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

Approval of Journal Entries (avoiding management letter comments, part 6)

One part of a good system of internal controls is having all general journal entries reviewed.  This is also a key part of the segregation of duties in that someone other than the person making the journal entry reviews it.  This review is done to help prevent errors such as adjusting the wrong accounts and transposing numbers.  It also helps protect against fraud by making sure there is a valid reason for the journal entry and someone is not just increasing revenue to make the organization appear better.

Depending on the size of the organization, it can be difficult to determine who should be reviewing the journal entries.  If there are two or more people in the accounting department, one person can be the reviewer while the other person makes the entries.  If there is only one person in the accounting department, then it is necessary to go outside the department to get the journal entries reviewed.  This can be done by have the president or executive director be involved.  A Board member is also a good person to have review the journal entries.

There are also different ways to review the journal entries.  At some organizations each journal entry is reviewed prior to posting.  Other organizations review the entries on a weekly or monthly basis after they are posted.  One of the important things to remember is to document the review and approval.  The simplest way to do this is to print out the journal entries and have the reviewer initial them.  This should then be saved as support.

This is part 6 of a continuing series on common management letter comments.  Click here to read part 1, part 2, part 3, part 4, and part 5.

#nonprofit #nonprofitaccounting #fraud #internalcontrols

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

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

Maryland Couple Indicted for $1M Fraud Against USAID

The Washington Business Journal is reporting that two people from Prince George’s County, Maryland were indicted in district court last week with 21 counts of fraud against the US Agency for International Development (USAID) under its Analysis and Information Management (AIM) contract. The charges include money laundering, program and identity theft and fraudulently submitting bogus invoices for more than $1 million from 2005 to 2010 for work that was never performed.

One of the accused parties was working as the Deputy Director and Project Manager of the AIM contract at the time.

How did he allegedly do it? The accusations claim he used other people’s identities without their knowledge, forged signatures on purchase orders, and colluded with others to submit and pay invoices of a fake company. The couple have entered not guilty pleas.

Remember! When it comes to fraud, people in positions of authority can frequently cause the biggest damage if they abuse their position. Generally speaking, the higher up the person is, the greater the potential level of damage. Keep this in mind when planning internal controls and make sure everyone has checks and balances, regardless of position.

Source: Washington Business Journal

#fraud #collusion #USAID

UMUC President’s Resignation and a Complaint of “Shameless Sycophants”

University of Maryland University College President, Susan Aldridge, went on “indefinite leave” in February for reasons that were undisclosed. After a month of being placed on leave, Aldridge announced her formal resignation, effective March 31, ending a six year tenure at the nonprofit college. No official statement has been made, however, Daniel de Vise at the Washington Post got his hands on a complaint filed with a Maryland auditor that has some rather scandalous accusations. It was filed under the condition that the author would remain anonymous, which seems smart considering that the document is 91 pages and builds a case of alleged buy-offs of terminated staff with large amounts of possible federal money going towards ensuring the silence of the fired party. A compounding issue is that UMUC has large contracts with the Dept. of Defense.

The complaint poetically states “President Aldridge has surrounded herself with a cadre of shameless sycophants who are willing to terminate anyone who won’t play along….given the number of people that have been forced out, this sum must be in the hundreds of thousands to millions of dollars by now.”  The alleged scheme involved keeping terminated employees on the payroll until their buy-out was complete.

Not playing along includes the infractions of questioning the merits of an exam, trying to uphold high academic standards, and in one case alleged sexual harassment. The complaint states that this was a way of creating a “watered down” academic program that could push more students through in less time, with less cost.

Having terminated employees on active payroll is bad in any context but super bad if you have a contract with the Dept. of Defense. The estimate in the complaint of hundreds of thousands to millions of dollars, if proved out, would have to be paid back plus interest and penalties if any of it was on D.O.D.’s dime. Beyond that, perpetrating a massive fraud scheme is generally one way to ensure you don’t get any more federal funding.

#fraud #aldridge #nonprofit #don’tdothis

source: Daniel de Vise blog