reported duration (over 27 years) involved Sharon
Ruth Broadway who issued checks to herself or for her benefit and embezzled
$2,598,000 from the United Catholic Credit Union in Temperance, Michigan. She
had been employed as “manager, secretary, board member, and sole employee,”
according to prosecutors.
Also remember
Rita Crundwell comptroller of Dixon, Ill who embezzled $53.7 million
from Dixon over a 21-year period. In the six years before an FBI agent
confronted her in April 2012, she pocketed $30 million–more than half the
town’s revenue. She used the loot to acquire 400-quarter horses (the
quintessential American racehorse), a ranch in Dixon and horse trailers and
trucks. She traveled to equestrian competitions in a $2 million motor home and
remodeled her Illinois home with an in-ground pool and a chandelier made of old
revolvers and spurs, in addition, she bought another home in Englewood, Fla.,
minks, jewels, a 1967 Corvette convertible and a bar of gold bullion valued at
$1.5 million. Not once did anyone call her into question.
Where were the
internal controls? Where were the auditors? Where was the governing structure
to monitor each organization? Much to think about!
The Lowest of the Low, Fundraiser Ordered To Make Restitution
A fundraising company that duped
people into giving money to a sham breast cancer charity will have to pay $3.1
million in restitution, a state judge has ordered. Nearly all of that money will be given
to legitimate breast cancer charities through a fund set up by New York State
Attorney General Eric Schneiderman, who brought the case against
Lindenhurst-based Campaign Center Inc. and its principal, Garrett Morgan of
West Islip.
A
decision by Supreme Court Judge Emily Pines in Suffolk, calling charitable
fundraising scams "among the lowest of the low." "This
decision proves that New York fundraisers will be held accountable when they
defraud the public and line their own pockets," he said in a statement.
Last
month Pines issued a summary judgment in civil court against the company and
Morgan. She ordered the company to close and permanently barred it from doing
charitable fundraising in New York. They had been charged with violating state
laws in a scheme in which telemarketers solicited donations for the charity Coalition
Against Breast Cancer.
Pines'
decision said that from 2005 to 2011 the Campaign Center raised $4.9 million on
behalf of the charity but kept $3.9 million for itself. The charity played on
people's emotions to get them to donate money in the hopes of fighting breast
cancer, but little of the money ever went to research or medical services,
Schneiderman said
As
noted in a previous edition of Nonprofit
Imperative, the Coalition Against Breast Cancer was shut down and its
former directors -- treasurer Andrew Smith, director of development Debra
Koppleman and president Patricia Scott---agreed to pay $1.6 million in
restitution and to never again run a charity in the state. (Newsday)
Nonprofit News…
In
Case You Missed It:
1.
Even as
the Boy Scouts of America moves to allow gay youths to join its troops, the
California Senate passed a bill that would revoke the organization's nonprofit
status because it does not permit the participation of openly gay adults. The measure calls for revoking the tax-exempt status of youth groups that discriminate against participants on the basis of
sexual orientation or gender identification. While the text of the bill does
not specifically mention the Boy Scouts, analyses of the legislation and
discussion among senators made clear that it targets the organization.
2. Breast cancer charity Susan G. Komen for the
Cure said it was canceling
fundraising walks next year in seven cities where money goals have not been
met. The organization, which says it is the largest non-government funder of
breast cancer research, said it was cutting three-day walks for 2014 in
Phoenix, Boston, Chicago, Cleveland, Tampa Bay, San Francisco and
Washington. A Komen spokeswoman said in an
email that participation in the three-day walks declined by 37 percent in the
past four years, without specifying whether that was the number of participants
or dollars raised.
3. New York State nonprofits will be required to reveal their
political spending as a result of regulations announced by state Attorney
General Eric Schneiderman. The rules are a response to the Supreme Court's
Citizens United ruling, which led to a surge in campaign advertising by
tax-exempt organizations. The
regulations, which the attorney general unveiled allows for closer scrutiny of
such nonprofits, but will not force them to reveal individual donors.
Nonprofits registered with the state will be required to report annually the
percentage of their expenditures that go to election campaigns, and any group
that spends over $10,000 annually must file an itemized account of expenses and
contributions. All disclosures will be made public online.
4.
"Bad Elmo" --
a costumed panhandler who has freaked out tourists on two coasts with his
anti-Semitic rants -- was hauled into a Manhattan courtroom today for allegedly
trying to extort $2 million from the Girl Scouts.
5.
Nineteen Harvard MBA
grads walked off with a cool $50,000 for committing their degrees to making the
world a better place. Harvard provides its students with one-year fellowships
in nonprofit and public-sector organizations. Harvard subsidizes the fellowship
with a $50,000 grant and has placed 106 fellows since the program began in
2001. It is a great perk considering that the participating
organizations pay fellows $45,000 and nonprofits typically pay 30
percent less than
their for-profit counterparts do, according to The Wall Street Journal. One-third of the program’s alumni are still working
at the organization that hired them and one-third have transitioned to other
jobs, but have remained in the same field.
6.
Donations to charities
are inching up so slowly that it will take at least six more years for most
organizations to raise as much as they did in 2007 before the recession, predict
researchers of “Giving USA,” who are releasing
figures that show donations rose just 1.5 percent last year after inflation.
Donations from foundations, corporations, and individuals totaled slightly more
than $316-billion, “Giving USA” said. At least one exception can be found to
the gloomy state of giving by individuals: America’s wealthiest are starting to
give at rates not seen since the beginning of the downturn. Donors have made
nine gifts of $100-million or more in the first five months of this year,
including a $1-billion gift of 78 Cubist works by cosmetics tycoon Leonard
Lauder to the Metropolitan Museum of Art. That’s already more than the seven
gifts of at least $100-million that were made all year in both 2009 and 2010,
according to The Chronicle’s online database tracking donations of $1-million or more.
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. Here are just a
few examples:.
1.
An ex-con and the
former chief financial officer who embezzled $161,000 from 820 River St.
Inc., a Troy (NY)-based non-profit, is headed back to prison for up to six
years after pleading guilty to grand larceny. He was a one-time client of the
agency with an extensive criminal history.
2.
On the other hand: John Douglas Edwards with the aid of methamphetamine was
looking for something to steal to get money for more methamphetamine. He and
his friend decided to steal an air conditioner outside the Cross Roads Assembly
of God church in Texas. The judge issued 52 years in the Texas Department of
Criminal Justice-Institutional Division Wednesday and ordered Edwards to pay
$5,000 restitution to Cross Roads Assembly of God for the replacement of stolen
air-conditioning units. In addition to the sentence, Case ordered the defendant
to wear a T-shirt that proclaims, “I am a thief,” if Edwards is ever released
on parole.
3.
No background checks were done and
the criminal justice system failed as Alan Reavley was fired from five separate
jobs from 1964 to 2002 for stealing from companies. He is serving a 20-year
sentence for five felonies of cashing stealing $121,000
from the Great Falls Community Food Bank (MT) donation checks to remodel his
home and pay off his cellphone and credit card bills. He was originally charged
with 96 counts of felony and misdemeanor theft. He was tried and found not
guilty of killing his wife and another person. After 10 years in prison, the
Parole Board agreed to let him out. Reavley will be under the supervision of
the Great Falls regional parole office until 2023
We flagged these few examples of nonprofit mischief
1.
Olive Branch (MS)
Middle School $10,000
2.
South San Antonio (TX)
Independent School District $22,420
3.
Dickinson Intermediate
Fine Arts Academy (IN) $3500
4.
United Auto Workers Local 3050 (IN)
$26,000
5.
Monterey Bay (CA)
Aquarium Research Institute $800,000
6.
Beth El Synagogue (CT)
more than $500,000
7. The Bethlehem (PA) Steelers Athletic Association $34,000
8.
Ferry Elementary School PTA (MI)
unknown
9.
Brighter Choice Charter
School (NY) more than $203,000
10. United Association of Plumbers and Pipefitters Local 228 (CA) $120,000
11. Ivy Academia charter school (CA) $200,000
12. SEIU Local 6434 (CA) $200,000
13. Yorktown Victory Center (VA) $10,000
14. Rensselaer Polytechnic Institute School of
Architecture (NY) $300,000
15. Coventry Boy Scout Troop #1 (RI)
$8,000
16. Celebrate Fairfax (VA) unknown
17. Crisis Ministries (NC) minimum of $11,000
18. JNN Foundation (FL) $2.8 million
19. First Baptist Church of Boone (NC) unknown
20. Rainbow Fleet (OK) more than $25,000
21. Friends of Bluffton Dog Parks (SC) Over $10,000
22. Assets (AL) $93,000
23. Houston
Athletics Foundation (TX) $550,000
24. Firefighters Charitable Foundation, the Association
for Firefighters and Paramedics, the Firefighters Assistance Fund and
Firefighters Burn Fund $50 million
25. Miami Beach (FL) Community Health Center $6 million
26. Foster Charitable Foundation (CO) $500,000
Political/public official chicanery (just a few):
1.
The State Bureau of
Investigation has arrested the chief jailer in the Greene County Sheriff's
Office, has been arrested and faces embezzlement charges of about $10,000
missing from the inmate jail account earlier this month.
2.
The
former Centreville (MI) Public Works Director will face charges for
embezzlement according to he St. Joseph County Prosecutor He is charged with
one count of felony embezzlement by a public official.
3.
The
former treasurer of the Greene County (NY) Volunteer Firemen’s Association has
been arrested on charges that she stole money from the organization and used it
to pay personal expenses.
4.
The former commander of
the West Alabama Narcotics Task Force has been charged with stealing about $125,000 in drug proceeds that were seized
by the agency.
5.
The former executive director of the Fairfield
(CT) Housing Authority pleaded guilty to embezzling $30,000 from the authority,
the U.S. Attorney's office said.
6.
The wife
of a volunteer Madison (WI) firefighter was charged with embezzling $11,404
from the fire department’s members over a five-year period, according to
police.
7.
Cathedral
City’s mayor pro tem was arraigned on embezzlement charges for allegedly using
funds from Cathedral City’s program that loans money to city employees and
council members so they can buy desktop computers, laptops or tablets.
8.
A former
Amherst County (VA) treasurer has been charged with money laundering and
embezzlement of public funds. The charges stemmed from incidents in October
2004 and January 2008, according to jail records. Martin became treasurer in
2009.
9.
The town
of Plainville (CT) revenue collector has been on paid administrative leave,
soon after she admitted to misappropriating funds as treasurer of the
Connecticut Tax Collectors Association
10. Former New York legislator Pedro Espada Jr.
was sentenced to five years in prison for embezzling from a Bronx clinic
network that he ran and lying on tax forms. A jury in Brooklyn convicted Mr.
Espada in May 2012 of four counts of stealing from the now-defunct Soundview
Healthcare Network which received as much as $1 million per year in public
funding. He was accused of embezzling more than $500,000 from the clinic. Former New York City Council and state Assembly member Pedro
Gautier Espada was sentenced to six months in prison and six months of home
confinement in connection with the nonprofit corruption case that also
sent his politician father to prison. Pedro Gautier Espada was accused of
assisting his father in the theft scheme.
11.
The Thomasville
(NC) Rescue Squad operates solely
on donations and volunteer manpower and said it needs approximately $5,000 per
month to operate and pay the mortgage on its new addition. In 2010, apparent
embezzlement by former Thomasville Rescue Squad treasurer Doug Lowe
depleted $15,000
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, The HelpWise Daily, The #Nonprofit Report
- 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
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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