Man Admits to Embezzling $1.1Mil from Atlanta Non-profit

Ralph Clark was the Director of Facilities at the Woodruff Arts Center in Atlanta, GA, comprised of the Atlanta Symphony Orchestra, Alliance Theatre,  High Museum of Art, and Young Audiences. He plead guilty to charges of embezzling over $1.1 million from the organization over approximately 8 years.

A few different schemes were in place. As part of his leadership position, he was allowed to authorize any vendor contracts up to $50,000.  He arranged for kickbacks  from vendors that totaled $168,000. He signed off on $780,000 worth of invoices for services that were not performed by his wife’s cleaning company. He billed $41,000 for services supposedly performed by students and $153,000 for services supposedly performed by himself after hours. It is unlikely much of any of that will get repaid.

According to the Atlanta Journal-Constitution, “some observers in the city questioned [the organization's] management oversight.”

Read more about the case here.

Financial Integrity and Accountability for Faith-Based Nonprofits

Allegations of fraud or financial mismanagement of religious organizations has cast a pall on the vast majority of faith-based nonprofits operating with integrity and accountability. However, by working together to adhere to best practices, the nonprofit community can have a positive impact on public perception. Most importantly, a commitment to compliance and self-regulation will help you achieve your mission and attract donors.

Senator Charles Grassley asked ECFA to lead an effort to provide input on key policy issues related to financial accountability in the religious nonprofit sector. ECFA, in response, formed the Commission on Accountability and Policy for Religious Organizations to offer suggestions on how we can work together to improve accountability and preserve the great work that is being done each day.

Join Aronson LLC nonprofit expert Rob Eby, CPA on February 28th for a webinar discussion on these important topics:

• The Commission’s Findings
• Self-Regulation
• Donor Engagement
• Administration of the Law

Register today to reserve your spot at this free and convenient online presentation!

REGISTER HERE

Former President of Veteran Charity Paid $2.3 Mil Salary – Deemed Excessive

California officials are taking aggressive action against Help Hospitalized Veterans, a nonprofit whose stated mission is to bring arts and craft kits to patients in VA hospitals. The State Attorney General’s office filed a civil lawsuit Thursday that demands the removal of the president and entire board of directors and asks for more than $4 Mil in reparation due to alleged misrepresentations and misspending.

CNN reports that nearly two-thirds of the charity’s revenue went to overhead and excessive officer compensation with perks such as golf club memberships and D.C. area condos. The complaint also alleges that funds were unlawfully diverted to start another nonprofit with a mission unrelated to veteran support.

It isn’t the first time Help Hospitalized Veterans has been in the news. In 2008, the House Committee on Oversight and Investigations discovered the nonprofit’s former president, Roger Chapin, purchased a condo with donated funds and received $1.96 million in pension payments.

The new lawsuit alleges Chapin was paid out in excess of $2.3 Mil from 2002 to 2009 and that the current president, Michael Lynch, has been paid more than $900K, more than a third of which was just in 2010.

The charity received more than $31 Mil in donations in 2010. The value of the kits it distributed was reported as approximately $8 Mil.

Unfortunately, this is starting to be a recurring theme in veteran support related charities. In June, the Disabled Veteran’s National Foundation was being investigated by the Senate Finance Committee on similar allegations. It’s clear the American people want to contribute support, it’s also clear that certain groups will take advantage of that.

Source: CNN

Exec Director of 21 Years Files Plea Agreement for $1.35Mil in Embezzlement Case

Thomas Nelson was, until recently, the Executive Director of a York County, Maine nonprofit that provides services to low-income residents. It was a position he held for 21 years. He’s now awaiting sentencing after copping a plea arrangement in federal court, agreeing to pay restitution of $1.2Mil to the nonprofit and $150,000 to the IRS for tax evasion. He stands to receive up to 10 years for embezzlement, 5 years for conspiracy, 5 years for tax evasion, and 3 years for signing false tax returns.

How’d he do it? He arranged over-payments to a consulting company that gave him kickbacks and he also diverted money to a defunct nonprofit where he had served as treasurer. He used the money to pay his mortgage and cover gambling debts. There was only one invoice from the consulting company over the time of the collusion but it was for $8,700, not the $413,000 they were paid.

He claimed he avoided diverting federal money because he knew government funds are subjected to greater scrutiny.

The board has been reviewing its financial oversight practices and is “very disappointed.”

#smh

Read more about it in the Portland Press Herald

China claims charitable giving decline due to no major disasters in 2011

Charitable giving suffered a steep decline in China, according to the Ministry of Civil Affairs’ annual report released last week. The reasoning? “No major disasters happened in 2011,” according to the head information office of the China Charity and Donation Information Center, oh and some recent scandals and maybe some lack of transparency had some impact as well seems to be mumbled as an aside. “In China, people’s willingness to give is disaster driven”, a Beijing-based university professor speculated to the state-run news outlet, China Daily.

It’s an interesting statement considering the year included the tsunami in Japan, horrible droughts in East Africa and floods in Thailand. Even just in mainland China, the Ministry reported over 2 million people were evacuated in the first half of the year due to earthquakes, droughts, floods, and snow. I’m thinking the scandals and lack of transparency may have a bit more to do with that drop in charitable giving.

To be fair, while the state may be encouraging the ‘no disaster’ explanation, it was government auditors that first exposed problems at the state-run China Red Cross, the country’s largest nonprofit,  resulting in scandal, metaphorical heads rolling, and accusations of overspending and corruption.

Source: China Daily, China Times, and Chronicle of Philanthropy

Update: FBI Now Involved in Fiscal Sponsor Scam

The FBI and the state attorney general’s office have gotten involved in the investigation of the International Humanities Center, which closed its doors after  three years of IRS scrutiny. IHC was a California-based 501(c)(3) organization that functioned as an umbrella structure and fiscal sponsor for over 200 nonprofits but it now appears it may have all been a Ponzi scam.  IHC closed its doors suddenly in January, with little explanation and almost $1 million unaccounted for. That figure is with only 49 groups reporting and may go higher as other groups come forward. Many of the groups have been completely crippled by the loss of their donations and donors’ reluctance to give once the news hit about the missing funds.

Source: LA Times

CEO Expenses and the Board

An Op-ed piece by Michael Peregrine at the Chronicle of Philanthropy provides a good reminder about why it is so important to pay attention to CEO expense account spending. The head of the foundation of the University of Texas Southwestern Medical Center, Dr. Wildenthal, is stepping down after an internal investigation concluded inappropriate spending including mingled business and personal purchases.

Dr. Wildenthal led the foundation for 22 years before tips reporting lavish international travel, fine wines and other extravagances spurred an internal investigation. Peregrine states “the entirety of the report leaves an impression – fairly or unfairly – of a respected executive who developed a sense of ‘entitlement‘ based on a record of extraordinary accomplishment.” He notes this created an atmosphere of excessive deferential attitudes to Dr. Wildenthal’s judgment in spending.

There’s only so much an auditor can do if we take issue with the exact nature of spending, in terms of whether this is really best way to meet your program or fundraising objective. We can bring it to the board’s attention but if the board isn’t willing to question it themselves or has bought into an executive’s reasoning for spending, all we can really do is repeatedly point at it. An audit opinion speaks to whether the numbers are free from material misstatement. This does include whether program spending was actually spent on the program (as opposed to personal spa days), but we don’t and can’t actually opine on whether the spending was particularly wise or frugal.

The board bears fiduciary responsibility to monitor spending and make sure there is sound judgment involved. When it comes to nonprofit organizational structures, the board is the highest authority and should not defer to an executive when it comes to questionable expenditures.

Read more of Peregrine’s piece here.

Update: DC Ex-Councilman Sentenced to 38 Months for Stealing from Nonprofits

D.C. Ex-Councilman, Harry Thomas Jr. got a smackdown in district court last Thursday in the sentencing hearing, after pleading guilty in January to embezzlement of over $350,000  and filing false tax returns. The funds were originally intended for use by the D.C. Children and Youth Investment Trust. Thomas is now looking at 38 months in federal prison.

Assistant U.S. Attorney Jonathan Haray called it, “the most egregious actions of public corruption ever proved against a member of the D.C. Council.” Let’s remember that this is a council that includes Marion Barry.

Prosecutors pointed to the luxury vehicles and expensive wardrobe, some of which were directly traceable to the embezzled funds, when asking for a four year sentence. The Defense pushed for 18 months. Both sides are in agreement that Thomas will have to pay restitution of $353,500 and forfeit the Victory motorcycle and Chevy Tahoe. In consideration is an additional $92,500 related to funds diverted from a city drug program used instead for the 2009 presidential inaugural ball.

Source: The Washington Post

#dccouncil #harrythomasjr #fraud #nonprofit

Fall-out Over Foundation Impropriety

There’s a lot of finger-pointing and passing the fiduciary buck going on at the Los Angeles Trade Technical College these days and heads are rolling. The executive director of the Trade Tech foundation, Rhea Chung, is being investigated on claims of lavish spending, excessive bonuses, and allegations of forged signatures on checks. The improper spending came to light during a state audit.

File this under Do Not Do This: Included in the questionable spending are items such as: $1,500 monthly car allowance, $22,000 performance bonus, $2,000 monthly pay for running the youth orchestra, tens of thousands of dollars on golf outings and daily restaurant meals averaging $150 a day.

Here goes the finger pointing: Ms. Chung claims all her expenses were approved by the President of Trade Tech, Chip Chapdelaine. Chapdelaine claims no knowledge. Faculty claim they brought the questionable spending to Chapdelaine’s attention and that he ignored it. Chapdelaine stated he never had fiduciary responsibility over Chung, that it was the chair of the board, Darryl Holter’s responsibility. Holter claims Chung reported to Chapdelaine, not to the board. Holter is also under fire for potential conflict of interest and claims personal vendettas are causing all these problems. Faculty of the college and the state education code agree that as President, Chapdelaine bore responsibility to ensure the foundation’s finances were appropriate.

Here goes the head-rolling: Chung is on administrative leave pending further investigation. Chapdelaine removed Holter as chair of the board and Holter, along with another board member resigned. The faculty governing body at the College issued a no-confidence vote yesterday, calling on Chapdelaine to resign. Chapdelaine is declining to comment.

What to learn from this: Don’t make assumptions someone else is responsible or looking. When it comes to public funding, everyone involved owes some fiduciary responsibility but absolutely no one at the top can shirk that responsibility. Review current financial reports regularly. Ask questions about odd spending and follow up – especially if someone else seems to be ignoring it. If you aren’t sure of the chain of command – it needs to be in the by-laws.

Source: L.A. Times

#LATradeTech #fraud #fiduciary #Chapdelaine

D.C. Fraud and the ex-Councilman

Former Councilman Harry Thomas Jr. pleaded guilty in January of taking more than $350,000 in kickbacks and related tax evasion. Those funds were intended to help D.C. youth in Ward 5, northeast D.C. His method was through fundraising and non-existent events for his charity group Team Thomas. Thomas asked D.C. Children and Youth Investment Trust Corp to provide over $450K in grants for which no services were rendered but false documents and reports were submitted.

No allegations have been made against D.C. Children and Youth Investment Trust Corp. but the situation is in the news again, cited as an example of lack of oversight of D.C. agencies. The D.C. Council Committee on Government Operations lacks the authority to enforce any correction of problems found by its inspectors and auditors although they do conduct follow-ups on recommendations made.

A fellow Council member, Tommy Wells, spoke out that disbanding D.C. Children and Youth Investment Trust Corp. would be losing a valuable D.C. institution. His suggestion is that a leadership change is in order with mayoral oversight of future appointees to the board. The political pressure on the board is going to be intense and constant and having stringent reporting and competitive bidding  requirements as well as increased oversight is called for in order for the organization to function responsibly.

Thomas’s sentencing will take place in May.

Read more about the case here, Councilman Well’s statement here and oversight here.