Nonprofit Imperative

Friday, August 30, 2013

Investigative Reporting on Charity Fraud At Its Finest

by Gary Snyder

The Atlanta Journal-Constitution and investigative reporter Christopher Quinn and others did fantastic work in exposing the problems at Angel Food Ministries. I was honored to have a small part in the expose.

Chris informs me that finally, after many years, the closing chapter is at hand.

Three members of the family that founded Angel Food Ministries, dedicated to feeding the hungry, were sentenced in federal court Thursday for using the nonprofit to enrich themselves.

Joseph and Linda Wingo, the founders of Angel Food Ministries, and son Andy, had pleaded guilty last February after an investigation that began in 2009.

The U.S. Attorney Michael Moore said, “Pure and simple, this case is about greed….The Wingos filled their garage with a classic automobile, their hangar with a private plane, and their pockets with cash.”

Pastor Joe Wingo drew a 7-year sentence and was ordered to forfeit $1.5 million and pay a $15,000 fine for conspiracy to commit money laundering. Andy Wingo got 7 years in prison and was ordered to forfeit $2.4 million for conspiracy to commit money laundering.

Linda Wingo got 5 years probation and ordered to pay a $25,000 fine for concealing the commission of a crime.

This unveiling of the truth is just one example of hard-working investigative reporters keeping charities honest. But, as most know, investigative reporters are a dying breed with newspapers going out of business or cutting budgets to the bone. Investigative reporting is an expensive business.

An example of the expensive nature of investigative reporting and getting the facts right, I am reminded of a television station in Detroit touting the merits of Angel Food Ministries. I spoke to the reporter and sent them over some of the Atlanta Journal-Constitution work noting that the agency was a fraud. They assured me that the station manager would be in touch with me. No return call and certainly no retraction. I subsequently shared with them the fact the Angel Food Ministries principals were indicted. Again, no response.

Getting it right takes too much time and money.

Kudos to all those that worked so hard in putting the perpetrators in prison. If it weren't for them, the federal government would not have been embarrassed and not used all of its resources to prosecute. As is frequently the case, they would have simply passed on this agency.

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)

Wednesday, August 28, 2013

Three Charged With Defrauding Drug Charity Program Of $7 Million

by Gary Snyder

A pharmaceutical company donated millions in FDA-approved prescription medicines at no cost to patients qualifying because of financial difficulties.

Lateefah McKenzie Body’s conviction stems from her role in defrauding more than $7 million in HIV and cancer medications from a charity program through her access to the company hired to administer the program.

Two others pleaded guilty to related charges in November of last year, admitting their involvement in the fraud. They are awaiting sentencing.

The three were responsible for entering received applications into the computer system and using the system to have the medicines delivered to qualifying patients’ physicians, the release said.

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)

Award-Winning Founder and Accountant Charged In $8 Million Fraud

By Gary Snyder

U.S. Attorney David Hickton called Nick Trombetta a thief, charging the award-winning educator with 11 counts of mail fraud, filing false tax returns and conspiracy. A grand jury indicted Trombetta and he was arraigned. Authorities charged his accountant, Neal Prence of Koppel, with preparing Trombetta's false tax returns.

Hickton outlined a complicated scheme that he said Trombetta designed to skim nearly $1 million for himself, often from work done by employees at Pennsylvania Cyber Charter School and the related National Network of Digital Schools Management Foundation, or NNDS. He said the scheme attempted to hide $8 million in cash and property from the Internal Revenue Service.

“He is charged with creating a series of connected for-profit and not-for-profit entities to siphon taxpayer funds out of PA Cyber and to avoid federal income tax liabilities,” Hickton said. “As the founder and CEO of PA Cyber, Trombetta was the custodian of the public trust, receiving public funds.”

Trombetta collected a $50-per-computer kickback on 11,000 laptops that PA Cyber bought from an unnamed company, the grand jury said.

The grand jury said PA Cyber and NNDS employees doing work for Buckeye Online School for Success, or BOSS, in Ohio and Wingspan New Mexico did not know Trombetta diverted the money to himself through one2one, which he operated with his sister, Elaine Neill.

Authorities charged Neill, 56, of Center on Aug. 2 with filing a false tax return. She's expected to plead guilty Oct. 8.

“When individuals enrich themselves with (public) money rather than act as stewards of the education funds entrusted to them, our communities and the children we are obligated to educate are the true victims,” said FBI Special Agent in Charge Gary Douglas Perdue.

Celebrities, Among Others, Cheated In $29 Million Charity Fraud

by Gary Snyder

A federal appeals court in San Francisco upheld the conviction and 22-year sentence of a former Belvedere businessman who defrauded investors of $29.7 million.

Some of the victims of Samuel “Mouli” Cohen were patrons of the now-defunct Vanguard Public Foundation, including actors Danny Glover and Harry Belafonte.

The San Francisco-based foundation, which supported progressive causes such as civil rights and anti-poverty programs, closed in 2009 as a result of financial mismanagement and Cohen’s fraud.

Federal prosecutors alleged in a sentencing brief last year Cohen caused the collapse of Vanguard because its donors could no longer afford to support it after they lost millions of dollars they invested with Cohen in a phony deal concerning an electronic jukebox company.

Cohen, 55, was given the prison term by U.S. District Judge Charles Breyer in San Francisco last year after a jury convicted him in 2011 of 29 counts of wire fraud, money laundering and tax evasion.

Breyer ordered him to pay $29.7 million in restitution to more than 60 victims, including $410,000 to Belafonte and $2,758,221 to Glover.

According to the court, Cohen invited foundation donors to buy shares in an digital jukebox company he co-founded, Ecast Inc., and told them the share value was about to skyrocket because the company was soon to be acquired by Microsoft Inc.

The investors were told they could gain profits both for themselves and for donations to the foundation.

Cohen took in the investors’ money between 2002 and 2008, according to the indictment.

In a separate fraud-within-a-fraud case, former foundation executive director Hari Dillon pleaded guilty before Breyer in 2010 to two counts of wire fraud and two counts of money laundering and admitted to embezzling at least $2.5 million between 2004 and 2007 from foundation patrons who had previously invested money with Cohen.

Dillon admitted in his plea agreement that the embezzled money came from additional funds he solicited from the donors by telling them Cohen needed loans to pay the costs of completing the supposed deal.

But Dillon admitted that he siphoned off $2.5 million of the intended loan money for himself. Prosecutors said he spent the funds on expensive hotels, restaurants, limousines, credit card bills and his children’s tuition.

As part of his plea agreement, Dillon aided prosecutors in investigating Cohen and testified against Cohen in his 2011 trial.

In January, Breyer sentenced Dillon to three years and four months in prison. (source)

Another Charity Founder Caught In Fraud

by Gary Snyder

The former CEO of Our Children's Homestead is being held in the DuPage County (IL) Jail in lieu of $2 million bail.

Authorities said Robert Geniesse fled the country last year on the eve of a grand jury indictment for embezzling but has been returned to the U.S. from Germany. German authorities remanded Geniesse to federal agents.

Charges against Geniesse include theft over $100,000, forgery, wire fraud and using charitable trust funds for personal gain. Also a grand jury indicted him on charges of misappropriating $200,000 to finance a film company that produced two short films dealing with adoption issues.

Our Children's Homestead, the agency Geniesse helped found in the mid-1990s, arranges foster care and adoptions for children with special needs. The agency fired Geniesse in 2011, when it became aware of possible financial impropriety, according to court files. Police were alerted to the situation. (source)

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)

Monday, August 26, 2013

Most Will Get Off In $300 Million Charity Fraud

by Gary Snyder

Prosecutors say Jerry Bass, the national commander of Allied Veterans of the World, faced more than 200 charges including running a $300 million illegal lottery, money laundering and possessing slot machines. He along with 57 Allied Veterans defendants, gave about $6 million to veterans out of nearly $300 million in profits. Investigators said much of the money went to charity leaders, who spent much of it on boats, beachfront condos and cars such as Maseratis, Ferraris and Porsches.

Allied Veterans’ former commander, Johnny Duncan, last week pleaded no contest to one count of money laundering and four counts of maintaining an illegal lottery. He will be sentenced to probation at a later date. Another defendant, John Hessong, was given the opportunity to enter a pretrial diversion program.

The investigation into Allied Veterans led to the resignation of former Lt. Gov. Jennifer Carroll after she was interviewed during the probe. She has denied wrongdoing and wasn’t charged. (source)

Friday, August 23, 2013

Secrecy vs Transparency at Charities

by Gary Snyder

In New York State charities are required to reveal where they got their money. However, a growing number of nonprofit organizations, spanning the ideological spectrum, are seeking exemptions, arguing that their donors could be endangered if their names were released to the public.

Similar disputes over transparency versus privacy are taking place in California, Maine, Minnesota and other states. One was granted an exemption--Naral Pro-Choice New York--the prominent abortion rights group.

Other groups around the nation have also sought to shield their donors from public scrutiny.

Another group, the Committee to Save New York, spent more than $13 million on advertising supporting Governor Cuomo’s agenda in 2011 and 2012; the group went dormant as soon as the state started requiring disclosure of donors.

Ironically, Arthur Eisenberg, the New York Civil Liberties Union legal director noted: “It’s the individual donors who shouldn’t need to take that (abuse), and the price of their association with us, and their participation in the First Amendment activity of lobbying, should not be at the cost of their feeling secure and free from threats and retaliation.” (NYT)

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)

Wednesday, August 21, 2013

Tips Outweigh All Others In Fraud Detection

by Gary Snyder

According to the Association of Certified Fraud Examiners, employee tips are the most common method of fraud detection since 2002. According to the ACFE's 2012 Report to the Nations on Occupational Fraud and Abuse, tips led to the initial detection of fraud in 43 percent of the 1,388 cases of worldwide occupational fraud reviewed in the study. Management review and internal audit ranked as a distant second and third, noted the report.

Whistleblowers are becoming an increasingly powerful weapon against healthcare fraud, and as predicted back in January, the industry saw more whistleblower lawsuits this year, especially as states looked to qui tam settlements to pad their tight budgets, The Wall Street Journal reported.

Nonetheless, nearly half of the victim organizations studied for the report did not have fraud hotlines in place at the time of the crime, and fewer than 10 percent offered rewards to whistleblowers. "These low rates indicate that many organizations might not yet realize the importance of proactive efforts to support and encourage tips in order to effectively detect fraud," noted the report.

In addition to facilitating employee tips, the ACFE said that organizations should provide fraud-awareness training for employees and managers, the Society for Human Resource Management reported. At a minimum, these programs should include education of what actions constitute fraud, how fraud harms everyone in the organization and how to report suspicious activity. Management should not only encourage reporting but also adhere to a strong anti-retaliation policy.

Last year, the DOJ recouped nearly $3 billion in healthcare fraud recoveries under the False Claims Act for the first time in a single year, shattering previous records by more than $1.7 billion. (source)

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)

Tuesday, August 20, 2013

Lack of Controls Leads to School Frauds

by Gary Snyder

For two and a half years, Beverly Hodges, a former North Canyon High School (AZ) bookstore manager, embezzled $67,162 by taking cash from the bookstore cash register

Her methods may be instructive for all charity and school retailers.

· Throughout the school years, Hodges would hide her thefts by rekeying transactions into the cash register, then generating new, false cash-register tapes she used to prepare daily records — more than 300 falsified public documents in all

· Over the years she told bookstore staff to withhold $5,349 worth of cash receipts from the deposit, which she used to buy food and beverages for herself and the staff.

· Bookstore processed extracurricular tax-credit donations and handles transactions for fees for items such as parking permits, athletic programs, replacement student ID cards and tests.

· Hodges deposited more than $77,500 into her personal bank account, using the cash to pay for personal car and home-equity loans, retail purchases, groceries and restaurant meals.

· A former North Canyon principal and unidentified district officials, saying they “failed to exercise an appropriate level of oversight of Ms. Hodges’ activities. ... Moreover, district administrators allowed the NCHS bookstore to use an
outmoded cash-register system without ensuring that cash-handling, record keeping and depositing duties were appropriately separated and adequate controls were in place.”

· Even before Hodges’ criminal activity was suspected or discovered, all schools in the district except North Canyon had stopped using cash registers, The software for a new transaction system was in place (at North Canyon) but not operating properly, so Hodges continued to use the cash register

There was an overhaul. The district installed an updated student-payment system across its schools, allowing the district to monitor bookstore activity online. School principals received more training in cash-handling procedures.

Two district-level employees now oversee reconciliation between school cash receipts and accounting documents, and school bookstore workers and administrators discuss internal audit findings annually.

The superintendent and cabinet are reviewing the report, will discuss it in depth in the coming weeks and will adopt improvements beyond those already implemented as warranted.

Hodges pleaded guilty to one felony count related to theft. As part of the plea agreement with the Attorney General’s Office, Hodges agreed to pay $72,511 in restitution to the Paradise Valley district.

As if this was not enough, investigators found that Brian Dyer, a former North Canyon athletic director and math teacher, embezzled $10,578 by depositing school-related cash and checks into his personal bank account from December 2008 to May 2010.

For-profits and Nonprofits Share Audit Issues

by Gary Snyder

For-profit Accounting

In a recent study, auditors performed complete and correct audits amounted to only 5 percent of the 60 audits reviewed by the Public Company Accounting Oversight Board but it may still be a sign of progress. During the previous year — the first in which the board reviewed such audits — none of the 23 audits examined were found to be acceptable.

If this were baseball, the combined industry would be batting .036 for the two years combined.

The audit problems do not necessarily mean that many of the brokerage firms’ financial statements were wrong. Instead, they indicate that the auditing firms either had conflicts of interest that prevented them from doing an independent audit or that those audits failed to do the work needed to qualify as acceptable.

In most — 37 of the 60 audits reviewed in 2012 — the auditors failed to do enough work to assess the “risk of material misstatement due to fraud,” the board reported. In some cases, auditors made no effort to verify entire revenue streams received by the firms.

There were also a substantial number of audits with deficiencies in the review of related party transactions — including one case in which the board said the auditor had evidence that such a transaction had been accounted for incorrectly “to avoid an adverse effect on net capital.” Net capital rules, issued by the Securities and Exchange Commission, determine how much capital a brokerage firm needs to protect its customers.

In 22 of the audits, the audit firm was not independent of the brokerage firm, as required by audit rules. In some cases, the auditor had helped to prepare the financial statements and was therefore reviewing its own work.

Nonprofit Accounting

Silence: The Impending Threat to the Charitable Sector addresses similar problems with nonprofits.

Some accountants have intrinsic conflicts of interest in the nonprofit world as well. Giving advice can be only ten percent of the amount a consulting firm can make in its relationship with an organization. So rather than jeopardize the other consulting work, their recommendations can be distorted. They never want to jeopardize the relationship with the managers that hire them; so the paid compensation consultant’s studies, for example, usually result in higher salaries. In executive searches, when boards hire consultants, the consultants want to ingratiate themselves to the board which affects the executive hiring process often resulting in lavish pay. This shores up the board’s belief that it has chosen wisely in hiring executives. Being told to pay an executive lavishly confirms the board’s perspicacity in hiring that individual.

Accountants frequently have little knowledge about nonprofits and fewer have a thorough understanding of the IRS 990 Form and its current upgrades. Many leading auditors gave a clean bill of health to the United Way, the Alleghany Health, Education and Research Foundation, and the Baptist Foundation of Arizona shortly before their noteworthy collapses.

A 2008 report from the Association of Certified Fraud Examiners found that 48.8 percent of all nonprofit fraud cases tips came from employees, while external auditors found only 14.9 percent. Of the total fraud claims by engagement, 36% result from audit engagements, while 43% of the fraud claims result from review, compilation, tax and accounting service engagements.

It is a known fact that the committee structure is the foundation of good governance. The audit committee is certainly the essential component of the committees. With the revision of the IRS 990 Form, proactive steps are essential for transparency and accountability. While the finance committee is to monitor and provide guidance on the charity’s financial matters, the audit committee is responsible for providing the oversight over of the agency’s audit and other areas involving financial management. The audit committee serves a key role in helping the board full its fiduciary responsibilities. Some of those responsibilities may include:

· Oversee the hiring of the auditors, including communications with the auditors regarding the audit process, timing, issues, as well as the competence of the executive;

· Assess business and fraud risk for the organization and determine plans to address the risks;

· Monitor accounting practices;

· Monitor the internal control process;

· Establish policies to prevent fraud, including developing a whistleblower policy.

The ultimate goal for the audit committee is to ensure accurate financial reporting. Effective oversight rests with the board, in concert with the staff. Should they fail, they could be exposed to potential legal liabilities.

Nonprofit Imperative

Friday, August 30, 2013

Investigative Reporting on Charity Fraud At Its Finest

Wednesday, August 28, 2013

Three Charged With Defrauding Drug Charity Program Of $7 Million

Award-Winning Founder and Accountant Charged In $8 Million Fraud

Celebrities, Among Others, Cheated In $29 Million Charity Fraud

Another Charity Founder Caught In Fraud

Monday, August 26, 2013

Most Will Get Off In $300 Million Charity Fraud

Friday, August 23, 2013

Secrecy vs Transparency at Charities

Wednesday, August 21, 2013

Tips Outweigh All Others In Fraud Detection

Tuesday, August 20, 2013

Lack of Controls Leads to School Frauds

For-profits and Nonprofits Share Audit Issues

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