posted on: Tuesday, November 06, 2007

Virtually everyone has seen the financial and trust problems facing the charitable sector explode because of the leap in malfeasance. Some say that number represents 6% of all transgressions. Estimates in 2006 have pegged nonprofit fraud as high as $18- $40 billion each year. Last year, Nonprofit Imperative has documented, solely from public sources, more that a billion dollars in misdeeds.

For years we have been comforted to know that our prosecutorial system would weed out the bad apples. But the tide is turning in favor of the crooks and with more frequency they are turned out on the street with little more that a slap on the wrist. There are several reasons for lack of strict enforcement.

The current situation in a Michigan county is quite common. In August, 2007, the chief judge of the circuit court ordered sentence reductions for 266 prisoners at the county jail to alleviate chronic overcrowding. The day the order was issued, 45 percent of the inmates were released. Since August 2005, more than 1,800 inmates have been released.

The overcrowding and other issues have other consequences. We are seeing prosecutors suggesting lighter sentences. In California, a judge disregarded a probation recommendation from prosecutors and imposed a jail term on a woman who embezzled $110,000 from the Red Cross while working as a financial manager. That is a rare occurrence. On the other hand, the head of the Juvenile Diabetes Research Foundation in Southfield Michigan pleaded guilty to stealing $250,000 and got no jail time.

At Santa Clara County's Goodwill Industries the executive was accused of playing a lead role in a conspiracy to embezzle as much as $20 million from Goodwill during his 17-year tenure as local president. Weekly bundles of $3,000 in skimmed cash were given to him. The executive was specifically accused in that indictment of diverting at least $800,000 himself to overseas bank accounts. He is to merely pay restitution, not serve any prison time

Prison or jail sentences are apparently going to become rarer. Because of an inability to fill senior positions at the Department of Justice and because of a budget squeeze at the U.S. Attorney” offices, there has been declines in crime prosecutions and delays in major investigations. Prosecutions are down in white collar offenses such as charitable embezzlement. In a two year period, 2004-2006, the number of prosecutors fell 2.4% and continues falling to this day. Prosecutors have had to raise thresholds for prosecution which means more money can be stolen before it reaches the radar for investigation.

For decades, the nonprofit sector has maintained a well-deserved imagine that has endeared it to the general public. The basis of that relationship has been trust. Trust is a precious resource. As recent studies have shown, the public’s trust in charities has plummeted. Even though those nonprofits involved in malfeasance are small it is growing exponentially-the amount of dollars involved is huge. With the sector’s trust breaking down, all nonprofits begin to look suspicious.

Relaxing sentences is not a good start.

Gary Snyder is the author of Nonprofits: On the Brink and articles in numerous publications. His website: www.garyrsnyder.com. He can be reached at 248.324.3700