posted on: Tuesday, July 21, 2009

Gary Snyder

Much has been written about their weaknesses. I have chimed in with numerous articles about watchdog agencies in the for-profit and nonprofit sectors while trying to be balanced as to their strengths and weaknesses. I have stated unequivocally that there needs to be watchdog agencies, but current overseers need significant improvements in the guidance they provide to donors and investors for their decision-making.

After the recent economic implosion, the for-profit watchdog agencies are frequently cited as having contributed to the downslide. There have been efforts by the government and those in for-profit sector to replace the current big three watchdogs. But that effort was abandoned because the big three are so big that they fall into the category of ‘too big to fail’. Instead, several predictions now indicate that those three may have record profits for many years.

In my most recent article, I was quite critical of the watchdog agencies for the charitable sector. Ken Berger, President & Chief Executive Officer, Charity Navigator and I spoke for a protracted period of time about the contents of the article. He disabused me of some of my notions; he tempered my expectations while I shared with him some additional perceived weaknesses of all of the organizations that monitor philanthropy. I thought it was a thoughtful discussion and one that will continue as we meet at a conference later this year.

I shared with Ken my concern about one overseer that is trusted but is an apparent weak link in the arsenal of transparency and accountability. It is the silent partner that has not received much scrutiny-the accountant and auditor.

Over the past decade we have seen embarrassing headlines about for-profit scandals at Tyco, WorldCom, Enron, HealthSouth, Adelphia and many more and the complicit involvement of their accountants.

The situation in the charitable sector mirrors the for-profit problems. Few remember about a religious nonprofit, RBC
Ministries which raised more than $29 million without reporting any fund-raising expenses. Where were the auditors?

Or, the massive fraud in Roslyn, N.Y. where tens of millions of dollars were stolen along with half of the Long Island school districts. We know where the accounting/auditing firm was. It was not exercising professional care in conducting the audits and as soon as the indictments were announced, the accounting firm closed its doors similar to Arthur Anderson of Enron fame.

Another previously much touted but often forgotten scheme was at the New Era Philanthropy where a much-trusted person scammed 180 (mostly, charitable) organizations and 150 sophisticated money managers out of $400 million. It was only after a sophisticated college employee tore apart New Era’s bogusly constructed tax returns did anyone know of the swindle.

The nonprofit Baptist Foundation of Arizona is another example of lack of oversight by an accounting firm. Executives and legal counsel were found guilty of cheating 11,000 investors out of close to $590 million. The accounting firm Arthur Anderson settled for $217 million.

And more recently, the accounting profession did not tag three Ponzi-related operators that were close to the nonprofit sector in their giving. A close friend of Bernie Madoff, the recently convicted and notorious Ponzi operative, is disgraced financier J. Ezra Merkin. His accounting firm is being charged by New York Law School with using slight of hand techniques by not disclosing material matters such as where investments were made.

And an auditing firm seemingly missed the misdeeds of Thomas J. Petters a $3 billion Ponzi manager who is charged with pumping billions of dollars into a non-existent business that had no customers. Petters companies appear to have been operating without the most basic of business documents -- the certified financial statement or annual outside audit.

Madoff alone took billions of dollars out of over 100 foundations and charities, many from the Jewish community (to name a few: Hadassah, $90 million; Picower Foundation, $1 billion; Carl and Ruth Shapiro Foundation, $200 million; Chais Foundation, $175 million and Yeshiva University $100 million). Many suggest that Bernard Madoff's former outside accountant will undoubtedly plead guilty. Accounting experts say it would have been next to impossible for such a small firm to have properly audited Madoff's multibillion-dollar asset management business.

These are just a few of the more prominent (in terms of dollars) accounting oversights that have blemished philanthropy. The quiet accounting watchdogs are lurking in the background losing credibility for their own profession as well as the entire charitable sector.

We are all concerned about the charity brand image. Charity Navigator and others have a steep climb in resetting their criteria to better evaluate charities. I leave it to the charity watchdogs if they should address the veracity of their accounting/audit watchdog partner in their deliberations. Someone should. It is frequently overlooked and extremely important to the sustainability of the charitable sector.



Gary Snyder, the managing director of Nonprofit Imperative in West Bloomfield, Mich., is author of Nonprofits On the Brink and publisher of a monthly e-newsletter—Nonprofit Imperative, which focuses on the major issues affecting the philanthropic community. He can be reached at gary.r.snyder@gmail.com or at 248.324.3700.

posted on: Monday, June 29, 2009

By Yna C. Moore

Bernard Madoff received a 150-year sentence from a federal court in New York today. He was given the maximum sentence, but for many individuals and organizations that have lost an estimated of more than $13 billion to his Ponzi scheme, this brings little consolation.

Among Madoff’s victims were nearly 150 foundations, 105 of which lost between 30 to 100 percent of their assets to Madoff. What can other foundations learn from their mistakes and hopefully avoid being scammed by the next slick operator?

In today’s The Huffington Post, Aaron Dorfman summarizes the findings of Learning from Madoff: Lessons for Foundation Boards. He noted that more than 80 percent of those foundations that showed poor judgment by investing heavily on Madoff had four or fewer individuals serving on their boards. There was also a marked homogeneity among the trustees.

The results of the study puts into question the ability of these small, homogenous groups to make the best decisions for their organizations.

According to Aaron and the study, foundations need to have at least five trustees with a diversity of perspectives to serve on the board. In addition, trustees must implement and maintain conflict of interest and investment policies, and disclose demographic information of the institution’s board and staff.

Were you surprised about the findings regarding board size and diversity among the foundations victimized by Madoff? What do you think about the recommendation to have a minimum of at least five individuals serving on a foundation’s board?

Yna C. Moore is communications director at the National Committee for Responsive Philanthropy.

posted on: Friday, April 24, 2009

By Gary Snyder

Americans are being bombarded with bad financial news. Some of it because of bad decision-making on their own or someone else's part. They hopefully will raise their ire on the current assault of the charitable sector and religious organizations, by Ponzi perpetrators and others.

I wrote an article a couple of months ago that touched on this matter. Now there has been a flurry of such schemes. I touched on Bernard Madoff’s alleged $50 billion Ponzi scheme targeted his fellow Jews and Minnesotan Tom Petters who took $3.5 billion from his fellow evangelical Christian parishioners who were pastors, church groups and nonprofits

Now there is Clelia A. Flores who operated a $23 million investment scheme targeted at California’s Hispanic-American community. She solicited investors through word of mouth at churches and others places throughout the Hispanic- American community.

Terence Mayfield defrauded his fellow congregants at the Tom’s River (NJ) The Church of Grace and Peace of more than $1 million through two Ponzi schemes real estate investment schemes.

Northern Californians Anthony Vassallo and Kenneth Kenitzer orchestrated $40 million investment fraud many of whom he met through Vassallo’s church in this classic Ponzi scheme.

Targeting members of the Chinese-American community in Dallas and in California, Weizhan Tang, a Canadian, defrauded investors of up to $75 million with his and his partner’s Ponzi scheme.

Dennis Bolze of Gatlinburg who operated a commodity pool in a manner akin to a Ponzi scheme took in between $20 million and $21 million from about 100 investors, nearly half of whom live in Europe or other places outside the U.S. and some of whom were Foundations.

Paul Greenwood, 61, and Stephen Walsh, 64 who ran WG Trading Company LP and Westridge Capital management Inc. of Connecticut and California left little of the nearly billion dollars that were invested by mostly of charitable and university foundations, and retirement and pension plans. The University of Pittsburgh and Carnegie Mellon University, have sued the defendants seeking to recoup the $114 million they invested in the funds.

The effects of just the Madoff debacle probably wiped out a generation of Jewish wealth and philanthropy. The consequence to grant makers and others in both the Jewish and secular communities amounted to hundreds of millions of dollars of much needed services.

The epidemic of Ponzi schemes and other ruses seem to just be hitting the radar screen of the U.S. Securities and Exchange Commission, the Commodity Futures Trading Commission, the Justice Department and the FBI. With substantial sentencing for the abusers, we may be able to head off this seemingly massive outbreak.



Gary R. Snyder is the author of Nonprofits: On the Brink. He is a frequent lecturer and author of articles in numerous publications and blogs. His email is gary.r.snyder@gmail.com; website: www.garyrsnyder.com, phone: 248.324.3700.