Why Upwards of 10% or Tens of Billions of Charity Donors Dollars Are Stolen

By Gary Snyder

There is much interest in the charitable sector with its hundreds of billions of dollars in contributions, trillions of dollars in assets and, most recently, the exposure of an astounding amount of theft. Numerous studies have noted that between $41-50 billion has ended up in the pockets of those to which it was not intended.   

For a multitude of reasons over the past two decades, we have seen substantial increase in malfeasance in the nonprofit sector. Instances range from the Baptist Foundation in Arizona indictment of $550 million obtained by fraud eight years ago to $100 million theft at the bogus U.S. Navy Veterans Association recently to thousands at parent-teachers associations to hundreds of thousands of dollars stolen on a daily basis at small and medium charities.

There are common characteristics, in no order, that are enveloping the charitable sector to assure that donations do not benefit the anticipated beneficiary.

·   Billions are taken in fundraising efforts with agencies only receiving as little as 5% of the money raised.   

o A recent example: In just one state tens of millions of dollars are taken by cancer solicitors. Fewer than 50% of the Charity Navigator breast cancer charities have rated high for their commitment to accountability and transparency

• Most nonprofits are required by law to file financial statements each year at the state and federal levels. In my experience, the information is not timely, is incomplete or incorrect either intentionally or by accident. Incidents of fraud are often omitted or incomplete. Because these documents are available for public inspection and frequently used in the decision-making by donors, they are less than transparent. Salaries are frequently understated. Fundraising expenses are often a guess. Related party disclosures are very rarely cited.
o A recent example: a thousand examples in the Washington Post article amounting to hundreds of millions of dollars of charity theft;  

• The board is often kept in the dark. Most boards are disinterested and disengaged. Many believe that intentional deception of donors and board members is a common occurrence. In virtually all instances, the board has had the opportunity to inquire as to malfeasance but has not done so. Why? There are no consequences. Seldom is the board held accountable for its lack of fiduciary duty. Many board members are not full engaged in oversight. Another reason is that the bond between the board and the executive is strong, based on misplaced trust.
o A recent example: Two Western Pennsylvania nonprofit boards are under the PA. Attorney General's scrutiny for mismanagement of millions of dollars.

• In some instances, the auditors have not done their due diligence. Frequently, problems are dismissed by auditors to retain a client. Few auditors have employed sound fraud-detection audit procedures. An auditor cannot rely too heavily upon management assurances. 
o Two examples: In two instances, the auditor for Baptist settled for $217 million and the auditor for Roslyn NY schools, upon being charged, closed his doors. 

• The federal law, Sarbanes-Oxley, applies solely to for-profit corporations, but many charitable organizations have instituted whistleblower policies as well as other accountability measures. Few have provisions for an employee to complain directly to anyone other than an insider. In some cases when instituting S-O, the implementation of policies have worked. Tips from insiders on financial misdeeds far outpace audits exposures. Sorrowfully, mere adoption of written policies and practices, however, does not mean they are being used. In most cases, employees are intimidated or bribed by superiors and therefore no one-steps up communicate any malfeasance.
• A recent example: The District of Columbia tax office employees were showered by their supervisor with expensive gifts and remained quiet in a $48 million scheme that lasted decades.

• Internal controls are frequently lacking in most nonprofits. For those with such controls, implementation is compromised for the sake of convenience, but seldom triggered.
o An example: The Central Prince George County Community Development Corporation was forced to revise its internal controls when a board member embezzled $500,000. 

• There is the need to further delineate the roles of managers and governors or trustees. An unbiased set of eyes from the board on financial matters is critical. Many times this is overlooked in favor of deferring to the competence, in the world of details, of the executive and his/her role as chief operations officer. This is a recipe for disaster.
o A example: The Virginia Farm Bureau found out after it waited 10 years and $2 million before an audit caught an inside attorney embezzling. 

Unregulated charities and all that money has, in fact, spoiled the sector. Most of us want more vigilance with nonprofit leaders acting more responsibly. This will strengthen the charitable sector to make it compliant and vibrant.

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: 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, Wikipedia (Nonprofit Organization), Answers.com, Nonprofits: On the Brink (2006) Silence: The Impending Threat to the Charitable Sector (2011)