Tuesday, May 12, 2015

Mid April: Nonprofit Imperative Newsletter

Nonprofit Imperative
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April 2015
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:
NeighborWorks America
Charity Check Up:
FEGS; Operation Tribute; Boobies Rock!
A Thought or Two:
DC Parks and Recreation
Nonprofit News-In Case You Missed It:
Islamic Foundation; Birmingham Healthcare; Livestrong Foundation…more
Political/Official Chicanery:
MA; MI; HI; IN; NY; TX; MS; GA; CA; LA…more
What Do You Think?
“To do good, donors must do their homework,” (source)
Nonprofit fraud is happening more often and costing more money. According to the 2014 Report to the Nations by the Association of Certified Fraud Examiners, nonprofit fraud accounted for 10.8% of total frauds in 2013, up from 9.6% reported in 2010. Nonprofit organizations lost a median $108,000 per fraud in 2013, up from $90,000 reported in 2010.
"Financial control failures are common at nonprofits and can sometimes be fatal. Leaders of nonprofits would be well served to take steps to assess their risk, tighten controls and detect fraud as early as possible. (source)
“These theft cases are of increasing frequency and magnitude, indicating that deceitful employees see an easy mark and craft mechanisms to get their hands on money.” (Source)          

When employers have good cases against internal fraud, they often don’t refer them to law enforcement for fear of bad publicity. Many companies handle instances of such fraud internally and very quietly make the employee “go away.” (source)

Organizations established for public benefit, nonprofits assume the people who work for them, especially senior management, are trustworthy. Often these factors result in less stringent financial controls than implemented by their for-profit counterparts.
The numbers attributed to theft, fraud, embezzlement, and other unauthorized uses of organizational funds and assets are shocking. (source)

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).”

The Nonprofit That Blew Through Taxpayer Billions With Poor Management, Little Board Supervision, and No Government Oversight
NeighborWorks America, a nonprofit chartered by Congress, distributes much of its money to counseling groups that dispense mortgage advice and sometimes financial aid.
Established by lawmakers in 1978, NeighborWorks became one of dozens of congressionally chartered charities and patriotic organizations such as the Boy Scouts of America and the American Red Cross. Like the other two venerable organizations it is in disarray.
The group reveals an organization in disorder -- with sweetheart contracts, document fudging and unexplained departures of top officials. Executives at the group awarded at least two large jobs to insiders without bidding, later justifying one of the contracts with a backdated memo, according to interviews with former employees, tax filings and previously unreported company audits. In addition case managers signed off on a multimillion-dollar technology deal to a recently formed contractor, which had board members in common with NeighborWorks and used the same law firm. The contractor overcharged by as much as 20 times, one of the audits said.
·       Quantum, The company was run by a former NeighborWorks employee, was listed as receiving more than $900,000 in fees in just one year, making it one of NeighborWorks’ highest-paid consultants. Quantum’s address was a one-bedroom apartment, in Washington, owned by a former NeighborWorks software developer. Two executives signed a backdated memorandum on the contract.. Senior officials began jobs at housing-related nonprofits shortly afterward the discovery of the problems.
·       NeighborWorks would need help processing applications. It signed a contract for technology services with Hope LoanPort Inc., a non-profit that had ties to both its own leadership and HUD. NeighborWorks paid Hope LoanPort about $20,000 per month for web hosting, according to the audit, which said the subcontractor charged other clients $2,000 to $2,700 for the same level of service. Other fees were eight to 22 times the rate the subcontractors billed others, an audit found. Hope LoanPort, which is still under contract to NeighborWorks, eventually billed more than $3 million over two years -- including costs that “would probably be considered inordinate,” wrote its internal auditor
Audits revealed irregularities but no fraud. Many of the principals have left. Despite little leadership, management shortcomings and no oversight in the past, the organization may continue on as in the past.  (source)
The problems are remarkable similar to that of the American Red Cross, the sister congressionally-chartered organization. Both will continue with impunity because both are too large to be rejected.
Charity Check Up:
Mismanagement, Poor Leadership, Lead To $19 Million Loss and Closure
Update: In the last edition of NI we wrote about the accounting firm of Loeb & Troper suddenly closing its door after it had uncovered a $19 million deficit. This was surprising in that It has performed the most recent audits for 28 of the big Jewish nonprofits in the city—a very big market share for a relatively modest firm. The problem is that two of their clients, FEGS and the New York Legal Assistance Group, have recently turned up with what could be called serious financial irregularities. FEGS quite suddenly announced that and would be forced to close.
The impact is striking. At FEGS’ peak, the nonprofit had about 350 locations and about 4,000 employees, 2,217 of which were defined as "highly skilled professionals,” according to the filing. FEGS cares for 135,000 individuals annually.
Now Crains-NewYork uncovered the reasons why there were the sudden closures. Federation Employment and Guidance Services, an 81-year-old Manhattan social-services agency, filed for bankruptcy after an ambitious expansion of services, locations and for-profit subsidiaries left the organization with exorbitant costs and shrinking revenue.
In January, the nonprofit, which has a budget of $250 million, announced it would shut down after recording a $19.4 million loss last year.
Mismanagement and lack of financial oversight and prudence loom large in the narrative that describes the circumstances that led to the bankruptcy. But in the end, FEGS was doomed by expenses that outpaced revenue. Between 2013 and 2014 alone, salaries and benefits rose 7% while revenue fell.
Leadership instability and an outdated financial-management system took a toll. The nonprofit had three chief financial officers leave within a two-year span, and its financial-management system resulted in inefficient billing collections and “compromised management’s ability to make responsive business decisions in a timely manner
And then there were the ill-fated for-profit subsidiaries. FEGS threw capital into the units—AllSector, HRD and Single Point—in the hopes of generating income. But the entities didn’t succeed in becoming standalone profit centers, and instead primarily provided services to FEGS, leaving the nonprofit on the hook for their losses. The AllSector Technology Group, for example, derived 65% of its revenue from FEGS.
That $19 million in red ink that FEGS spilled in 2014 as expenses skyrocketed and revenue dive-bombed. The Manhattan-based social-services agency has lined up top legal and consulting talent to shepherd it through bankruptcy court. That expertise doesn't come cheap. The agency already has paid $255,000 in retainers, and with the court's blessing will pay hourly professional fees that range from $145 to $810.

Another Vet Charity Raided---$750,000

The award-winning founder of Operation Tribute was under investigation for stealing $750,000 from the nonprofit.  Federal investigation indicates that he used $24,000 of donated funds for his child’s tuition, more than $230,000 in cash, $138,000 in mortgage payments, more than $25,000 for personal cars and $7,000 spent at New Hampshire State Liquor Stores. A forensic investigation revealed he laundered money through Top Shelf Collectibles and then deposited money in his wife’s bank account for personal purchases.
Under investigation for fraud, he committed suicide last month. It is still unclear if his wife will face any criminal charges in this case.
Another Breast Cancer Charity Raided---about $2 million
A judge has ordered a Colorado man accused of running a fraudulent national breast cancer charity---Boobies Rock!---return $1.89 million in gross receipts and pay $4 million in civil penalties. He was accused of misleading customers around the country into thinking more of their money was going to breast cancer charities.
A Thought or Two:

Politico Used Charities To Steal Over $350,000 of Taxpayer Funds

Neil S. Rodgers, a 30-year city government veteran, former D.C. Council aide, and director of the council’s Parks and Recreation Committee was convicted by a federal grand jury for diverting more than $100,000 in taxpayer funds.
Assistant U.S. Attorney Michelle A. Zamarin told jurors that “Neil Rodgers stole taxpayers’ money meant for children to pay for a party for adults.” Rodgers facilitated a plan to divert funds that taxpayers designated for childhood drug and alcohol prevention programs 
Thomas pleaded guilty in January 2012 to stealing more than $350,000 by earmarking taxpayer money for children’s causes and then steering the money through nonprofit groups into his pocket. His chief of staff and four leaders of three nonprofit organizations — have pleaded guilty to their roles in concealing or aiding in the schemes.

Big Change At Charity Navigator
A real loss: Ken Berger, who led the country’s most prominent nonprofit watchdog, Charity Navigator, for almost seven years, abruptly left his job this week after the board decided to find a leader with more expertise in technology.

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Nonprofit News…
In Case You Missed It:
1.     The financial director of an Islamic school and foundation who DuPage County prosecutors say used his employer as "a personal piggy bank" pleaded guilty to theft over $100,000, just as his trial was set to begin. Authorities say he stole more than $500,000 while employed as the director of business and finance for the Islamic Foundation in Villa Park.
2.     The trial of a former nonprofit CEO accused of health care fraud has been ordered delayed after a federal judge agreed it was "complex." The indictment, unsealed the date of his arrest, contains allegations that over the course of six years, $14 million in federal money has been diverted to private businesses including the Birmingham Health Care, Central Alabama Comprehensive Health. Update: The former chief financial officer agreed to plead guilty.
3.     Oh boy, what a choice: The embattled Livestrong Foundation, the onetime juggernaut created by cyclist Lance Armstrong, has named as its new CEO a former top official from Susan G. Komen, another cancer charity whose powerful brand has been battered in recent years. Chandini Portteus left Komen at a time when it was trying to restore faith among its followers. In 2012, it angered pro-choice advocates when it eliminated grants to Planned Parenthood, only to reverse itself when faced with heavy pressure. In fiscal year 2013, its private support dropped 22 percent, from $302 million to $235 million. The Komen Foundation has been under the scrutiny of watchdogs for years with its founder and central decision maker in key positions pulling the strings at the staff and board levels and Portteus in a key position. That does not forebode confidence in Livestrong. 
4.     Update: (Reuters) - A former Pennsylvania sportscaster was sentenced on Wednesday to serve up to four years in state prison for defrauding some 200 people in a charity scheme. Don Tollefson, 62, of Philadelphia was found guilty in January of using unregistered charities and non-existent tickets to sporting events to scam people out of about $342,000. In addition to his prison sentence, Tollefson on was ordered to serve 15 years of probation and pay $164,528 in restitution.
5.     Sixty-three percent of charities exceeded their fundraising goals last year, an annual survey has found. The percentage of organizations exceeding their fundraising goals in 2014 was the highest since 2007, when donations surpassed the goals of 65 percent of charities.
6.     The SEC filed fraud charges against a general partner at a venture capital firm and an entrepreneur and private equity investor. They used a charity to kickback $220,000 to Lincoln Charitable Foundation to mask the kickback.
7.     The AIDS Healthcare Foundation paid kickbacks to employees and patients for referrals that would increase billings with the federal health-care programs resulting in in a $20 million scam, a whistle-blower complaint alleges.
8.     Reece Powers II pleaded guilty to operating an Ohio illegal gambling business under the auspices of local nonprofit charitable organizations for seven years.
9.     A federal grand jury handed down an indictment on embezzlement charges for former Florida State University finance professor James S. Doran. The indictment claims that between May 2010 and March 2011, he embezzled more than $650,000 in funds held by FSU while he was an assistant professor.
We flagged these few examples of nonprofit mischief 
1.     Christ the King Development Corporation (CN) $250,000
2.     Stamford Historical Society (CT) $20,000
3.     Summit Association of Realtors (CO) $415,000
4.     AFGE Local 2207 (AL) $132,000
5.     Saginaw Westchester Village (MI) $300,000
6.     Sappington Elementary School (MO) $34,0000 
7.     Cedar Fall Gearheads Ministries $7,000
8.     ABC Nutrition Program (TN) $733,000
9.     Downtown San Mateo Association (CA) $5000
10.  Community Health Charities (LA/MS) $715,000
11.  Monterey Bay Derby Dames (CA) $17,000
12.  Princeton Triangle Club (NJ) $240,000
13.  Open World Family Services (LA) $140,000
14.  American Federation of Government Employees Local 2207 (AL) $132,000
15.  Ridgewood YMCA (NJ) $75,000
16.  Stepney Elementary School PTO (MI) $10,000
17.  Veterans of Foreign Wars Post 8835 (ME) $10,000+
18.  United Federation of Law Enforcement Officers (NY) more than $48,000
19.  Waianae Community Outreach (HI) more than $760,000
20.  One Fund Boston (MA) $40,000
21.  Utility Workers Union of America Local 475, (PA) $32,000
22.  I CARE (NY) unknown
23.  Little People's World (CA) $460,000
24.  La Vista Volunteer Fire Firefighter Association (NB) $50,000
25.  Door County Humane Society  (DCHS) (WI) $50,000+
26.  Bentonville American Legion (AL) $133,000
Political/public official chicanery (just a few):
1.     A former treasurer and business manager convicted in 2001 of embezzling $5.4 million from Bay Path Regional Vocational Technical School District died at UMass Memorial Medical Center in Worcester. He was convicted in February 2001 in Worcester Superior Court of multiple counts of larceny and filing false tax returns. He was sentenced to 7 to 10 years in prison, with 27 months to serve, and also was convicted in federal court on six federal charges related to the embezzlement. He was sentenced in September 2001 to 57 months in federal prison. He spent much of the money on gambling, and also owned racehorses and homes in Connecticut, Maine and Florida.
2.     A federal court has sentenced two former Army finance officers to four years and nine months in prison for embezzling more than $2.7 million that was supposed to pay for a U.S. military training mission in Saudi Arabia.
3.     Former Lansing (MI) school board member Nicole Armbruster is accused of embezzling more than $3,800 from the Lewton Elementary School parent teacher association last year.
4.     Laura Pitolo was charged with six felony theft counts for allegedly diverting more than $500,000 in state funds from Waianae Community Outreach for use by herself, family members and friends, Hawaii Attorney General Doug Chin announced. In 2013, WCO filed a civil lawsuit against Pitolo alleging she stole more than $760,000 from the nonprofit organization. 
5.     Leaders of a Bronx nonprofit- Narco Freedom- that provides drug and alcohol treatment to tens of thousands of New Yorkers have been indicted over an alleged scheme to plunder the charity and defraud Medicaid of more than $27 million, New York Attorney General Eric Schneiderman said.
6.     Two Indianapolis men were convicted in a fraud scheme at the Indianapolis Land Bank. Federal prosecutors said the men accepted bribes and kickbacks to facilitate fraudulent sales from nonprofit groups and sell the land back to for-profit businesses. Once the transactions took place, they received a cut of the money.
7.     They took more than $50,000 from a lunch program for senior citizens run by the New York nonprofit United Hindu Cultural Council of USA North America Inc. by falsifying documents with another defendant, the Richmond Hill caterer for the program who admitted to giving kickbacks to the family. They were not sentenced to jail.
8.     Without receiving a single competitive bid, the College of DuPage has paid a member of its foundation board more than $630,000 to design and install signs for the school over the past four years — with much of the work made possible through a contract that references her experience as an architect. Foundation board member Carla Burkhart is not an architect. Her company, Herricane Graphics, does not provide architectural services. A Tribune analysis of records from her work at the school since 2011 raises questions about how Illinois' largest community college awards contracts, especially to vendors who serve on the board of the College of DuPage Foundation, the school's private fundraising arm. Ten of the foundation's 22 board members work for companies with financial ties to the college, according to documents obtained under the state Freedom of Information Act. Questions about the Herricane Graphics contracts come during a time of intense scrutiny at the college when Trustees have been under fire for giving the college's president, Robert Breuder, a $763,000 severance package to end his contract three years early. Breuder, meanwhile, has faced criticism for lavish spending that includes a hunting club membership, generous car allowance and large tabs at the school's upscale restaurant.
9.     The former manager of the Cascade Metropolitan District has been arrested on suspicion of embezzlement and theft. According to the Colorado Springs Gazette, The district's board of directors asked the El Paso County District Attorney's Office to launch an investigation after it was believed about $800,000 was embezzled from the agency. Almost $500,000 of the money was earmarked to pay for the district's treated water provided by Colorado Springs Utilities.
10.  Former Warren County (MS) Circuit Clerk has pleaded guilty to stealing more than $100,000 meant as restitution for crime victims.
11.  The former treasurer of the village of Muir  (MI) will spend a year on probation for embezzling $19,000 from the municipality.
12.  State Rep. Tyrone Brooks, D-Atlanta, resigned his seat in the Legislature on before pleading guilty for using contributions meant for charities for his personal expenses.
13.  A Scotts Valley (CA) police sergeant accused of embezzling $2,660 from a car-show fundraiser called Cops N Rodders has been fired from the force 
14.  Caddo Parish (LA) Commissioner Michael Dwayne Williams was indicted for a scheme to take money from Swag Nation’s, a nonprofit, bank account, an agency that is meant to help at-risk youth.
15.  South Whitehall's longtime utility manager and her husband agreed to plead guilty in an $845,000 embezzlement scheme. Prosecutors say Nancy Tonkin stole $845,000 in taxpayer money and, along with her husband used the cash to finance a gambling habit.
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.
We’re noticed: 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, 2015

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