Saturday, November 15, 2014

Mid November Edition-Nonprofit Imperative E-Newsletter



Nonprofit Imperative
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November 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:
Again, American Red Cross; Birmingham Health Care; United Mid-Coast Charities
Charity Check Up:
Emerge Family Advocates
A Thought or Two:
Samaly Man
Nonprofit News-In Case You Missed It:
Embezzler profile; NARCO Freedom; Lay Mission-Helpers Assoc.…more
Political/Official Chicanery:
KS; MI; OK; KY; AR; CT; VA; MO…more
What Do You Think?


Like other disasters, the Ebola scare is ripe for all kinds of scams, from medicines claiming to cure the potentially deadly virus to email click-bait and fake charities. To lure victims, crooks tend to use headline-grabbing issues to prey on their victims. The Federal Trade Commission and the Food and Drug Administration have issued warning letters to three companies who fraudulently claimed to have cures or prevention medications for Ebola. The federal agencies had received complaints from consumers. Illinois attorney general Lisa Madigan said in a statement. “It’s extremely important that you delete these messages and instead consult legitimate resources for more information about prevention measures underway.”
‘It’s frequently the last person anyone would suspect.’ (Sturgis Journal, a great series on charity fraud)
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).”
American Red Cross Again In Serious Trouble
A lengthy joint report published this week by ProPublica and NPR finds that the American (ARC) Red Cross completely failed many of its rescue efforts during Hurricanes Isaac and Sandy in 2012.
ARC tried to cover up foul up after foul up. Some of the overt mistakes included allegations that 1) they diverted (see internal report) 80 nearly empty trucks that should’ve contained food were told to drive around to “look like you're giving disaster relief” so that the agency would impress Red Cross “brass” in the area; 2) the caterer couldn’t produce lunches and dinners so Red Cross volunteers had to distribute cold leftovers; 3) diverted an emergency response vehicle and staff for a photo-op for 5 hours; 4) shelters were not properly staffed, materials and food resources not on site; 5) more…
Two weeks after Sandy hit, Red Cross Chief Executive Gail McGovern declared that the group’s relief efforts had been “near flawless.” The group’s self-assessments, drawn together just weeks later, were far less congratulatory.
The charity ultimately raised $312 million to help Sandy victims. (ProPublica has raised questions about the opacity of Red Cross disclosures on how this money was spent.)
There is a long a rich history of poor leadership, misappropriations, political intervention and questionable representation of the operations of the organization. Before the current executive, ARC had seven CEOs in as many years, including interim execs.  
Although blood-compliance problems are seldom in the forefront for the public, decades of Red Cross problems include unsuccessful attempts to improve its blood-collection program to meet government safety standards. After a Federal Drug Administration Consent Decree the agency, ARC continues to be cited by the U.S. Federal Drug Administration for failure to take precautions to assure the safety of the blood donations. This failure has resulted in huge fines amounting in tens of millions of dollars. In 2010 alone, federal health regulators fined the American Red Cross $16 million for sloppy screening of donated blood. The FDA has, before 2010, sent 12 similar letters to the American Red Cross and imposed a total of more than $21 million in fines under terms of the amended 2003 consent decree. Again, in just 2012, the Food and Drug Administration hit the American Red Cross with a nearly $10 million fine for safety violations, lax oversight and faulty testing of its blood services.
There are several reasons for years of lax governmental oversight by Congress. The Red Cross was created under a special Congressional charter. The President of the United States, who is honorary president of the organization, appoints eight members of its board of governors. This close relationship has caused significant problems in several of the Red Cross administrations. The American Red Cross was essentially pardoned from its misdeeds. In the past, it was bailed out $100 million no-strings attached tax-payer funded bonus to cover a shortfall.
The boards and administrations of past have taken so little action about agency problems the American National Red Cross Modernization Act of 2007 (Pub. Law 110-26), a bill to strengthen the governance structure of the American Red Cross, was signed into law to provide to provide the first major overhaul of the organization since its 1947 congressional charter.
On a similar front: Tonia Allen was sent to Oklahoma to help disaster victims for America's Disaster Relief. This month the former regional director was accused of stealing more than $70,000 from the organization she represented.
$11 Million Nonprofit Fraud
Federal prosecutors say the former chief financial officer of two nonprofit health clinics for the poor and homeless—Birmingham (AL) Health Care and the Central Alabama Comprehensive Health Inc.-- has been indicted in a scheme to defraud the agencies and the government, which provided most of their funding. She and her co-conspirators helped steal roughly $11 million in federal grant money and other property from the agencies. (source). She illegally received $1.7 million for herself, the indictment said. The indictment seeks more than $900,000 seized from accounts in her name as well as money and other assets totaling the $11 million estimate of the fraud. This is serious with these maximum penalties: 1. mail and wire fraud, 20 years in prison and a $250,000 fine; 2. money laundering (counts 56-68), 20 years in prison and a $500,000 fine, or twice the value of the property involved; 3. money laundering (counts 69-74) involving criminally derived property valued at more than $10,000, 10 years in prison and a $250,000 fine; 4. aggravated identity theft, mandatory two years in prison added to any sentence imposed for the underlying felony and a $250,000 fine; 5. filing a false tax return, three years in prison and a $100,000 fine.
It Took 13 Years To Nab This Multi-Million Dollar Charity Embezzler
The former board president Russell “Rusty” Brace was able to allegedly steal  $3.8 million over the past 13 years from United Mid-Coast Charities.
The charity maintains that from 2001 until August 2014, Brace took checks from donors earmarked for the charity, deposited them into his account and then withdrew the money for his own use. The current president said that Brace has admitted to the embezzlement.
Paperwork filed in court in the charity’s civil lawsuit against Brace offered more details about his finances, including an account containing $700,000 that refers to “UCRC Char Fund.” Several donation checks were for more than $100,000 with one being $200,000 for the charity. 
The First, N.A. bank allowed Brace to deposit checks made out to the charity into the account of Brace’s Brace Management bank account at that bank. The charity board’s president said that clearly the bank should not have allowed Brace to make those deposits and that it was irregular.
Brace has not been charged with any crime. It is unlikely that charges will be forthcoming in the near future. The charity said it referred the case to the FBI, but federal prosecutions of financial cases can take a year or more to result in the filing of charges. The superintendent of the Maine Bureau of Financial Institutions said that the state agency does not regulate federally-chartered banks such as The First. Federally-chartered banks are regulated by the Comptroller of the Currency. A spokeswoman for that agency said this week that the federal agency does not comment on allegations against specific banks.
                                    ------------------------
Charity Check Up:
Rare Occurrence: Remove Charity Board  
The Vermont Attorney General’s Office has asked a judge to unseat the board of directors of a White River Junction-based nonprofit that provides parental visitation services, alleging the board members failed for years to rein in an executive director. It alleges that the four-person board for Emerge Family Advocates failed to properly oversee longtime Executive Director Raymona Russell, who the state accuses of writing paychecks to herself on an “irregular and inconsistent basis” and paying herself from $5,000 to $10,000 more than her board-approved salary during the past three years, among other grievances. The AG’s Office also accused some board members of attempting to shut out dissenting members who raised concerns about the lack of meaningful board oversight of the nonprofit’s sole full-time staff member and its finances.
For at least two years, the board has relied on the executive entirely and not employed a bookkeeper or other individual to oversee its accounts, and has not developed or approved an annual budget during that time, officials wrote in the court filings.
According to the AG, the Board’s failure “threatens Emerge’s mission and has put its current funding in serious jeopardy.” The Attorney General’s Office recommended an interim special trustee to coordinate with other nonprofits to provide court-ordered supervised visitation and exchanges of children between parents.
The majority of Emerge’s funding comes from New Hampshire.
A Thought or Two:

Lies Killed Human Trafficking Charity

The charity probably best known for fighting modern slavery and human trafficking, the U.S.-based Somaly Mam Foundation, made public its decision to cease all operations.

Its leader, Somaly Mam, was found to have falsified her claim of being a former child sex slave in Cambodia.  She had fraudulently embellished her past experiences and accomplishments. The unveiling of the highly publicized allegations had seriously affected some SMF affiliates and grantees — and probably even broader anti-human trafficking and anti-slavery advocacy efforts around the world. One Newsweek article in particular cited multiple discrepancies. The revelations left many reeling, although Simon Marks, the primary reporter breaking the story, had been building his case against Mam’s credibility for some time. Mam, of course, was an icon of the human trafficking field—but iconic status can be dangerous for the adored and adorers alike.(source)

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Nonprofit News…
In Case You Missed It:
1.     National statistics show most embezzlers are women, likely in their 40s, with no prior criminal record. Women generally take money to provide comfort, while studies say men embezzle to elevate their status or power. (source- The 2012 Marquet International Ltd. Report)
2.     My home state: Michigan ranked eighth in the total amount of money taken. Nevertheless, Michigan’s sentencing guidelines and limited prison beds make prison time rare for embezzlers.
3.     A father and son who ran Narco Freedom, a Bronx-based nonprofit, were indicted on charges of insurance fraud and grand larceny. One allegedly received $13,000 in monthly kickbacks from a real estate developer who rented buildings to Narco—effectively skimming from the $40 million in taxpayer dollars that New York State annually allocated to help fund the group between 2009 and this year, according to investigators. Both defrauded Arch Insurance Company out of $3.5 million by filing a false insurance claim in 2009 for storm damage to a former treatment facility Brooklyn—one of 10 facilities the nonprofit runs citywide.
4.     Two former employees of a Catholic missionary group charged with embezzling from the nonprofit have agreed to an $869,000 civil settlement. The settlement came after the Lay Mission-Helpers Assn. sued its former director of development.
5.     The tax-exempt sector in the United States represented 5.4 percent of the nation’s gross domestic product (GDP) during 2012, contributing $887.3 billion to the economy. And of those tax-exempt entities, 501(c)(3) public charities accounted for slightly more than three-quarters of the sector’s revenue ($1.65 trillion) and expenses ($1.56 trillion) and more than three-fifths of nonprofit assets ($2.99 trillion) during 2012.Comprised of approximately 1.44 million nonprofits registered with the Internal Revenue Service (IRS) in 2012, the sector has grown approximately 8.6 percent since 2002.Those are among the statistics in the biannual Nonprofit Sector in Brief report by the Urban Institute’s Center On Nonprofits and Philanthropy. Congregations and religious organizations received nearly one-third of all charitable contributions in 2013. The volunteer rate is the lowest it has been since 2002.
6.     report exposed the employment practices of a Brooklyn nonprofit that failed to pay its mentally ill workers correctly for years. It is alleged that it paid its janitors a third of the wages and benefits required by the state’s 'prevailing wage' law for janitorial jobs.  Shorefront Mental health board may have underpaid their employees by as much as $123,224 during 2013, a figure that is likely to rise after taking into account the lack of supplemental and other benefits to which workers were entitled.
7.     The Charter Day School, Inc.’s management company, which receives millions in public (NC) funds each year from the schools, says that the salaries paid to school administrators should be considered a trade secret.  Millions in public education dollars each year were channeled to for-profit companies owned by the schools' founder.
8.     The Ebola epidemic is spurring a swarm of scams that promote bogus "cures," fund fake charities and spread computer viruses aimed at stealing private information.
In fraud alerts issued by both the Better Business Bureau and the AARP Fraud Watch Network, experts said they'd uncovered a range of schemes targeting people looking for Ebola news, cures and ways to help. The disease has killed an estimated 4,500 people primarily in Africa and is now showing up in several cities around the globe.
"Scammers prey on fears during the worst of circumstances, and the Ebola crisis is no different," said Kristin Keckeisen, director of the AARP Fraud Watch Network.
Some of the newly discovered Ebola scams:
·                Emails that purport to supply the latest news on the Ebola crisis actually link to malware sites that infect your computer with viruses.
·                Bogus charities that claim to aid Ebola victims, but are either fake or direct only a fraction of contributions to the stated cause.
  • Sales of "personal protection kits" and or "natural cures" for the disease, with the products often sold over websites that peddle conspiracy theories. 
  • Stock scams that promote questionable companies supposedly working on cures or products that will prevent spread of the disease.

9.     Among wealthy households, the average amount given to charity last year increased 28 percent, according to the 2014 U.S. Trust® Study of High Net Worth Philanthropy. Through an ongoing partnership with the Indiana University Lilly Family School of Philanthropy, the fifth in this series of biennial studies reveals a strong commitment to charitable causes among high net worth households. This positive trend is seen in several findings, including:
·                   Last year, virtually all (98.4 percent) high net worth households   donated to charity, compared to 95.4 percent in 2011. This marks the highest rate of high net worth participation in charitable giving since the study began in 2006. This high rate of giving among the wealthy compares with 65 percent of the U.S. general population who donate to charity.
  • The average dollar amount given to charity by wealthy donors increased 28 percent, from $53,519 in 2011 to $68,580 in 2013. Average giving as a percentage of household income decreased by one percentage point, as increases in income levels slightly outpaced increases in giving levels among this demographic.
  • Eighty-five percent of wealthy donors plan to give as much (50 percent) or more (35 percent) in the next three to five years (through 2018) than they have in the past – up from 76 percent who said they planned to give as much (52 percent) or more (24 percent) when asked in 2012. The top reasons cited by those who plan to increase their giving are “increased financial capacity” (85 percent) and the “perceived need of the nonprofits or causes” they support (48 percent). (article: HERE)
We flagged these few examples of nonprofit mischief 
1.     HalloWayne (MI) <$20,000
2.     National Postal Mail Handlers Union Local 314 (MO) $41,000
3.     Crisis Ministries (SC) $440,000
4.     Freedom High School’s athletic booster club (FL) $15,000+
5.     Women's and Children's Center at St. John's Hospital (IL) $500,000
6.     Summit Elementary PTA MO $2500
7.     Waitsfield Education Fund  (VT) <$76,000
8.     Athletic Boosters Club (MA) $10,7000
9.     Melanoma Research Alliance (MD) $10,000+
10.  Peninsula Symphony (CA) $250,000
11.  Edmond Santa Fe Cheer Club (OK) unknown
12.  Waitsfield Education Fund (VT) <$65,000
13.  Coastal Enterprises Inc (ME) $365,000
14.  Seminole Boosters Inc. (FL) $<$700,000
15.  Twofer: Exploration Station/South County Family Educational and Cultural Center (CA) $8000
16.  Three Rivers Area Chamber of Commerce  (MI) <$50,000
17.  Mississippi Department of Marine Resources <$5000
18.  Sanford Medical Center auxiliary gift shop $273,000
19.  Goodwill Baptist Church (NC) $30,000
20.  Marine Exchange of the San Francisco Bay Area $920,000
21.  Westside Community Schools (NB) $105,000
22.  South Dakota Postal Worker’s Union $36,000
23.  Cannonsburg Elementary PTC (MI) <$20,000
24.  Sun View Elementary School (CA) $22,000
25.  Horseshoe Bend school district (ID) $53,000+
26.  Sweet Hope/ Sunset Elementary school PTA (WA) $22,000
27.  Los Angeles Trade Technical College $50,000+ 
28.  Twofer: TVP Nonprofit Corporation/TVP Nonprofit Corporation (TX) up to $300,000
29.  Southern Foundation for the Advancement of Arts and Education (GA) $1 million 
30.  Pubelo Los Cerros, plus many other homeowners assoc. (NM) hundreds of thousands of dollars
31.  Brotherhood of Locomotive Engineers $200,000
32.  Saginaw (MI) Westchester Village $350,000
Political/public official chicanery (just a few):
1.     A former Merrill recorder, a city official, pleaded guilty to stealing nearly $100,000 from city coffers over a five-year period.
2.     The chief of the Soldier Fire Department in Jackson County (KS) was arrested and accused of embezzling money when he was treasurer of the Soldier Ball Association in 2012 and 2013. He allegedly wrote checks of more than $1,000 on two occasions from the ball fund to his own business account, and he's accused of taking association funds without authorization on five other occasions.
3.     A former Vicksburg village manager Matthew Crawford said he was sorry for stealing $13,000 from the village and told a Kalamazoo (MI) County judge that he "never intentionally did anything to harm the community."
4.     The Jay (OK) Fire Department chief was suspended with pay as he is being investigated for embezzlement.
5.     Northern Kentucky University’s dance coach was fired in June of this year for making $6,800 in fraudulent charges with a school procurement card. This is on the heels of the firing of Athletic Director Scott Eaton who used a card to steal $310,000. The school tightened its accounting and reduced the number of workers who carry a university credit card after Eaton's crimes were discovered.
6.     The County Treasurer and Tax Collector for Lafayette County (AR) pleaded guilty for $162,275 that was not deposited in the county’s bank accounts and an additional $81,618 in public funds that was embezzled, bringing the total to $243,893.00.
7.     A woman who admitted embezzling cash while working at the Lenawee County (MI) Clerk’s Office this year was handed down a 15-day jail term and ordered to repay $2,390 by Feb. 27.
8.     A former Albion library director was sentenced to three years of probation this week after she pleaded guilty to embezzling from the library. Investigators from the Calhoun County Sheriff's Department estimated she embezzled about $14,500.
9.     The Middlebury, Connecticut, volunteer fire department was rocked after an embezzlement of $70,000 by its chief.
10.  The Charlottesville (VA) Electoral Board accepted the resignation of General Registrar. She was accused of embezzling and misappropriating at least $7,195.86 of taxpayer money.
11.  The former secretary for Morgan County (MO) Sheriff has been arrested and charged with seven counts of felony stealing of nearly $18,000.
Readers, weigh in as to what you think…please continue the tips (they are very helpful) gary.r.snyder@gmail.com
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, New York Times, 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, , 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
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Email: gary.r.snyder@gmail.com; 248/324-3700;
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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