Making Tough Decisions Defines Leaders
posted on: Tuesday, September 15, 2009
Gary Snyder
As the confidence in the charitable sector sinks, where are its leaders with lifeboats? Are the leaders indifferent or just out of synch? Who is going to lead us out of this precarious path of mistrust and disengagement?
There is no silver bullet to guide us out of the quagmire that philanthropy faces. However, all roads lead to the need for change. Our donors don’t trust us, the regulators don’t believe us, and our stakeholders doubt we are delivering the goods. All believe that beneficence, forethought, and self-discipline of our forefathers have gone by the wayside. The sector must take a hard turn and reflect on the way it is conducting its business.
Some believe that the entrenched incumbency has become a major obstacle to a better course. We have seen several examples of a head-in-sand mentality.
We saw one example of it when the National Committee for Responsive Philanthropy (NCRP) report, “Philanthropy at Its Best,” suggesting, yes suggesting, that the sector look at another approach to grant makers. No mandates, just consideration. Those with deep-rooted aversion to change obviously saw it as a threat and started to attack. The attacks came from those seeking to maintain the status quo, one of which was the Wall Street Journal, whose opinion was published without even seeing the final recommendations.
Gara LaMarche of Atlantic Philanthropies noted that the NCRP suggestions were merely aspirational and nothing more. It was intended to be a basis for discussions, but some apparently thought that it was an assault on their privileged positions.
Whether or not if you liked their positions, one must respect those that at least defended their positions. Some leaders didn’t even comment on the NCRP document. Being silent must have been a surprise to many of the 120 funders that backed the NCRP principles and supported the leaders organizations.
Sitting on the sidelines on critical issues is no way to direct the sector’s destiny. Such denial has led to excesses in government intervention as well as abuse.
We have seen this silence in the past and at the expense of a large part of the charitable sector. In negotiations with the Senate Finance Committee, charity representatives quietly rolled over and asked for vigorous oversight and increased resources for oversight and education “for the many nonprofits that have no idea that there are a set of expectations.” This was done without ever taking the lead and addressing the problems themselves.
Many small and medium agencies, as a consequence, which were not represented at the table, have been subjected to government fiats. They believe that the standard-bearers’ priorities do not comport with the calling of good leadership. Many think that keeping their jobs seemed to be more important than finding tough solutions.
This lack of action is in stark contrast to the Council on Foundations approach. When it was challenged as philanthropic resources were down 40%, the Council of Foundations didn’t duck the problem and became proactive. That activist approach should be at the top of any leader’s job description.
Moreover, nonprofit leaders failed to take a position on President Obama’s proposal to limit charitable deductions…a most important piece of legislation facing the charitable sector. It failed to do so because it was “Solomon’s choice” between benefits to charities or healthcare.
Another essential trait of leaders is to have the courage to call things as they truly are, with no sugarcoating. Unfortunately, despite all evidence to the contrary, philanthropic leaders seem to believe that the annual multi-billion dollar nonprofit fraud is limited to ‘a few bad apples.” That position contradicts all other indicators in which nonprofit fraud, as a percentage, exceeds that of the for-profit and government sectors by considerable measure. Such dismissive mischaracterizations do not serve the sector well.
Nonprofit fraud is one matter that has failed to be adequately addressed. As a result, many believe that trust indicators in the sector are moving in the wrong direction. Some blame the decline in contributions and confidence on the economy. That is too easy. The trend line was established at the height of the economy.
Many believe that the sector would be stronger had it been more proactive. All of the aforementioned point to the need of charity leaders to critically look at the need for change. Reform may make a real difference, but the change metric must be first acknowledged; then addressed. Doing nothing will not stop the smoldering of the charitable sectors fate. Leaders must be sensitive and attentive to the needs that they serve. With outside pressures and new realities mounting, the current status quo, wait-and see leadership is unacceptable.
So, who is going to step up and take the mantle?
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 http://gary.r.snyder@gmail.com; website: www.garyrsnyder.com, phone: 248.324.3700. He is a member of the board of the National Committee for Responsive Philanthropy.Labels: accountability, Council on Foundations, Leadership, nonprofit fraud, Philanthropy at Its Best, senate finance committee
As the confidence in the charitable sector sinks, where are its leaders with lifeboats? Are the leaders indifferent or just out of synch? Who is going to lead us out of this precarious path of mistrust and disengagement?
There is no silver bullet to guide us out of the quagmire that philanthropy faces. However, all roads lead to the need for change. Our donors don’t trust us, the regulators don’t believe us, and our stakeholders doubt we are delivering the goods. All believe that beneficence, forethought, and self-discipline of our forefathers have gone by the wayside. The sector must take a hard turn and reflect on the way it is conducting its business.
Some believe that the entrenched incumbency has become a major obstacle to a better course. We have seen several examples of a head-in-sand mentality.
We saw one example of it when the National Committee for Responsive Philanthropy (NCRP) report, “Philanthropy at Its Best,” suggesting, yes suggesting, that the sector look at another approach to grant makers. No mandates, just consideration. Those with deep-rooted aversion to change obviously saw it as a threat and started to attack. The attacks came from those seeking to maintain the status quo, one of which was the Wall Street Journal, whose opinion was published without even seeing the final recommendations.
Gara LaMarche of Atlantic Philanthropies noted that the NCRP suggestions were merely aspirational and nothing more. It was intended to be a basis for discussions, but some apparently thought that it was an assault on their privileged positions.
Whether or not if you liked their positions, one must respect those that at least defended their positions. Some leaders didn’t even comment on the NCRP document. Being silent must have been a surprise to many of the 120 funders that backed the NCRP principles and supported the leaders organizations.
Sitting on the sidelines on critical issues is no way to direct the sector’s destiny. Such denial has led to excesses in government intervention as well as abuse.
We have seen this silence in the past and at the expense of a large part of the charitable sector. In negotiations with the Senate Finance Committee, charity representatives quietly rolled over and asked for vigorous oversight and increased resources for oversight and education “for the many nonprofits that have no idea that there are a set of expectations.” This was done without ever taking the lead and addressing the problems themselves.
Many small and medium agencies, as a consequence, which were not represented at the table, have been subjected to government fiats. They believe that the standard-bearers’ priorities do not comport with the calling of good leadership. Many think that keeping their jobs seemed to be more important than finding tough solutions.
This lack of action is in stark contrast to the Council on Foundations approach. When it was challenged as philanthropic resources were down 40%, the Council of Foundations didn’t duck the problem and became proactive. That activist approach should be at the top of any leader’s job description.
Moreover, nonprofit leaders failed to take a position on President Obama’s proposal to limit charitable deductions…a most important piece of legislation facing the charitable sector. It failed to do so because it was “Solomon’s choice” between benefits to charities or healthcare.
Another essential trait of leaders is to have the courage to call things as they truly are, with no sugarcoating. Unfortunately, despite all evidence to the contrary, philanthropic leaders seem to believe that the annual multi-billion dollar nonprofit fraud is limited to ‘a few bad apples.” That position contradicts all other indicators in which nonprofit fraud, as a percentage, exceeds that of the for-profit and government sectors by considerable measure. Such dismissive mischaracterizations do not serve the sector well.
Nonprofit fraud is one matter that has failed to be adequately addressed. As a result, many believe that trust indicators in the sector are moving in the wrong direction. Some blame the decline in contributions and confidence on the economy. That is too easy. The trend line was established at the height of the economy.
Many believe that the sector would be stronger had it been more proactive. All of the aforementioned point to the need of charity leaders to critically look at the need for change. Reform may make a real difference, but the change metric must be first acknowledged; then addressed. Doing nothing will not stop the smoldering of the charitable sectors fate. Leaders must be sensitive and attentive to the needs that they serve. With outside pressures and new realities mounting, the current status quo, wait-and see leadership is unacceptable.
So, who is going to step up and take the mantle?
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 http://gary.r.snyder@gmail.com; website: www.garyrsnyder.com, phone: 248.324.3700. He is a member of the board of the National Committee for Responsive Philanthropy.
Labels: accountability, Council on Foundations, Leadership, nonprofit fraud, Philanthropy at Its Best, senate finance committee
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2:50 PM
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Coddling the Nonprofit Criminals
posted on: Monday, August 31, 2009
Gary Snyder
She is a married mother of three and looks just like your sister, but she has done irreparable damage to the Ann Arbor Amateur Hockey Association. And, her case is another example of the spineless enforcement of our judiciary toward nonprofit malfeasants.
As the association’s former bookkeeper, The Detroit News noted that she pleaded guilty in June to two counts of embezzlement of nearly $1 million from the organization. She methodically emptied the treasury of the AAAHA over a two-year period to pay for diamond earrings, Cadillac Escalades and expensive trips.
The judge evidently felt sorry for her and didn’t like the probation department’s recommendation that she pay back $160,000---just enough to keep the association afloat. Instead, the judge cut it in half. The perpetrator says that she has paid back a quarter of a million dollars, but the association and the department say they haven’t seen a dime.
The rest of the sentence was not much tougher. Instead of prison, she got parole. Instead of paying all the money back, she needs to pay only $1500 a month. At that rate she will pay it off when she is 116 years old.
This is more the norm than most would think. There is plenty of evidence to underscore that assertion.
I have written extensively about charitable fraud. The coddling of the criminals by judges and prosecutors is rampant. Such lenient sentencing is under the guise of not overcrowding the jails or assuring that restitution is fully discharged. Most believe that if the convict is in jail they will be unable to pay what is owed. That is a spurious argument since studies have shown that very few convicts every pay their restitution and that nearly 50% never pay one penny.
With reference to sentencing, many perpetrators get a free pass. Their method of operation is to never steal anything small so that that they have the resources to defend themselves. Do it with impunity and then cry and plead for the mercy of the court.
We have seen it time and again. Many times prosecutors and often judges agree to sentences that seem laughable given the magnitude of the crime. On occasion some get a tough sentence because they do not even try to defend himself (see Bernard Madoff sentence of 150 years), but too few are strongly sentenced in order to send a message that malfeasance does not pay.
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 stringent enforcement.
For example, use my home state of Michigan, which is typical. Jails are crowded so 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 consequences. We are seeing prosecutors suggesting, and judges giving, lighter sentences. We are seeing an extraordinary inconsistency in sentencing.
Take for example these:
Again in Michigan, despite being charged with stealing $250,000---a 15 year felony--- from the Juvenile Diabetes Research Foundation and pleading guilty, the executive got no jail time.
No victims, no problem.
We recently saw a once-powerful former Pennsylvania state senator get a relative slap on the wrist for the following: obstruction of justice for destroying evidence, stealing from a nonprofit, using taxpayer dollars to snoop on political enemies and ex-girlfriends, taking advantage of his board position on another charity by taking free trips and pocketing more than $4 million. With 137 corruption counts and federal guidelines recommending 21-27 years the Judge sentenced him to a little over 55 months in prison (12 days per felony) and restitution. This lean sentence drew a response from thousands of citizens expressing their dismay.
In Montana, the former chairman of the annual East/West Shrine football game was given a six-year suspended sentence for stealing $40,000 from the charity event. He wrote checks to himself from the Shriners' bank account during a 2 1/2-year period. No jail time for this very prominent executive.
The soft sentencing has consequences. In Delaware, Jody Chubbs first embezzled from her employer while on parole for embezzling from a previous employer. She then wrote thousands in bad checks, stole money from customers of a towing business she operated and -- after her arrest and indictment in federal court -- stole the identity of a childhood friend. Chubbs appeared to show no remorse for stealing more than $367,000 in various forms. Her apology was, "I never meant to hurt anyone."
No harm, no foul.
There was an airtight case at Fiver Rivers Community Development in South Carolina where an executive stole hundreds of thousands of dollars of state and federal grant money. Who is watching the money? Her daughter: hired as chief financial executive and had no financial experience. They used agency money for a high life by traveling, buying jewelry, high-definition television sets and sharing some of the assets with relatives. The mother and daughter pleaded guilty. Neither will serve jail time. Both will have 5-year probation and restitution was ordered.
There was a legal settlement at the American Veteran Relief Foundation and attendant funds. The leaders stole over $19 million and settled for a $19 million fine that was waived by the FTC because of inability to pay.
Lots of stolen money to defend, not an issue
In New York City, an $880,000 theft from the Whitney Museum received 200 hours of community service; the executives that looted the Gloria Wise Boys and Girls Club of $1.2 million were ordered to repay only $70,000.
On the other hand:
In Washington DC, a $4,000 theft at the Washington Teacher’s Union received an eleven year sentence, while a $47,000 theft from the Vietnam Veterans of America received 5 years in prison. The president of the Crow Creek Tribal School received 26 months in prison for a $6000 theft and a $51,000 theft at the Van Buren Police Department drew 5 years in prison.
The inconsistency in sentencing is overwhelmingly in favor of leniency for the perpetrator. With an adequate defense, the chances of jail are minimal. Without high priced legal counsel, the defendant gets the opposite results. Big thefts result in better defense.
With seldom jail time and little chance of restitution being fully discharged, where are the disincentives to not engaging in contemptible behavior?
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.Labels: charity, charity fraud, nonprofit embezzlement, nonprofit fraud
She is a married mother of three and looks just like your sister, but she has done irreparable damage to the Ann Arbor Amateur Hockey Association. And, her case is another example of the spineless enforcement of our judiciary toward nonprofit malfeasants.
As the association’s former bookkeeper, The Detroit News noted that she pleaded guilty in June to two counts of embezzlement of nearly $1 million from the organization. She methodically emptied the treasury of the AAAHA over a two-year period to pay for diamond earrings, Cadillac Escalades and expensive trips.
The judge evidently felt sorry for her and didn’t like the probation department’s recommendation that she pay back $160,000---just enough to keep the association afloat. Instead, the judge cut it in half. The perpetrator says that she has paid back a quarter of a million dollars, but the association and the department say they haven’t seen a dime.
The rest of the sentence was not much tougher. Instead of prison, she got parole. Instead of paying all the money back, she needs to pay only $1500 a month. At that rate she will pay it off when she is 116 years old.
This is more the norm than most would think. There is plenty of evidence to underscore that assertion.
I have written extensively about charitable fraud. The coddling of the criminals by judges and prosecutors is rampant. Such lenient sentencing is under the guise of not overcrowding the jails or assuring that restitution is fully discharged. Most believe that if the convict is in jail they will be unable to pay what is owed. That is a spurious argument since studies have shown that very few convicts every pay their restitution and that nearly 50% never pay one penny.
With reference to sentencing, many perpetrators get a free pass. Their method of operation is to never steal anything small so that that they have the resources to defend themselves. Do it with impunity and then cry and plead for the mercy of the court.
We have seen it time and again. Many times prosecutors and often judges agree to sentences that seem laughable given the magnitude of the crime. On occasion some get a tough sentence because they do not even try to defend himself (see Bernard Madoff sentence of 150 years), but too few are strongly sentenced in order to send a message that malfeasance does not pay.
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 stringent enforcement.
For example, use my home state of Michigan, which is typical. Jails are crowded so 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 consequences. We are seeing prosecutors suggesting, and judges giving, lighter sentences. We are seeing an extraordinary inconsistency in sentencing.
Take for example these:
Again in Michigan, despite being charged with stealing $250,000---a 15 year felony--- from the Juvenile Diabetes Research Foundation and pleading guilty, the executive got no jail time.
No victims, no problem.
We recently saw a once-powerful former Pennsylvania state senator get a relative slap on the wrist for the following: obstruction of justice for destroying evidence, stealing from a nonprofit, using taxpayer dollars to snoop on political enemies and ex-girlfriends, taking advantage of his board position on another charity by taking free trips and pocketing more than $4 million. With 137 corruption counts and federal guidelines recommending 21-27 years the Judge sentenced him to a little over 55 months in prison (12 days per felony) and restitution. This lean sentence drew a response from thousands of citizens expressing their dismay.
In Montana, the former chairman of the annual East/West Shrine football game was given a six-year suspended sentence for stealing $40,000 from the charity event. He wrote checks to himself from the Shriners' bank account during a 2 1/2-year period. No jail time for this very prominent executive.
The soft sentencing has consequences. In Delaware, Jody Chubbs first embezzled from her employer while on parole for embezzling from a previous employer. She then wrote thousands in bad checks, stole money from customers of a towing business she operated and -- after her arrest and indictment in federal court -- stole the identity of a childhood friend. Chubbs appeared to show no remorse for stealing more than $367,000 in various forms. Her apology was, "I never meant to hurt anyone."
No harm, no foul.
There was an airtight case at Fiver Rivers Community Development in South Carolina where an executive stole hundreds of thousands of dollars of state and federal grant money. Who is watching the money? Her daughter: hired as chief financial executive and had no financial experience. They used agency money for a high life by traveling, buying jewelry, high-definition television sets and sharing some of the assets with relatives. The mother and daughter pleaded guilty. Neither will serve jail time. Both will have 5-year probation and restitution was ordered.
There was a legal settlement at the American Veteran Relief Foundation and attendant funds. The leaders stole over $19 million and settled for a $19 million fine that was waived by the FTC because of inability to pay.
Lots of stolen money to defend, not an issue
In New York City, an $880,000 theft from the Whitney Museum received 200 hours of community service; the executives that looted the Gloria Wise Boys and Girls Club of $1.2 million were ordered to repay only $70,000.
On the other hand:
In Washington DC, a $4,000 theft at the Washington Teacher’s Union received an eleven year sentence, while a $47,000 theft from the Vietnam Veterans of America received 5 years in prison. The president of the Crow Creek Tribal School received 26 months in prison for a $6000 theft and a $51,000 theft at the Van Buren Police Department drew 5 years in prison.
The inconsistency in sentencing is overwhelmingly in favor of leniency for the perpetrator. With an adequate defense, the chances of jail are minimal. Without high priced legal counsel, the defendant gets the opposite results. Big thefts result in better defense.
With seldom jail time and little chance of restitution being fully discharged, where are the disincentives to not engaging in contemptible behavior?
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.
Labels: charity, charity fraud, nonprofit embezzlement, nonprofit fraud
posted by Gary at
4:19 PM
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A Not So Silent Watchdog
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.Labels: accountability, Best Practices, charity, Madoff, nonprofit, nonprofit embezzlement, nonprofit fraud, nonprofit;
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.
Labels: accountability, Best Practices, charity, Madoff, nonprofit, nonprofit embezzlement, nonprofit fraud, nonprofit;
posted by Gary at
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Rating Agencies Need a Fresh Look
posted on: Tuesday, June 30, 2009
Gary Snyder
In the wake of the well-documented and well-publicized increase in corruption and malfeasance in numerous charities, too few are searching for tools to identify good governance, recognize poor management or dissuade dishonesty and fraud.
Many look to watchdog agencies to assist them in making thoughtful decisions regarding their donations by avoiding those charities with bad practices. However, some question if these agencies are misdirected and inconclusive in their efforts to address the current increase in private inurement and self-dealing in organizations with a one size fits all approach.
For-profit Sector
Prior to the economic meltdown, the public trusted credit-rating watchdogs to assist them in their investment choices. Services like Moody’s Investors betrayed their trust by giving triple-A grades to some of the cancerous derivatives and, as The New York Times stated, gave Countrywide Financial high grades. These gold seals of approval have encouraged the spending spree that left both investors with large losses and homeowners struggling with foreclosures. The imperceptible arms-length relationship between the watched and the watchdog led Moody’s profit margins to skyrocket, even surpassing Exxon’s. With no competition for the three big for-profit rating firms, the days ahead look even rosier.
Both for-profit and nonprofit watchdogs alike use proxy and unsubstantiated measures to evaluate the attributes of an organization. They are typically a reflection of the past and little forward-looking signs and structure. They seem so arbitrary.
One example serves to illustrate that point. Despite being under the sleepy eye of the for-profit watchdogs, The McKinsey Quarterly, in a study, suggested that investors paid a premium (about 18%) for good structural performance such as good governance. General Motors governance guidelines were the gold standard. Obviously they failed on a number of counts with the U.S. government unwilling to let the board fire its own CEO. Ultimately the government took-over the company and it was put into bankruptcy only to be saved by the U.S. taxpayers. So those investors with confidence in the watchdogs and their standards got hit twice.
All this, as Fortune Magazine noted, happened as the confidence in financial rating services crashed by 50%.
Charitable Sector
Several years prior to the economic implosion, there had been significant dwindling in charitable confidence. To put donor’s confidence in perspective we need only to look at a Brookings Institution study where only 11% of the public thought charities do a very good job of spending money wisely and only 19% feel that charities do a very good job of running their programs and services.
It is a generally accepted myth that the nonprofit rating services, such as Charity Navigator, BBB Wise Giving Alliance and American Institute of Philanthropy, are monitoring all nonprofits. The criterion that is used by watchdog groups is wanting. Because of different criteria, the rating agencies recommendations often conflict. One even sells its seal of approval on a sliding scale. Moreover, all fail to address in any substantive manner many of the issues that have gotten the nonprofit sector in trouble—scandals and inadequate governance.
Some ratings are anachronistic. For example, to sanction to automatic failure any group that has a certain number of years of expenses in reserves is preposterous. In these troubling times, who wouldn’t have wished that they had a huge amount of reserves? One could argue that not having any operating reserve may not suit all nonprofits and that could be lethal. That, for example, applies to 28 percent of the DC area charities, as the Washington Post cited. On the other hand, because the sector is so diverse, each organization needs to analyze its own cash flow and expenses and make decisions based on the strength of grants, the vicissitudes of fundraising, the potency of the economy and the revenue stream generated from all activities. To deny that the governing body is in the best position to make such a decision is shortsighted. Without sufficient funds (and that number is growing, I am confident), nonprofits will join the 16% failure rate of existing nonprofit groups in 2000 that either disappeared or became so small that they were no longer required to file tax returns by 2006, the Urban Institute study of DC area charities showed.
The quality of submissions to watchdogs is dubious. Charity evaluators, by their own admission, believe that the reporting from the nonprofits is often inconsistent, unclear and incorrect. Some point to large amounts of chicanery in the submissions they receive.
But is all of this bad and do these watchdogs perform a much-needed service? Some say that they raise the level of debate. Others challenge the simplistic checklists and metrics that may or may not be meaningful. Some have expressed concern that some may have crossed the line from being independent raters to becoming active consultants.
Let’s look at conventional believes that have become baked into generally-accepted good practice:
• Financial board expertise needed: we have seen some of the premier charities get caught in fraud even though they had very sophisticated board members with impressive financial skills. An example: In spite of board and Congressional monitoring, the Smithsonian had hair raising abuses including virtually unlimited travel and noncompetitive contracts, little oversight in salaries and housing allowances. On its Board of Regents: Chief Justice of U.S. Supreme Court; Vice President of U.S.; an executive of Microsoft; two university presidents; prominent builder; a venture capitalist; congresspersons.
• Frequency of board of directors meetings: Over the years watchdog agencies have changed the number of board meetings that will make boards more successful. There apparently is no optimal number of meetings that puts an agency in good stead. The most important intangible is effectiveness of the deliberations of the members. On Board of United Ways: The Central Carolinas United Way had some of brightest minds but the frequency of meetings did not preclude it from making the some glowingly embarrassing mistakes. They gave the executive of a mid-sized agency the highest salary and benefits package in the entire United Way system. They tried to keep it a secret. When the press got a hold of it, they fired her and are currently being sued by her. Embarrassed, 3 board members resigned, but the agency is still withholding pertinent documents from the public. This shortsightedness has been replicated in several United Ways including Atlanta, Capital Area, and New York with many affiliates with ongoing malfeasance.
• Attendance, size, more: It is unclear that attendance, codes of conducts, board size and minimum number of board members have reasonable impact, but some watchdog agencies think that these are important. Studies in the for-profit sector are inconclusive that board size means better decision-making. Diversity, seldom considered, may prove to be a more important matrix.
• CEO importance: There are mixed reviews as to the importance of having the charities CEO on the board. We have seen the Smithsonian with its CEO on the board and the CEO at American Red Cross and United Way not on the board having similarly poor results. There is no argument as to the importance of the CEO. However, The Urban Institute study finds that a CEO serving on the board means that the board is weaker and less engaged. The CEO, coupled with board chair, is the public face of the organization. A poor face, as in the case of the Smithsonian, ended with his humiliating firing. Several poor showings at the Red Cross ended with very public dismissals. The compromised face of several of those at local United Ways cost the agency dearly with diminished contributions. One thing is clear, there needs to be a demarcation between the roles of the board (as the ultimate authority) and the CEO (carries out the boards mandates).
Some believe that watchdogs in both the for-profit and nonprofit sectors are seemingly propagating meaningless guidance. This is particularly important since in many instances there is no better outcome by adhering to the standards than not. Furthermore, the costs associated with adhering to such fungible determinants can be immense in terms of time and money, particularly for small agencies.
The strengthening of the matrices that produce organization integrity may lie in some of the intangibles. Such human dynamics such as leadership character (both board and staff), organizational values, how decisions are made, open communications --- both at board meetings as well as between staff and board---conflict management and strategic thinking (both long and short) may promise to be the difference between a successful and a compromised agency.
Such skepticism has lead to an effort currently underway---The Social Investing Rating Tool. It will try to assess the way donors evaluate whether a charity is worth their money as well as whether organizations have favorable outcomes. Some believe that is a good endeavor, but others will reserve judgment until its completion. One problem is that it is made up of prominent philanthropists and entrepreneurs some of whom have questionable issues residing within their own organizations.
All want both sectors to do well. In the future, maybe we should calculate how the watchdogs measure objective data that support board members and staff dedication and diligence to do good governance. Maybe more importantly, they should gauge how agencies are doing with empirical evidence or determine whether their work is even making any difference.
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.Labels: American Red Cross, Best Practices, board diversity, charity, charity fraud, nonprofit embezzlement, nonprofit fraud, United Way
In the wake of the well-documented and well-publicized increase in corruption and malfeasance in numerous charities, too few are searching for tools to identify good governance, recognize poor management or dissuade dishonesty and fraud.
Many look to watchdog agencies to assist them in making thoughtful decisions regarding their donations by avoiding those charities with bad practices. However, some question if these agencies are misdirected and inconclusive in their efforts to address the current increase in private inurement and self-dealing in organizations with a one size fits all approach.
For-profit Sector
Prior to the economic meltdown, the public trusted credit-rating watchdogs to assist them in their investment choices. Services like Moody’s Investors betrayed their trust by giving triple-A grades to some of the cancerous derivatives and, as The New York Times stated, gave Countrywide Financial high grades. These gold seals of approval have encouraged the spending spree that left both investors with large losses and homeowners struggling with foreclosures. The imperceptible arms-length relationship between the watched and the watchdog led Moody’s profit margins to skyrocket, even surpassing Exxon’s. With no competition for the three big for-profit rating firms, the days ahead look even rosier.
Both for-profit and nonprofit watchdogs alike use proxy and unsubstantiated measures to evaluate the attributes of an organization. They are typically a reflection of the past and little forward-looking signs and structure. They seem so arbitrary.
One example serves to illustrate that point. Despite being under the sleepy eye of the for-profit watchdogs, The McKinsey Quarterly, in a study, suggested that investors paid a premium (about 18%) for good structural performance such as good governance. General Motors governance guidelines were the gold standard. Obviously they failed on a number of counts with the U.S. government unwilling to let the board fire its own CEO. Ultimately the government took-over the company and it was put into bankruptcy only to be saved by the U.S. taxpayers. So those investors with confidence in the watchdogs and their standards got hit twice.
All this, as Fortune Magazine noted, happened as the confidence in financial rating services crashed by 50%.
Charitable Sector
Several years prior to the economic implosion, there had been significant dwindling in charitable confidence. To put donor’s confidence in perspective we need only to look at a Brookings Institution study where only 11% of the public thought charities do a very good job of spending money wisely and only 19% feel that charities do a very good job of running their programs and services.
It is a generally accepted myth that the nonprofit rating services, such as Charity Navigator, BBB Wise Giving Alliance and American Institute of Philanthropy, are monitoring all nonprofits. The criterion that is used by watchdog groups is wanting. Because of different criteria, the rating agencies recommendations often conflict. One even sells its seal of approval on a sliding scale. Moreover, all fail to address in any substantive manner many of the issues that have gotten the nonprofit sector in trouble—scandals and inadequate governance.
Some ratings are anachronistic. For example, to sanction to automatic failure any group that has a certain number of years of expenses in reserves is preposterous. In these troubling times, who wouldn’t have wished that they had a huge amount of reserves? One could argue that not having any operating reserve may not suit all nonprofits and that could be lethal. That, for example, applies to 28 percent of the DC area charities, as the Washington Post cited. On the other hand, because the sector is so diverse, each organization needs to analyze its own cash flow and expenses and make decisions based on the strength of grants, the vicissitudes of fundraising, the potency of the economy and the revenue stream generated from all activities. To deny that the governing body is in the best position to make such a decision is shortsighted. Without sufficient funds (and that number is growing, I am confident), nonprofits will join the 16% failure rate of existing nonprofit groups in 2000 that either disappeared or became so small that they were no longer required to file tax returns by 2006, the Urban Institute study of DC area charities showed.
The quality of submissions to watchdogs is dubious. Charity evaluators, by their own admission, believe that the reporting from the nonprofits is often inconsistent, unclear and incorrect. Some point to large amounts of chicanery in the submissions they receive.
But is all of this bad and do these watchdogs perform a much-needed service? Some say that they raise the level of debate. Others challenge the simplistic checklists and metrics that may or may not be meaningful. Some have expressed concern that some may have crossed the line from being independent raters to becoming active consultants.
Let’s look at conventional believes that have become baked into generally-accepted good practice:
• Financial board expertise needed: we have seen some of the premier charities get caught in fraud even though they had very sophisticated board members with impressive financial skills. An example: In spite of board and Congressional monitoring, the Smithsonian had hair raising abuses including virtually unlimited travel and noncompetitive contracts, little oversight in salaries and housing allowances. On its Board of Regents: Chief Justice of U.S. Supreme Court; Vice President of U.S.; an executive of Microsoft; two university presidents; prominent builder; a venture capitalist; congresspersons.
• Frequency of board of directors meetings: Over the years watchdog agencies have changed the number of board meetings that will make boards more successful. There apparently is no optimal number of meetings that puts an agency in good stead. The most important intangible is effectiveness of the deliberations of the members. On Board of United Ways: The Central Carolinas United Way had some of brightest minds but the frequency of meetings did not preclude it from making the some glowingly embarrassing mistakes. They gave the executive of a mid-sized agency the highest salary and benefits package in the entire United Way system. They tried to keep it a secret. When the press got a hold of it, they fired her and are currently being sued by her. Embarrassed, 3 board members resigned, but the agency is still withholding pertinent documents from the public. This shortsightedness has been replicated in several United Ways including Atlanta, Capital Area, and New York with many affiliates with ongoing malfeasance.
• Attendance, size, more: It is unclear that attendance, codes of conducts, board size and minimum number of board members have reasonable impact, but some watchdog agencies think that these are important. Studies in the for-profit sector are inconclusive that board size means better decision-making. Diversity, seldom considered, may prove to be a more important matrix.
• CEO importance: There are mixed reviews as to the importance of having the charities CEO on the board. We have seen the Smithsonian with its CEO on the board and the CEO at American Red Cross and United Way not on the board having similarly poor results. There is no argument as to the importance of the CEO. However, The Urban Institute study finds that a CEO serving on the board means that the board is weaker and less engaged. The CEO, coupled with board chair, is the public face of the organization. A poor face, as in the case of the Smithsonian, ended with his humiliating firing. Several poor showings at the Red Cross ended with very public dismissals. The compromised face of several of those at local United Ways cost the agency dearly with diminished contributions. One thing is clear, there needs to be a demarcation between the roles of the board (as the ultimate authority) and the CEO (carries out the boards mandates).
Some believe that watchdogs in both the for-profit and nonprofit sectors are seemingly propagating meaningless guidance. This is particularly important since in many instances there is no better outcome by adhering to the standards than not. Furthermore, the costs associated with adhering to such fungible determinants can be immense in terms of time and money, particularly for small agencies.
The strengthening of the matrices that produce organization integrity may lie in some of the intangibles. Such human dynamics such as leadership character (both board and staff), organizational values, how decisions are made, open communications --- both at board meetings as well as between staff and board---conflict management and strategic thinking (both long and short) may promise to be the difference between a successful and a compromised agency.
Such skepticism has lead to an effort currently underway---The Social Investing Rating Tool. It will try to assess the way donors evaluate whether a charity is worth their money as well as whether organizations have favorable outcomes. Some believe that is a good endeavor, but others will reserve judgment until its completion. One problem is that it is made up of prominent philanthropists and entrepreneurs some of whom have questionable issues residing within their own organizations.
All want both sectors to do well. In the future, maybe we should calculate how the watchdogs measure objective data that support board members and staff dedication and diligence to do good governance. Maybe more importantly, they should gauge how agencies are doing with empirical evidence or determine whether their work is even making any difference.
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.
Labels: American Red Cross, Best Practices, board diversity, charity, charity fraud, nonprofit embezzlement, nonprofit fraud, United Way
posted by Gary at
10:06 AM
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Charities Have Felt the Effects of Ponzi Schemes
posted on: Friday, June 12, 2009
Gary Snyder
About a decade ago, we were in the midst of unraveling one billion dollars of fraud as a result of two of the largest Ponzi schemes in the history of the charitable sector. In the intervening years we have seen the pyramid plans explode and affect the nonprofit sector far beyond anything anyone expected in 1999. Few lessons were learned.
The nonprofit Baptist Foundation of Arizona and the Foundation for New Era Ponzi schemes, coupled with bad taste that grew out of the American Red Cross and United Way’s handling of September disaster funds, caused a public outcry for change.
The for-profit Enron and Adelphia scandals joined in the public’s calling for strengthening corporate ethics and nonprofit responsibilities. The public pleaded for more accountability in how public and private institutions husband their resources. They were simply asking for good stewardship and some discipline.
Since then, the public and private sector---the nonprofits as well as the for-profits alike---have had a challenge defending their reputations.
Enforcement and regulatory agencies were ill prepared to face the onslaught of what was to come. As recently as a few decades ago, most Ponzi schemes were relatively small. The Washington Post notes that they have grown exponentially. The FBI has almost 500 open Ponzi investigations nationwide -- up from about 300 in 2006. Law enforcement officials with other agencies have noticed similar trends, and authorities said they expect to turn up many more cases in coming months. As the economy and the financial markets went into a nosedive, Ponzi operators couldn't find new investors to keep their fraud apace. Investors began demanding for their money and turned to law enforcement to get it.
The godfather of the Ponzi schemes is that which Bernard Madoff perpetrated. Estimates suggest that Madoff wiped out a generation of Jewish wealth and philanthropy resulting in several hundreds of millions dollars of much needed services lost. (See previous article on religious-related Ponzi schemes)
Madoff’ $65 billion fraud was just one of many that either used nonprofits as part of their ruse or had a direct effect on a charity.
• In the mid 1990’s more than 11,000 people, predominantly elderly, were caught up in an opportunity to invest in the Baptist Foundation of Arizona. It cost investors about $590 million. The BFA had a cozy relationship with its legal counsel as well as it accounting firm with both party to the hoax. In June, the appeal court upheld the perpetrators convictions.
• As early as 1993, the Foundation for New Era was rolling with more than $400 million in investor’s money but victimized the entire lot, including universities, museums, Christian organizations, churches and colleges. In addition, this Ponzi scheme initially stumped regulators (including PA’s attorney general) and securities firms with virtually no one looking at its IRS Form 990.
Here are some very recent Ponzi schemes (it isn’t small potatoes!):
• The Thomas D. and Elizabeth S. Hooper Foundation were totally drained of its assets by an $80 million Ponzi scheme by Joseph Forte who recently pleaded guilty
• The Alexander Dawson Foundation had entrusted $13.5 million to Mark Bloom (North Hills Management) only to find he used the money to purchase a $5.2 million Manhattan triplex and $300,000 for his daughter’s bat mitzvah.
• Two Fort Lauderdale, Fla., attorneys, one of whom was chairman of the University of Florida Law Center Board of Trustees and the Fort Lauderdale Chamber of Commerce's downtown council, were indicted in a nearly $1 billion Ponzi scheme known as Mutual Benefits. They fleeced the terminally ill, elderly and people with AIDS.
• A Los Angeles lawyer was in-house counsel for an elaborate real estate Ponzi scheme in Orange County that conned $52 million from mostly elderly investors.
• Two California men ran an $80 million Ponzi scheme promising Korean-American investors a 36-50 percent return.
• Two arrested Northern California men steered proceeds to senior care and assisted living facilities with $200 million “callously swindled” in a Ponzi scheme, according to the state attorney general.
• Playing on a relationship with the CEO of United Way (Charlotte) and as a former employee, she took in about $11 million in a Ponzi scheme defrauding 200 investors, many of them elderly. She pleaded guilty. The United Way was not involved.
• Using members of their church--- Church of Jesus Christ of Latter-Day Saints in Lake Arrowhead (CA)--- as investors and leads the husband and wife Tuckers got $31 million in its Ponzi scheme.
• Terence Mayfield defrauded his fellow parishioners at the Tom’s River (NJ) The Church of Grace and Peace of more than $1 million through two real estate investment Ponzi 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 up to $21 million from about 100 investors, nearly half of whom live in Europe or other places outside the U.S. some of whom were Foundations.
• Paul Greenwood and Stephen Walsh 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.
• 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.
The effect of these scams cannot be overstated. As corruption in the charitable sector skyrockets, the confidence in the nonprofit sector has sunk to new lows. The exploitation of trust and hope has lead to devastation for the victims. Confidence is becoming an increasingly hard commodity to recapture in these troubling times.
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.Labels: charity fraud, nonprofit embezzlement, nonprofit fraud, nonprofit;, ponzi scheme
About a decade ago, we were in the midst of unraveling one billion dollars of fraud as a result of two of the largest Ponzi schemes in the history of the charitable sector. In the intervening years we have seen the pyramid plans explode and affect the nonprofit sector far beyond anything anyone expected in 1999. Few lessons were learned.
The nonprofit Baptist Foundation of Arizona and the Foundation for New Era Ponzi schemes, coupled with bad taste that grew out of the American Red Cross and United Way’s handling of September disaster funds, caused a public outcry for change.
The for-profit Enron and Adelphia scandals joined in the public’s calling for strengthening corporate ethics and nonprofit responsibilities. The public pleaded for more accountability in how public and private institutions husband their resources. They were simply asking for good stewardship and some discipline.
Since then, the public and private sector---the nonprofits as well as the for-profits alike---have had a challenge defending their reputations.
Enforcement and regulatory agencies were ill prepared to face the onslaught of what was to come. As recently as a few decades ago, most Ponzi schemes were relatively small. The Washington Post notes that they have grown exponentially. The FBI has almost 500 open Ponzi investigations nationwide -- up from about 300 in 2006. Law enforcement officials with other agencies have noticed similar trends, and authorities said they expect to turn up many more cases in coming months. As the economy and the financial markets went into a nosedive, Ponzi operators couldn't find new investors to keep their fraud apace. Investors began demanding for their money and turned to law enforcement to get it.
The godfather of the Ponzi schemes is that which Bernard Madoff perpetrated. Estimates suggest that Madoff wiped out a generation of Jewish wealth and philanthropy resulting in several hundreds of millions dollars of much needed services lost. (See previous article on religious-related Ponzi schemes)
Madoff’ $65 billion fraud was just one of many that either used nonprofits as part of their ruse or had a direct effect on a charity.
• In the mid 1990’s more than 11,000 people, predominantly elderly, were caught up in an opportunity to invest in the Baptist Foundation of Arizona. It cost investors about $590 million. The BFA had a cozy relationship with its legal counsel as well as it accounting firm with both party to the hoax. In June, the appeal court upheld the perpetrators convictions.
• As early as 1993, the Foundation for New Era was rolling with more than $400 million in investor’s money but victimized the entire lot, including universities, museums, Christian organizations, churches and colleges. In addition, this Ponzi scheme initially stumped regulators (including PA’s attorney general) and securities firms with virtually no one looking at its IRS Form 990.
Here are some very recent Ponzi schemes (it isn’t small potatoes!):
• The Thomas D. and Elizabeth S. Hooper Foundation were totally drained of its assets by an $80 million Ponzi scheme by Joseph Forte who recently pleaded guilty
• The Alexander Dawson Foundation had entrusted $13.5 million to Mark Bloom (North Hills Management) only to find he used the money to purchase a $5.2 million Manhattan triplex and $300,000 for his daughter’s bat mitzvah.
• Two Fort Lauderdale, Fla., attorneys, one of whom was chairman of the University of Florida Law Center Board of Trustees and the Fort Lauderdale Chamber of Commerce's downtown council, were indicted in a nearly $1 billion Ponzi scheme known as Mutual Benefits. They fleeced the terminally ill, elderly and people with AIDS.
• A Los Angeles lawyer was in-house counsel for an elaborate real estate Ponzi scheme in Orange County that conned $52 million from mostly elderly investors.
• Two California men ran an $80 million Ponzi scheme promising Korean-American investors a 36-50 percent return.
• Two arrested Northern California men steered proceeds to senior care and assisted living facilities with $200 million “callously swindled” in a Ponzi scheme, according to the state attorney general.
• Playing on a relationship with the CEO of United Way (Charlotte) and as a former employee, she took in about $11 million in a Ponzi scheme defrauding 200 investors, many of them elderly. She pleaded guilty. The United Way was not involved.
• Using members of their church--- Church of Jesus Christ of Latter-Day Saints in Lake Arrowhead (CA)--- as investors and leads the husband and wife Tuckers got $31 million in its Ponzi scheme.
• Terence Mayfield defrauded his fellow parishioners at the Tom’s River (NJ) The Church of Grace and Peace of more than $1 million through two real estate investment Ponzi 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 up to $21 million from about 100 investors, nearly half of whom live in Europe or other places outside the U.S. some of whom were Foundations.
• Paul Greenwood and Stephen Walsh 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.
• 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.
The effect of these scams cannot be overstated. As corruption in the charitable sector skyrockets, the confidence in the nonprofit sector has sunk to new lows. The exploitation of trust and hope has lead to devastation for the victims. Confidence is becoming an increasingly hard commodity to recapture in these troubling times.
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.
Labels: charity fraud, nonprofit embezzlement, nonprofit fraud, nonprofit;, ponzi scheme
posted by Gary at
2:17 PM
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A Large Uptick in Charitable Fraud Is Met By A Yawn
posted on: Tuesday, May 26, 2009
Gary Snyder
In these times of considerable financial pressure, we are seeing some troubling signs in charities’ ability to keep their nonprofits afloat. One major, but often ignored, area of concern is charitable fraud…and by all measures it is growing. Desperate employees and board members are doing desperate things at an alarming rate.
A little over a year ago, a New York Times article, “Report Sketches Crime Costing Billions: Theft From Charities”, caused considerable discussion about the cost of fraud in the charitable sector. It highlighted a 2006 study that put the estimated cost of theft at $40 billion of the roughly $300 billion given to charity.
After that study’s results were published, many believed that brakes were being put in place to slow down the contagion of philanthropic crime. Some thought that it would be harder to hide fraud with the increased scrutiny with the submission of the revised IRS tax Form 990 which added questions regarding theft, embezzlement or other fraud in the previous year. Others held that the increased federal examination would lead to more exposure by newspapers and dampen the incidents of such crime. Still others believed that some provisions in the Sarbanes-Oxley Act would take hold and rein in fraud.
Even with the IRS becoming more aggressive in pursuing nonprofit fraud, the major federal investigative force in fraud--- the Federal Bureau of Investigation---and other enforcement agencies have shifted their focus to other matters such as counterterrorism and the explosion of banking and insurance misdeeds.
Peppered with optimism things have not worked out as envisioned. There have been some mitigating factors that most never anticipated. In the intervening year since the study results were released, the economy has tanked and the newspaper industry is in doldrums.
A recently released survey by the Association of Certified Fraud Examiners has shown that the economic crisis has led to an increase in fraud. The ACFE report “Occupational Fraud: A Study of the Impact of an Economic Recession” pointed out a sobering issue. Those organizations that had been most effected by the poor economy which resulted in layoffs during the past year were the ones that eliminated internal controls (35%). Only 3.2 percent of those surveyed increased controls. This trend is consistent with Nonprofit Imperative, my newsletter that tracks nonprofit fraud, data collection, which indicates that there is an increasingly widespread lack of internal controls in place in nonprofits.
As a result of less internal oversight, more than half (55.4 percent) of the ACFE respondents indicated that the level of fraud has increased in the previous 12 months compared to the level of fraud they investigated or observed in prior years. The largest reason for committing the crime was greater financial pressure caused by the depressed economy.
The magnitude of fraud in the nonprofit sector is considerably larger than all organizations in general. In the 2006 ACFE study, U.S. companies, on average, lost 7% of their annual revenue to fraud. This is in contrast to 13% that was published in the Nonprofit and Voluntary Sector Quarterly in 2007.
Although the revised Form 990 is still being phased in, Nonprofit Imperative had its largest amount of misdeeds ever in March 2009. NI showed an increase of 63 percent in nonprofit fraud from the past March 2008. That closely mirrors the 48.3% ACFE survey boost in corporate embezzlement during the past year.
Few--- only 2 percent--- in the ACFE survey expect a decline in the level of fraud.
The focus should be on the perpetrators. They are typically those in power and have direct responsibility/access to the money. The earlier ACFE study said that accounting personnel, followed by executive and upper management, commit the largest number of thefts. With little or no deterrents in place employees and board members can have a run on the money. With fewer charities having fraud-prevention policies in place, it becomes harder for auditors to help identify problems and set up counter-measures to keep deceit in check.
The dismissive response on the part of nonprofit leadership to this most important problem is puzzling. Their reliance on the government to weed out what they say is “a few bad apples” has resulted in a firestorm of criminality. The apparent boredom by agency boards is equally puzzling How many studies and how much evidence does it take to get their attention?
The facts are irrefutable. Organizations that had well-implemented policies have much smaller misconduct. Increasingly, fraud has become big business, with $15 trillion at stake, and fewer obstacles to getting caught. With every proxy measurement---endowments, contributions and trust--- on the wane what better time than now to address the fraud issue. Absent an unrelenting and unyielding thrust to rid the nonprofits of this scourge, the confidence in philanthropy will continue to spiral downward and so will the support that keeps the agencies that do so much good sustainable.
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 http://gary.r.snyder.com; website: www.garyrsnyder.com, phone: 248.324.3700.Labels: accountability, nonprofit fraud
In these times of considerable financial pressure, we are seeing some troubling signs in charities’ ability to keep their nonprofits afloat. One major, but often ignored, area of concern is charitable fraud…and by all measures it is growing. Desperate employees and board members are doing desperate things at an alarming rate.
A little over a year ago, a New York Times article, “Report Sketches Crime Costing Billions: Theft From Charities”, caused considerable discussion about the cost of fraud in the charitable sector. It highlighted a 2006 study that put the estimated cost of theft at $40 billion of the roughly $300 billion given to charity.
After that study’s results were published, many believed that brakes were being put in place to slow down the contagion of philanthropic crime. Some thought that it would be harder to hide fraud with the increased scrutiny with the submission of the revised IRS tax Form 990 which added questions regarding theft, embezzlement or other fraud in the previous year. Others held that the increased federal examination would lead to more exposure by newspapers and dampen the incidents of such crime. Still others believed that some provisions in the Sarbanes-Oxley Act would take hold and rein in fraud.
Even with the IRS becoming more aggressive in pursuing nonprofit fraud, the major federal investigative force in fraud--- the Federal Bureau of Investigation---and other enforcement agencies have shifted their focus to other matters such as counterterrorism and the explosion of banking and insurance misdeeds.
Peppered with optimism things have not worked out as envisioned. There have been some mitigating factors that most never anticipated. In the intervening year since the study results were released, the economy has tanked and the newspaper industry is in doldrums.
A recently released survey by the Association of Certified Fraud Examiners has shown that the economic crisis has led to an increase in fraud. The ACFE report “Occupational Fraud: A Study of the Impact of an Economic Recession” pointed out a sobering issue. Those organizations that had been most effected by the poor economy which resulted in layoffs during the past year were the ones that eliminated internal controls (35%). Only 3.2 percent of those surveyed increased controls. This trend is consistent with Nonprofit Imperative, my newsletter that tracks nonprofit fraud, data collection, which indicates that there is an increasingly widespread lack of internal controls in place in nonprofits.
As a result of less internal oversight, more than half (55.4 percent) of the ACFE respondents indicated that the level of fraud has increased in the previous 12 months compared to the level of fraud they investigated or observed in prior years. The largest reason for committing the crime was greater financial pressure caused by the depressed economy.
The magnitude of fraud in the nonprofit sector is considerably larger than all organizations in general. In the 2006 ACFE study, U.S. companies, on average, lost 7% of their annual revenue to fraud. This is in contrast to 13% that was published in the Nonprofit and Voluntary Sector Quarterly in 2007.
Although the revised Form 990 is still being phased in, Nonprofit Imperative had its largest amount of misdeeds ever in March 2009. NI showed an increase of 63 percent in nonprofit fraud from the past March 2008. That closely mirrors the 48.3% ACFE survey boost in corporate embezzlement during the past year.
Few--- only 2 percent--- in the ACFE survey expect a decline in the level of fraud.
The focus should be on the perpetrators. They are typically those in power and have direct responsibility/access to the money. The earlier ACFE study said that accounting personnel, followed by executive and upper management, commit the largest number of thefts. With little or no deterrents in place employees and board members can have a run on the money. With fewer charities having fraud-prevention policies in place, it becomes harder for auditors to help identify problems and set up counter-measures to keep deceit in check.
The dismissive response on the part of nonprofit leadership to this most important problem is puzzling. Their reliance on the government to weed out what they say is “a few bad apples” has resulted in a firestorm of criminality. The apparent boredom by agency boards is equally puzzling How many studies and how much evidence does it take to get their attention?
The facts are irrefutable. Organizations that had well-implemented policies have much smaller misconduct. Increasingly, fraud has become big business, with $15 trillion at stake, and fewer obstacles to getting caught. With every proxy measurement---endowments, contributions and trust--- on the wane what better time than now to address the fraud issue. Absent an unrelenting and unyielding thrust to rid the nonprofits of this scourge, the confidence in philanthropy will continue to spiral downward and so will the support that keeps the agencies that do so much good sustainable.
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 http://gary.r.snyder.com; website: www.garyrsnyder.com, phone: 248.324.3700.
Labels: accountability, nonprofit fraud
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Our Students Deserve Better
posted on: Monday, February 23, 2009
By Gary Snyder
This is the forth edition of a series of articles on nonprofit fraud. This installment focuses on the embezzlement of funds slated for school children. Thefts come in various packages from schools, clubs, Parent-teacher organizations, unions, and programs. Schools range from elementary to secondary to post-secondary to vocational.
Since the problem is so massive, this article will focus on elementary and secondary schools. The crisis is equally as great at universities and vocational institutions.
As philanthropy for elementary and secondary schools has increased in excess of 100% over the past 5 years, the swelling of governance and management misdeeds have inflated in tandem.
Over the years, we have seen embezzlement, theft, forgery, racketeering, extortion, grand larceny, and falsification of records by those who we entrust our children. They have breached their fiduciary duty by self-dealing, negligent management of assets, and conflicts of interest.
We have also found misallocation, mismanagement, misappropriation, and malfeasance at an increasing rate, some on a massive scale. We have seen it locally, regionally and statewide.
Prosecutors have been unveiling misdeeds, in record numbers, by those with whom we put our faith. Schools are the new breeding ground for bad actors. Our role models involve Superintendents, Board members, presidents, chief executive officers and staff. They have benefited by breaching their fiduciary duty with self-dealing, negligent management of assets or conflicts of interests, some on a massive scale.
The overabundance of fiscal malfeasance and misdeeds has shortchanged our children by more than a billion dollars. More importantly, however, students are learning that the generosity of donors and taxpayers has been illegitimately shared with the role models that they are supposed to emulate. They have been stripped of their role models.
The number of dollars and schools is astounding. This is a snippet of educational malfeasance and mismanagement:
• In Michigan, Superintendents or Board members stole over $8 million, in five districts.
• In Arkansas, over 7 years, a secretary/data analyst stole $884,000.
• In New York, $11 million was embezzled by Superintendents in 2 school districts
• In Colorado, a Superintendent and CFO took $2.25 million
• In Missouri, a gambling-addicted Superintendent helped himself to $850,000
• In North Carolina, 2 school districts were raided for $2.2 million
• In Illinois, $1.5 was misappropriated
• In Utah, a part-time secretary and a contract pilfered $5 million
• In Hawaii, $200 million was lost in excessive compensation and poor investments
• In California, two schools had to be substantially demolished and reconstructed because no one checked to see if they
were either on an earthquake fault or on land containing cancer-causing chemicals or land saturated with methane gas
and other toxic chemicals, costing the district $300+ million.
• In Michigan, the district spent more than $26.7 million on school renovations only to tag some of them for closure.
• In Texas, a charter school defrauded the government of $6 million by inflating enrollment and lunch money.
• In Florida, a school district paid commissions on property purchased and non-compete bidding amounting to over $200
thousand.
• In Michigan, a superintendent helped himself to $400,000 over 7 years.
• In New York, a superintendent and deputy superintendent padded their paychecks, vacation and sick days in the amount
of $216,000
• In Michigan, an ex-convict was awarded a no-bid contract for $568,000 and never performed the services because he
was in jail…and no one knew.
Any school, whether private or public, should meet strict financial standards or face severe consequences. Here are 13 lucky fiscal controls that can create such a setting and stave off the embarrassment of pilfering:
1. When hiring employees, perform background checks
2. Require two signatures on every check. One should be an officer, preferably the treasurer.
3. Implement cash controls. Never leave people alone with money and do not leave money without people
4. All collections should be under the control of at least two people
5. Use tickets for cash events. Tickets make it easier to count the number of tickets vs. the amount of cash collected
6. All disbursements should be made by check and supported by documents
7. Someone other that than the person who signs the check should do the reconciliation
8. All adjustments should be approved by the executive
9. Create a Finance Committee. The Finance Committee should monitor, on a monthly basis, all transactions and review bank
statements
10. Conduct annual audits. An Audit Committee is responsible to make sure that the numbers add up; there was reconciliation
between request forms and receipts situations; and work with the auditor who checks the work
11. Actual results should be compared with budget and to prior years and should be done by management and monitored by
Finance Committee
12. Write down the rules. A one-page policies and procedures prevent people from straying. Structure makes people—Board
and staff—feel more comfortable
13. Get bond insurance. As part of the Board’s risk management program, fidelity bonds can recover some or all of the stolen
or embezzled funds.
There is a total lack of interest and concern with the astonishing prevalence of malfeasance in the schools. As we continue to document the squandering by corruption of billions of contributors’ dollars, the typical response is that it is a cost of doing business. Watchdog agencies, Board members, the media and donors alike, share that untroubled attitude.
The problem with fraud is not that it happens, but that there were no precautions put in place to thwart it. Few Board members have been forced to resign, or are fired, for failure to address this important issue in a preventative way.
While the vast majority of charities follow the law, staff and Board members should not assume that their agency falls into that category. Consider the abovementioned pre-emptive measures so that their experience with their school is a good one.
The previous articles on nonprofit fraud were on veteran, government, and accounting malfeasance. Upcoming articles will be on cultural fraud, attorney misdeeds, school theft, healthcare and nonprofit/political fraud.
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.Labels: Best Practices, nonprofit embezzlement, nonprofit fraud, nonprofit;
This is the forth edition of a series of articles on nonprofit fraud. This installment focuses on the embezzlement of funds slated for school children. Thefts come in various packages from schools, clubs, Parent-teacher organizations, unions, and programs. Schools range from elementary to secondary to post-secondary to vocational.
Since the problem is so massive, this article will focus on elementary and secondary schools. The crisis is equally as great at universities and vocational institutions.
As philanthropy for elementary and secondary schools has increased in excess of 100% over the past 5 years, the swelling of governance and management misdeeds have inflated in tandem.
Over the years, we have seen embezzlement, theft, forgery, racketeering, extortion, grand larceny, and falsification of records by those who we entrust our children. They have breached their fiduciary duty by self-dealing, negligent management of assets, and conflicts of interest.
We have also found misallocation, mismanagement, misappropriation, and malfeasance at an increasing rate, some on a massive scale. We have seen it locally, regionally and statewide.
Prosecutors have been unveiling misdeeds, in record numbers, by those with whom we put our faith. Schools are the new breeding ground for bad actors. Our role models involve Superintendents, Board members, presidents, chief executive officers and staff. They have benefited by breaching their fiduciary duty with self-dealing, negligent management of assets or conflicts of interests, some on a massive scale.
The overabundance of fiscal malfeasance and misdeeds has shortchanged our children by more than a billion dollars. More importantly, however, students are learning that the generosity of donors and taxpayers has been illegitimately shared with the role models that they are supposed to emulate. They have been stripped of their role models.
The number of dollars and schools is astounding. This is a snippet of educational malfeasance and mismanagement:
• In Michigan, Superintendents or Board members stole over $8 million, in five districts.
• In Arkansas, over 7 years, a secretary/data analyst stole $884,000.
• In New York, $11 million was embezzled by Superintendents in 2 school districts
• In Colorado, a Superintendent and CFO took $2.25 million
• In Missouri, a gambling-addicted Superintendent helped himself to $850,000
• In North Carolina, 2 school districts were raided for $2.2 million
• In Illinois, $1.5 was misappropriated
• In Utah, a part-time secretary and a contract pilfered $5 million
• In Hawaii, $200 million was lost in excessive compensation and poor investments
• In California, two schools had to be substantially demolished and reconstructed because no one checked to see if they
were either on an earthquake fault or on land containing cancer-causing chemicals or land saturated with methane gas
and other toxic chemicals, costing the district $300+ million.
• In Michigan, the district spent more than $26.7 million on school renovations only to tag some of them for closure.
• In Texas, a charter school defrauded the government of $6 million by inflating enrollment and lunch money.
• In Florida, a school district paid commissions on property purchased and non-compete bidding amounting to over $200
thousand.
• In Michigan, a superintendent helped himself to $400,000 over 7 years.
• In New York, a superintendent and deputy superintendent padded their paychecks, vacation and sick days in the amount
of $216,000
• In Michigan, an ex-convict was awarded a no-bid contract for $568,000 and never performed the services because he
was in jail…and no one knew.
Any school, whether private or public, should meet strict financial standards or face severe consequences. Here are 13 lucky fiscal controls that can create such a setting and stave off the embarrassment of pilfering:
1. When hiring employees, perform background checks
2. Require two signatures on every check. One should be an officer, preferably the treasurer.
3. Implement cash controls. Never leave people alone with money and do not leave money without people
4. All collections should be under the control of at least two people
5. Use tickets for cash events. Tickets make it easier to count the number of tickets vs. the amount of cash collected
6. All disbursements should be made by check and supported by documents
7. Someone other that than the person who signs the check should do the reconciliation
8. All adjustments should be approved by the executive
9. Create a Finance Committee. The Finance Committee should monitor, on a monthly basis, all transactions and review bank
statements
10. Conduct annual audits. An Audit Committee is responsible to make sure that the numbers add up; there was reconciliation
between request forms and receipts situations; and work with the auditor who checks the work
11. Actual results should be compared with budget and to prior years and should be done by management and monitored by
Finance Committee
12. Write down the rules. A one-page policies and procedures prevent people from straying. Structure makes people—Board
and staff—feel more comfortable
13. Get bond insurance. As part of the Board’s risk management program, fidelity bonds can recover some or all of the stolen
or embezzled funds.
There is a total lack of interest and concern with the astonishing prevalence of malfeasance in the schools. As we continue to document the squandering by corruption of billions of contributors’ dollars, the typical response is that it is a cost of doing business. Watchdog agencies, Board members, the media and donors alike, share that untroubled attitude.
The problem with fraud is not that it happens, but that there were no precautions put in place to thwart it. Few Board members have been forced to resign, or are fired, for failure to address this important issue in a preventative way.
While the vast majority of charities follow the law, staff and Board members should not assume that their agency falls into that category. Consider the abovementioned pre-emptive measures so that their experience with their school is a good one.
The previous articles on nonprofit fraud were on veteran, government, and accounting malfeasance. Upcoming articles will be on cultural fraud, attorney misdeeds, school theft, healthcare and nonprofit/political fraud.
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.
Labels: Best Practices, nonprofit embezzlement, nonprofit fraud, nonprofit;
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Siphoning Off Sacred Funds
posted on: Friday, February 06, 2009
By Gary Snyder
“Today we are living in a different world. As stewards of the funds entrusted to us by the people of our parishes, we have a duty to enhance controls and to . . . strictly monitor those controls.” Bishop Edward U. Kmiec, Buffalo N.Y
"Every church has the same problem of being too trusting of their priests and ministers and church workers…so they don't put in the kinds of internal controls common in the business world." Chuck Zech, co-author of the study report, "Internal Financial Controls in the U.S. Catholic Church."
This is the third in a series of articles on nonprofit fraud. The latest edition of Nonprofit Imperative points out the need for fraud prevention in the religious community. Within one week, NI found the following:
• One priest was sentenced to 13 years in prison for stealing up to $1 million from two Virginia parishes.
• Another Catholic priest, this one from Florida, faces trial for allegedly stealing one hundred thousand dollars is seeking a deal.
• Two more priests who authorities say for years misappropriated more than $8 million from the offering plate of their Palm Beach County (FL) church have pleaded guilty and are awaiting sentencing.
• A pastor of Hilltop Community Church (VA) accused of embezzling more than $100,000 from his church had been previously convicted in Virginia Beach in 1994 of at least seven felonies included embezzlement.
• A former finance director at a St. Paul (MN) church is charged with embezzling $37,000 from church deposits.
• Dallas Theological Seminary is suing its former chief financial officer, attempting to recover more than $165,000 that the school says he embezzled.
• A bookkeeper at George’s Sixes Presbyterian Church paid her mortgage and utility bills for four years and possibly some cocaine and marijuana.
• The former pastor of a North Carolina church has entered pleas to embezzling more than $298,000 from a Winston-Salem church. These thefts stemmed from his 20- years as pastor at First Baptist Church. He was sentenced to five years of probation and he has agreed to repay more than $120,000.
Almost 10 million dollars of churchgoers’ contributions are gone in such a short span and the Internal Revenue Service may have a problem investigating these misdeeds (see this) without an audit.
These offenses are shocking because such problems are not typically made public. Churches usually adopt a “trust and forgive” attitude, as the churchsolutionsmag.com indicates. They tend to be overly trusting and they are quick to forgive. Unfortunately, crooks are aware of that mindset and so churches are natural targets.
Some of the largest Ponzi schemes have occurred within the religious community. The church has sanctioned some, while others have been the result of informal communal relationships. All crises were borne out of blind trust. Take last weeks Ponzi indictment of an Arizona Christian nonprofit, Nakami Chi Group Ministries International, which promised 24 percent annual returns and where the owner was dipping into the money to make a down payment on an $800,000 home and to pay gambling debts and other personal expenses. Investors included one pastor, church elders and members of several churches.
We know that Bernard Madoff’s alleged $50 billion Ponzi scheme targeted his fellow Jews.
And then there is Minnesotan Tom Petters who was arrested and charged for his own alleged Ponzi scheme in which he took $3.5 billion from members of his own evangelical Christian faith, many of whom were pastors that lost their retirement schemes. He focused on church groups and nonprofits. He is in jail awaiting a trial.
Since most religious organizations believe that it can’t happen at their church or synagogue there are seldom proper controls put into place to effectively prevent fraud. Malfeasance is rampant. A 2006 survey at Villanova University found that 85% of Roman Catholic dioceses had discovered embezzlement of church money in the previous five years, with 11 percent reporting that more than $500,000 had been stolen.
Religious organizations need to make a commitment to openness and transparency with a strong conflict-of-interest policy. All policies must be observed with all staff having bought in to that adherence. The policies, at minimum, should have checks and balances in the handling of cash, which should include at least two people involved. The implementation should be a partnership between the religious leadership and the lay leadership with neither rubberstamping the others decisions. Both should be mindful of how volunteers perform their duties and how they stack up against the organizations policies and practices.
It’s a huge minefield that needs to be addressed forthrightly.
The previous articles on nonprofit fraud were on veteran and government malfeasance. Upcoming articles will be on cultural fraud, school fraud and nonprofit/political fraud.
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.Labels: accountability, Best Practices, Foundations supporting advocacy and organizing, nonprofit embezzlement, nonprofit fraud, nonprofit;
“Today we are living in a different world. As stewards of the funds entrusted to us by the people of our parishes, we have a duty to enhance controls and to . . . strictly monitor those controls.” Bishop Edward U. Kmiec, Buffalo N.Y
"Every church has the same problem of being too trusting of their priests and ministers and church workers…so they don't put in the kinds of internal controls common in the business world." Chuck Zech, co-author of the study report, "Internal Financial Controls in the U.S. Catholic Church."
This is the third in a series of articles on nonprofit fraud. The latest edition of Nonprofit Imperative points out the need for fraud prevention in the religious community. Within one week, NI found the following:
• One priest was sentenced to 13 years in prison for stealing up to $1 million from two Virginia parishes.
• Another Catholic priest, this one from Florida, faces trial for allegedly stealing one hundred thousand dollars is seeking a deal.
• Two more priests who authorities say for years misappropriated more than $8 million from the offering plate of their Palm Beach County (FL) church have pleaded guilty and are awaiting sentencing.
• A pastor of Hilltop Community Church (VA) accused of embezzling more than $100,000 from his church had been previously convicted in Virginia Beach in 1994 of at least seven felonies included embezzlement.
• A former finance director at a St. Paul (MN) church is charged with embezzling $37,000 from church deposits.
• Dallas Theological Seminary is suing its former chief financial officer, attempting to recover more than $165,000 that the school says he embezzled.
• A bookkeeper at George’s Sixes Presbyterian Church paid her mortgage and utility bills for four years and possibly some cocaine and marijuana.
• The former pastor of a North Carolina church has entered pleas to embezzling more than $298,000 from a Winston-Salem church. These thefts stemmed from his 20- years as pastor at First Baptist Church. He was sentenced to five years of probation and he has agreed to repay more than $120,000.
Almost 10 million dollars of churchgoers’ contributions are gone in such a short span and the Internal Revenue Service may have a problem investigating these misdeeds (see this) without an audit.
These offenses are shocking because such problems are not typically made public. Churches usually adopt a “trust and forgive” attitude, as the churchsolutionsmag.com indicates. They tend to be overly trusting and they are quick to forgive. Unfortunately, crooks are aware of that mindset and so churches are natural targets.
Some of the largest Ponzi schemes have occurred within the religious community. The church has sanctioned some, while others have been the result of informal communal relationships. All crises were borne out of blind trust. Take last weeks Ponzi indictment of an Arizona Christian nonprofit, Nakami Chi Group Ministries International, which promised 24 percent annual returns and where the owner was dipping into the money to make a down payment on an $800,000 home and to pay gambling debts and other personal expenses. Investors included one pastor, church elders and members of several churches.
We know that Bernard Madoff’s alleged $50 billion Ponzi scheme targeted his fellow Jews.
And then there is Minnesotan Tom Petters who was arrested and charged for his own alleged Ponzi scheme in which he took $3.5 billion from members of his own evangelical Christian faith, many of whom were pastors that lost their retirement schemes. He focused on church groups and nonprofits. He is in jail awaiting a trial.
Since most religious organizations believe that it can’t happen at their church or synagogue there are seldom proper controls put into place to effectively prevent fraud. Malfeasance is rampant. A 2006 survey at Villanova University found that 85% of Roman Catholic dioceses had discovered embezzlement of church money in the previous five years, with 11 percent reporting that more than $500,000 had been stolen.
Religious organizations need to make a commitment to openness and transparency with a strong conflict-of-interest policy. All policies must be observed with all staff having bought in to that adherence. The policies, at minimum, should have checks and balances in the handling of cash, which should include at least two people involved. The implementation should be a partnership between the religious leadership and the lay leadership with neither rubberstamping the others decisions. Both should be mindful of how volunteers perform their duties and how they stack up against the organizations policies and practices.
It’s a huge minefield that needs to be addressed forthrightly.
The previous articles on nonprofit fraud were on veteran and government malfeasance. Upcoming articles will be on cultural fraud, school fraud and nonprofit/political fraud.
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.
Labels: accountability, Best Practices, Foundations supporting advocacy and organizing, nonprofit embezzlement, nonprofit fraud, nonprofit;
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Veterans Whine As Executives Dine
posted on: Monday, January 05, 2009
By Gary Snyder
Nonprofit organizations continue to get fleeced. This is the first in a series of articles on how charities, and their leaders, are not meeting their fiscal responsibilities.
In 2001, the Congress set up a nonprofit to help veterans start and expand small businesses. The National Business Development received $17 million from the federal government to operate walk-in small business centers for veterans. A recently released Congressional study discovered that only 15 percent a year, on average, was spent running the centers and in fiscal 2008, that percentage slid to 9 percent. In spite of assertions to the contrary by the Veterans Corporation, its claims are being dismissed because there has not been a separate external audit done in two years. Audits are required for organizations the size of the Veterans Corporation.
According to charity watchdogs the average spent on program expense, as opposed to management and fundraising, is 85%. Several veteran organizations such as Paralyzed Veterans of America (used 62% toward charitable purpose), National Veteran Services Fund, Inc (25.1%), American Veterans Relief Fund (7.1%), Disabled Veterans Associations (2.3%) and the Friends of Israel Disabled Veterans (0.1%) are at the bottom of the list and have not met the minimum threshold by a wide margin.
Fundraising efficiency is another focus of charity watchdogs. Stellar fundraising expenses are 10%, but 30% is the most that is acceptable. At the bottom are several veteran organizations that spent in excess of that amount---Veterans of Foreign Wars (60%), Disabled Veterans Associations (96.7%), American Veterans Relief Foundation (83.6%), National Veterans Services Fund, Inc (73.7%).
For every dollar spent on management or fundraising is a dollar spend not meeting the charity’s mission.
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.Labels: nonprofit, nonprofit embezzlement, nonprofit fraud
Nonprofit organizations continue to get fleeced. This is the first in a series of articles on how charities, and their leaders, are not meeting their fiscal responsibilities.
In 2001, the Congress set up a nonprofit to help veterans start and expand small businesses. The National Business Development received $17 million from the federal government to operate walk-in small business centers for veterans. A recently released Congressional study discovered that only 15 percent a year, on average, was spent running the centers and in fiscal 2008, that percentage slid to 9 percent. In spite of assertions to the contrary by the Veterans Corporation, its claims are being dismissed because there has not been a separate external audit done in two years. Audits are required for organizations the size of the Veterans Corporation.
According to charity watchdogs the average spent on program expense, as opposed to management and fundraising, is 85%. Several veteran organizations such as Paralyzed Veterans of America (used 62% toward charitable purpose), National Veteran Services Fund, Inc (25.1%), American Veterans Relief Fund (7.1%), Disabled Veterans Associations (2.3%) and the Friends of Israel Disabled Veterans (0.1%) are at the bottom of the list and have not met the minimum threshold by a wide margin.
Fundraising efficiency is another focus of charity watchdogs. Stellar fundraising expenses are 10%, but 30% is the most that is acceptable. At the bottom are several veteran organizations that spent in excess of that amount---Veterans of Foreign Wars (60%), Disabled Veterans Associations (96.7%), American Veterans Relief Foundation (83.6%), National Veterans Services Fund, Inc (73.7%).
For every dollar spent on management or fundraising is a dollar spend not meeting the charity’s mission.
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.
Labels: nonprofit, nonprofit embezzlement, nonprofit fraud
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