As a financial and management consultant, I’ve been confronted with situations that would turn your stomach.  (Well, I guarantee you they certainly turned mine!)

When I assumed the position of financial manager for one firm, I noticed that the bank accounts were not properly reconciled.  Upon further examination, I found that the practice of the firm had been to leave a few signed checks (made out to no-one) with the comptroller, because the principal had to travel on business (or enjoy a week’s vacation).  But, when that principal returned, there was no accounting for the used– or left-over– checks.

So, it should not surprise anyone when it turned out that some of those checks were diverted to the comptroller’s personal interest.  And, to compound matters, the comptroller ‘cleverly’ paid its own American Express bill a few times with a company check. (The principal did not question the bills, since there already were two corporate American Express accounts.)

When I suggested prosecution, the principal demurred.  Because, then everyone would know the firm was duped.  And, that would damage the business reputation of the firm.  (Instead, I convinced the principal to ‘1099’ the employee for the amount of their ‘extra compensation’, leaving it to the IRS to collect their due from these illegal takings.)

But, this sort of situation is even more prevalent in non-profit entities.  Because, they run even looser ships.  (My first encounter with such a situation was in the late 70s, when I assumed leadership of one entity; I found it again with another non-profit shortly thereafter.)

In my mind, these are bigger societal problems.  When someone steals from a company, the owner(s) suffer the financial pain.  But, when it’s a non-profit, it’s the intended recipients- who need those moneys, or tons of folks who donated funds with the intent of helping others.  That’s a breach of public trust that affects us all.

The United Way.  Columbia University. The American Legacy Foundation. American Association for Retired Persons.  Georgetown University. Youth Service America,  Alliance for Excellent Education.  I could go on- because there are 1000s of such reports to be found if one examines the entities’ 990 [the non-profit version of the ‘1040’]  filings.  (You can search a whole bunch of such entities here.)

Believe it or not, these groups must report their “diversion”  (no, we never call it embezzlement!) of funds on their annual disclosure forms.  (They really don’t file income tax returns, since they owe no such taxes.)  One such listing:

IN FISCAL YEAR XXXX, YYYY BECAME AWARE OF AN UNAUTHORIZED DIVERSION OF ASSETS IN EXCESS OF $ 250,000 COMMITED BY A FORMER EMPLOYEE.  THIS FRAUD DID NOT MEET OTHER MATERIALITY TEST FOR FINANCIAL REPORTING (5% OF YEARLY REVENUES OR 5% OF TOTAL ASSETS).

It gets better.  This year of reporting was THREE (3) years after that non-profit was apprised of the situation.

And, we are not talking chicken feed here.  Nope, in one calendar year, the top 10 ‘diversions’ would have made the Fortune 1000 list!  That’s a lot of money that you, I, and a bunch of others scraped up to help others- it was not intended to benefit any one of the employees of the association.

(We are not even talking about how many of these associations rip off the public by only sending 10, 20, or even 40% of the money they collect to the intended recipients, keeping the rest for themselves.   Nonprofit only means they don’t distribute dividends to the principals of the entity, not that those principals don’t benefit from the entities. It’s gotten worse with many of these new “politically related’ organizations, supporting various weasels, oops- I meant politicians. One such entity- ALEC- even demands that legislators adhere to the desires of ALEC, not to us- the citizens who elected them!)

The biggest problem- is like with my for-profit clients- these non-profits rarely seek prosecution.  One such non-profit said it did not want to publicize it outside of its own board.   ‘[They] have a very good reputation.  [They] have grantors.   [They] didn’t want anybody to be upset.  [They] took care of it on [their] own’.

So, while some may get some restitution, it does not often does make our donations whole.   Which also means many of these same scamps get to perpetrate their fraud on other institutions.  And, while there are regulations that demand full disclosure, most non-profits don’t- and the regulators seem to look the other way, too.

We, the donating public, must insure that our charity only goes to institutions that truly provide benefit.  An imposition like that made on health care insurers that 80% or more must be used for benefits seems adequate to me.  And, these same entities must develop – and examine- a full ‘checks and balances’ system, to insure that our money is not further diverted.

Will you join me on this crusade?  If not for our own peace of mind, for the benefit of those we thought we were helping?

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