Nonprofit
Imperative
…Your nonprofit browser
July 2014
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:
$25 Million Fundraising Fraud: American Legacy Foundation;
American Red Cross
Charity Check Up:
American Red
Cross
A Thought or Two:
Sandy Hook
Charities
Nonprofit News-In Case You Missed It:
Bernard Madoff Accountant; Charitable
Giving; Met Council…more
Political/Official Chicanery:
DC; MS; AS; KY; VT; WI; MO; OH; AK; OH;
KS; TN; VA…more
What Do You
Think?
Of the 42 veterans and
military charities that CharityWatch graded in 2014, 70% received a D or lower.
It’s a minefield.
-------------
Using private solicitors is enticing for charities because
it's easy money. The solicitors come in and say they'll raise $100,000 for the
charity, but at a cost of $1 million of donors' money, said Daniel Borochoff, president and founder of the
Chicago-based CharityWatch, a watchdog organization.
--------------
More than 1,000 nonprofits nationwide checked the "significant
diversion" boxes on their annual tax reporting forms from 2008 to 2012.
The top 10 diversions alone totaled more than a half-billion dollars.
--------------
The bulk of anti-corruption cases
handled by the World Bank’s sanctions office over the past six years were for
fraud. Eighty-six percent of cases were fraud, it said. Fraudulent invoices,
forged bank and securities documents, and lying about experience and ability to
deliver on projects were the most common types of offences that led to
sanctions, the report said.
‘Charities
and the ‘Compassion Gap’
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 (for themselves).”
$25 Million Abuse Settlement Leaves Fundraiser Still In
Business
The
New York attorney general’s office announced that it had won a $25-million
settlement in its investigation into fundraising abuses by a veteran’s charity
and its direct-mail vendors, Quadriga Art and Convergence Direct Marketing.
Quadriga
Art is to adopt a series of changes to its business practices and the charity
to replace its founding board members—represents the largest financial relief
ever obtained in the United States for deceptive charitable fundraising. Almost
$10-million of it will be directed to programs to help disabled veterans.
Attorney
General Eric Schneiderman said the case "shines an unflattering light on
some of the most troublesome features" of direct-mail fundraising
practices.
"Taking
advantage of a popular cause and what was an unsophisticated charity," he
said in a statement, "these direct-mail companies used cleverly designed
but misleading mailers to raise tens of millions in donations from generous
Americans, nearly all of which went to the fundraisers and their agents and left the charity nearly $14-million in debt."
Under
the settlement, Quadriga Art, which neither admits nor denies the findings,
will pay $9.7-million in damages, forgive $13.8-million owed by the veterans
charity, and pay $800,000 to New York State for costs and fees. Convergence
Direct Marketing, which advised the charity on its fundraising strategy, will
pay $300,000 in damages.
Mark
Schulhof, Quadriga Art’s chief executive, said in an interview that the company
is taking a "position of contrition" and pledges to make changes.
"We’re apologetic not only to the industry that’s been embarrassed, but to
everybody whose had to feel pain because of this." (story)
It Took 8 Years, And A Diligent Press, To Call Attention To A
$3.4 Million Charity Fraud
As part of a 2013
investigation, a Washington Post reporter saw that the American Legacy
Foundation had marked a "significant diversion of assets" on its tax
form. The Post was informed that its former information-technology
director and vice president, Deen Sanwoola, embezzled $3.4 million from 1999 to
2007, the years Sanwoola worked at the foundation's headquarters.
An employee reported that inventory
was missing in 2007 or 2008, but the supervisor receiving the report didn't
take action because Sanwoola had been a trusted employee who was well-liked,
according to Legacy officials interviewed by The Post.
The same employee reported to a
different supervisor three years later. That time, the report was taken
seriously. CEO Cheryl Healton ordered a forensic audit. When the investigation
indicated fraud, Legacy called the local U.S. attorney.
Because
Sanwoola controlled ordering and inventory in the department, no controls were
in place to tip off other Legacy executives that money from the nonprofit's $50
million annual budget was disappearing, Idaho Attorney General
Lawrence Wasden, then the foundation's chairman said. Wasden said that he
also served on an auditing committee while the embezzlement took place. He said
he asked auditors if they received cooperation from managers and was told they
had the access they needed. The audits did not detect the embezzlement, and
Wasden said he received no hints that anything was wrong.
Sanwoola was operating a video-game
emporium in Nigeria when the article ran. He was incredulous when The Post
contacted him for comment, saying he knew nothing of the embezzlement.
No charges were filed. The U.S.
Attorney's Office told The Post that Legacy had taken too long to report the
missing inventory and lacked records of its inventory.
Legacy was one of more than 1,000
nonprofits nationwide that checked the "significant diversion" boxes
on their annual tax reporting forms from 2008 to 2012. The top 10 diversions
alone totaled more than a half-billion dollars.
Most
nonprofits are reluctant to disclose fraud because they fear they'll lose trust
of the agencies and donors that support them, said Denise McClure, owner of
Averti Solutions, a forensic accounting service in Boise. She said nonprofits
that come clean usually come out ahead, as the Boise affiliate of the Susan G.
Komen for the Cure did in 2008 after admitting an employee stole more than
$170,000 intended for breast cancer research, screening, education and
treatment. McClure said Komen regained donors it lost after the disclosure
because it re-established trust. (source)
Charity Check Up:
This May Make You Reconsider Donating To The Red Cross
The American Red Cross raised over $300 million after Hurricane Sandy.
It wants to keep its spending a secret.
The charity has hired a top-flight law firm to fight a public request. It
is arguing that information about its Sandy activities is a "trade
secret."
The documents include "internal and
proprietary methodology and procedures for fundraising, confidential
information about its internal operations, and confidential financial
information," wrote Gabrielle Levin of Gibson Dunn in a letter
to the attorney general's office.
If those details were disclosed, "the American
Red Cross would suffer competitive harm because its competitors would be able
to mimic the American Red Cross's business model for an increased competitive
advantage," Levin wrote.
Doug White, a nonprofit expert who directs the
fundraising management program at Columbia University, said that it's possible
for nonprofits to have trade interests — the logo of a university, for example
— but it's not clear what a "trade secret" would be in the case of
the Red Cross. He called the lawyer's letter an apparent "delaying
tactic."
Ben Smilowitz of the Disaster Accountability
Project, a watchdog group, said, "Invoking a 'trade secret'
exemption is not something you would expect from an organization that purports
to be 'transparent and accountable.'" (Source)
Much of the ARC position runs counter to the
reason the Internal Revenue Service wants full transparency and accountability.
The American Red Cross has a long history of
questionable practices (here); notwithstanding a
significant Congressional Investigation.
A Thought or Two:
Not Another Red Cross…With Little Accountability?
A year and a half
after the mass shooting at Sandy Hook Elementary School in Newtown,
Connecticut, nearly half of the $28 million raised in charitable donations has
yet to be distributed, a report (66 pages, PDF)
from the Connecticut State Attorney General's Office finds.
Based on survey responses from seventy-seven organizations — including
twenty-nine that were created specifically in response to the December 2012
tragedy and thirteen based in other states — the report found that as of late
2013, funds totaling more than $15 million had been distributed.
Nonprofit
News…
In
Case You Missed It:
1.
Bernard Madoff's former accountant, Paul Konigsberg,
pleaded guilty next week to aiding in the con man's multibillion-dollar Ponzi
scheme, the government said. Madoff took hundreds of millions, if not billions,
of dollars from the charitable sector.
2. Charitable giving in the United States jumped 4.4
percent last year to an estimated $335.17 billion. That’s 3 percent more, when
adjusted for inflation, from a revised estimate of $320.97 billion for 2012,
according to the Giving USA Foundation and its research partner, the Indiana
University Lilly Family School of Philanthropy. Total giving has increased 22
percent (12.3 percent adjusted for inflation) since the official end of the
recession in 2009. Total giving again was about 2 percent of gross domestic
product (GDP).
3. The
former chief financial officer of New York’s Metropolitan Council on Jewish
Poverty was sentenced to four months in prison for his role in a $9 million
kickback scheme. He had pleaded guilty last month in New York County Supreme
Court, admitting he received approximately $250,000 from the two-decade-long
scheme stealing from the Met Council, a Jewish social service organization.
4.
Funds totaling $100,000
donated to an allegedly fraudulent Hurricane
Sandy Relief Foundation (HSRF) charity have been
distributed to Habitat for Humanity of Monmouth County and the FoodBank of
Monmouth and Ocean Counties.
5.
The Internal Revenue
Service will propose new and specific rules defining how much money “social
welfare” nonprofits may spend on political campaigns. Such rules could curb the influence of “dark money”
nonprofits engaging in overt political activity that proliferated after the U.S.
Supreme Court’s Citizens United v. Federal Election Commission decision in 2010. The new rules would seek to define
what constitutes political activity. The new regulations could also
further regulate labor unions and trade associations — two kinds of politically
active nonprofits that the IRS didn’t address in a highly contentious
rulemaking attempt the agency itself short-circuited in May.
6.
The former chief
executive officer of the Girl Scouts of the Commonwealth of Virginia will serve
a three-month sentence for felony embezzlement of $30,000 from the organization.
7. Two-timer: Former University of Vermont official Jody
Farnham will serve 13 months in jail for embezzling at least $185,000 from the
institution during a six-year period. In discovery, it was found Farnham
embezzled $3,000 as an employee of the Burlington School District, but the case
went unreported to authorities because she paid the money back in full.
8.
The Halo Trust, the
landmine charity Princess Diana once
supported has suspended its founder and chief executive officer for allegedly using $377,000 in donor money to send
his children to expensive boarding schools (Not just once but took $377,000 for
about ten years for his kids’ tuition and boarding costs). Following
her death, Prince Harry, as well as Brad Pitt and Angelina Jolie, have
publicly supported the charity. With its annual budget of $44.6 million, Halo Trust is dedicated to
cleaning up dangerous war debris and has also destroyed thousands of bullets
and rifles.
9.
Two-timer: She
was the treasurer of the Harwood (VT) Youth Hockey Association, where she
admitted to stealing $54,000. As a
former bookkeeper, she also admitted to stealing $75,000 from the Cold Hollow
Cider Mill. She pleaded guilty to wire fraud and the judge handed down a
two-year sentence and restitution.10.
Authorities
unsealed an indictment charging Drew Morgan, a financial planner, with one
count of first-degree grand larceny and three counts of second-degree grand
larceny, including an accusation that he stole more than $1 million from meant for Camp ANCHOR, a
facility for special needs people.
We flagged these few
examples of nonprofit mischief
1.
Faulkner County (AK)
Council on Developmental Disabilities more than $12,000
2.
Munson Medical Center
(MI) <$20,000
3.
Housing Montana >$5000
4.
Crisis Ministries (SC)
$440,000
5.
Norfolk Community
Services Board (VA) $320,000
6.
Iredell-Statesville
Schools (NC) unknown
7.
Heritage Villas
Homeowners Association (VA) $1700
8.
Indian Valley Community
Services (CA) $676,000
9. “Paintballers 4 Autism” (MA) $15,000
10. Plymouth/Shiloh Big Red Music Boosters Association
(OH) $12,000
11. Hiawatha Beach Homeowners Association (MI) <$20,000
12. Chain O’ Lakes Fireworks Fund Committee (IL) $8,700
13. Miracle Hands (DC) $329,000
14. One Fund (MA) $2 million
15. Los Altos’ Peninsula Symphony (CA) $500,000
16. YMCA (FL) $175,000
17. Food
Works' Two Rivers Center for Sustainability (VT) unknown
18. New Orleans Affordable Housing (LA) unknown
19. Legion Villa (MI) < $20,000
20. National Relief Charities (MD) $4 million
21. Teamsters Local 783 (KY) more than $17,000
22. Veterans of Foreign Wars Post 216 $13,000
23. Santa Barbara County Firefighters Union (CA)
$113,000
24. Turano-Chrisman Performing Arts Theater (NM)
$13,000
25. Easter Seals (NM) more than $100,000
26. Mental Health Systems (CA) $400,000
27. Kenowa
Hills Instrumental Music Boosters (MI)
$150,000
28. Annunciation Church (WI) $110,000
29. Tahlequah Chamber of Commerce (OK) unknown
30. Muhlenberg
Township Athletic Association (PA) $62,000
31. Woodcock Foundation (KY) $1.1 million
32. Ogemaw Heights Football Booster Club (MI) <$1,000
Political/public official chicanery (just a few):
1.
Federal authorities have charged the
civilian head of the Capitol Police Department’s Office of Diversity with
embezzling public funds, the result of an investigation stemming from her
previous employment at Immigration and Customs Enforcement. A background check
was not done or was ignored.
2.
Oxford’s (MS) Deputy
City Clerk has been indicted on one count for embezzling $12,703.50
3.
A Copper Center,
Alaska, woman has pleaded guilty to charges accusing her of embezzling more
than $20,000 from an Alaska Native village.
4.
A former assistant fire
chief for the Garrett (KY) Volunteer Fire Department was charged with
embezzlement allegedly
having spent more than $120,000 of that money on electronics, gift cards,
dinners and an automobile.
5.
A former Newburyport police sergeant has been
accused of embezzling more than $40,000 from the Newburyport Police Relief Association.
6.
Prosecutors in
Wisconsin assert that Gov. Scott Walker was part of an elaborate effort to
illegally coordinate fund-raising and spending between his campaign and
conservative groups using nonprofit organizations.
7. The former treasurer of a northwest Missouri town’s fire and
road districts will serve three years in jail without parole for embezzling
more than $1.5 million.
8.
The seven Harrison Township (OH)
Emergency Medical Services members accused of misspending $500,000 (over 4
years) in funds designated for the nonprofit pleaded not guilty to 30 charges
including theft and money laundering.
9.
The executive director was
charged with taking $12,000 from the Faulkner County (AK) Council on
Developmental Disabilities.
10. A federal complaint alleges a Center
Township official used taxpayer money to bankroll a Zionsville home, a Toyota
Tacoma pickup, his child’s college education, vacations and diamond jewelry. In
all, U.S. Attorney Joseph H. Hogsett said Alan S. Mizen stole more than
$340,000, most of which was intended to help the township’s poor.
11. The U.S. Attorney’s office says Kenneth Loving of
East St. Louis was working for Midwest Service Group when he pilfered more than
$25,000 from the Illinois Department of Employment Security, meant for
out-of-work Illinoisans.
12. A former Jackson County (KS) court administrator
who admitted to embezzling tens of thousands of dollars for gambling and other
personal use was sentenced to two years in federal prison and ordered to pay
$139,536.
13. Former Southaven (TN) Mayor Greg Davis has been
sentenced to 15 years in prison. He was convicted of embezzlement and
defrauding the government last month.
14. A former Albemarle County (VA)
Clerk's Office employee pleaded guilty to embezzling nearly $14,000. The money taken was from cases
where the fees were paid up-front, such
as divorces or name changes.
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. On rare occasions, there may be duplicates.
Cites
in various media:
Featured in print,
broadcast, and online media outlets, including: Charity Navigator, Washington Post, National Enquirer, The Patriot-News, Vermont
Public Radio, Miami Herald, National Public Radio, Huffington Post, The Sun News, In Touch, Atlanta
Journal Constitution, Wall Street Journal (Profile, News and Photos), FOX2, ABC
Spotlight on the News, WWJ Radio, msnbc.com, Marie Claire, Ethics World, Tactical Philanthropy, Aspen Philanthropy
Newsletter, Harvard Business Review, Current Affairs, 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, 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,
VPR News, National Enquirer,
- 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, 2014
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