By Gary
Snyder
There is much interest in the charitable sector with its hundreds of billions of
dollars in contributions, trillions of dollars in assets and, most recently, the exposure
of an astounding amount of theft. Numerous studies have noted that between
$41-50 billion has ended up in the pockets of those to which it was not intended.
For a multitude
of reasons over the past two decades, we have seen substantial increase in
malfeasance in the nonprofit sector. Instances range from the Baptist
Foundation in Arizona indictment of $550 million obtained by fraud eight years
ago to $100 million theft at the bogus U.S. Navy Veterans Association recently to
thousands at parent-teachers associations to hundreds of thousands of dollars
stolen on a daily basis at small and medium charities.
There are common characteristics,
in no order, that are enveloping the charitable sector to assure that donations
do not benefit the anticipated beneficiary.
·
Billions are taken in fundraising
efforts with agencies only receiving as little as 5% of the money raised.
o A recent example: In just one state tens of millions of dollars are taken by cancer
solicitors. Fewer than 50% of the Charity Navigator breast cancer
charities have rated high for their commitment to accountability and transparency
• Most nonprofits are required by law to file financial statements each year at the state and federal levels. In
my experience, the information is not timely, is incomplete or incorrect either
intentionally or by accident. Incidents of fraud are often omitted or incomplete. Because
these documents are available for public inspection and frequently used in the
decision-making by donors, they are less than transparent. Salaries are
frequently understated. Fundraising expenses are often a guess. Related party
disclosures are very rarely cited.
o A recent example: a thousand examples in the Washington Post article amounting to hundreds of millions of
dollars of charity theft;
• The board is often kept in the dark. Most boards are disinterested and disengaged. Many believe that
intentional deception of donors and board members is a common occurrence. In
virtually all instances, the board has had the opportunity to inquire as to
malfeasance but has not done so. Why? There are no consequences. Seldom is the
board held accountable for its lack of fiduciary duty. Many board members are
not full engaged in oversight. Another reason is that the bond between the
board and the executive is strong, based on misplaced trust.
o A recent example: Two Western Pennsylvania nonprofit
boards are under the PA. Attorney General's scrutiny for mismanagement of
millions of dollars.
• In some instances, the auditors have not done their due diligence.
Frequently, problems are dismissed by auditors to retain a client. Few
auditors have employed sound fraud-detection audit procedures. An auditor cannot
rely too heavily upon management assurances.
o Two examples: In two instances, the auditor for Baptist settled for
$217 million and the auditor for Roslyn NY schools, upon being charged, closed
his doors.
• The federal law, Sarbanes-Oxley, applies solely to for-profit corporations,
but many charitable organizations have instituted whistleblower policies as well as other
accountability measures. Few have provisions for an employee to complain
directly to anyone other than an insider. In some cases when
instituting S-O, the implementation of policies have worked. Tips from insiders on financial
misdeeds far outpace audits exposures. Sorrowfully, mere adoption of written
policies and practices, however, does not mean they are being used. In most
cases, employees are intimidated or bribed by superiors and therefore no one-steps
up communicate any malfeasance.
• A recent example: The District of Columbia tax office employees were
showered by their supervisor with expensive gifts and remained quiet in a $48
million scheme that lasted decades.
• Internal controls are frequently
lacking in most nonprofits. For those with such controls, implementation is
compromised for the sake of convenience, but seldom triggered.
o An example: The Central Prince George County Community Development
Corporation was forced to revise its internal controls when a board member
embezzled $500,000.
• There is the need to further delineate the roles of managers and governors or trustees. An unbiased set of
eyes from the board on financial matters is critical. Many times this is
overlooked in favor of deferring to the competence, in the world of details, of
the executive and his/her role as chief operations officer. This is a recipe
for disaster.
o A example: The Virginia Farm Bureau found out after it waited 10
years and $2 million before an audit caught an inside attorney
embezzling.
Unregulated charities and all that money has, in fact, spoiled the sector. Most
of us want more vigilance with nonprofit leaders acting more responsibly. This
will strengthen the charitable sector to make it compliant and vibrant.
Nonprofit Imperative gathers its information principally from public documents...some of which are directly quoted. Virtually all cited are in some phase of criminal proceedings; some have not been charged, however.
Cites in various media:
Featured in print, broadcast, and online media outlets, including: Charity Navigator, Vermont Public Radio, Miami Herald, National Public Radio (NPR), Huffington Post, The Sun News, Atlanta Journal Constitution, Wall Street Journal (Profile, News and Photos), “Betrayal”, (a movie), NBC (on Charity Fraud…TBD), FOX2, ABC Spotlight on the News, WWJ Radio, Marie Claire, Ethics World, Aspen Philanthropy Newsletter, Harvard Business Review, Current Affairs, Charity Navigator, The Chronicle of Philanthropy, St. Petersburg Times, Board Room Insider, USA Today Topics, Accountants News, Newsweek.com, Responsive Philanthropy Magazine, New York Times, Portfolio Magazine, The Virgin Islands Daily News, NANKAI (China) BUSINESS REVIEW, National Religious Broadcasters newsletter, The Charity Governance Blog, American Chronicle, Palm Beach Post, Detroit Free Press, Oakland Press, Nonprofit World, Socially Responsible Business Forum, PNNOnline, Ohio Nonprofit Resources, Nonprofit Good Practice Guide, Nonprofit Startup Guide, Nonprofit Blog, National Coalition of Homeless Newsletter, Finance and Administration Roundtable Newsletter, MichiganNonprofit.com, CORP! Magazine, Crain’s Michigan Nonprofit, ncrp.org, PhilanTopic, Nashville Free Press, Nonprofit Law Blog, Seniors World Chronicle, Carnegie Reporter, Assoc. of Certified Fraud Examiners Examiner, msnbc.com, Worchester (MA) Telegram and Gazette, Carnegie Corporation of America, EO Tax Journal, Wikipedia: Non-profit Organizations; Parent: Wise Austin, Accountants News, Veterans Today, Answers.com, Far-roundtable, #Nonprofit Report, nonprofithelpnews, nonprofit news; National Enquirer, Northwest Herald, The HelpWise Daily, The #Nonprofit Report, Wikipedia (Nonprofit Organization), Answers.com,
Nonprofits: On the Brink (2006)
Silence: The Impending Threat to the Charitable Sector (2011)
Posts
