Charity Governance

THE NONPROFIT SCANDAL OF THE YEAR: THE FIESTA BOWL, PART I

DATELINE: March 31, 2011, Chicago

The likely winner of the coveted "Nonprofit Scandal of the Year" annual award is the Fiesta Bowl, which is the alter ego of four Section 501(c)(3) organizations--the Arizona College Football Champion, the Arizona Sports Foundation, Fiesta Events, and the Valley of the Sun Bowl Foundation-- acting in concert.  Pretty good feat given that it isn't even April. 

No doubt you've read the headlines.  The New York Times summed it up...

REPORTER SURPRISED BY DEGREE OF FRAUD IN NONPROFIT SECTOR

DATELINE: August 25, 2010, Chicago

We recently spoke with a reporter who was writing a story about a misappropriation of funds from a Florida nonprofit.  She asked how prevalent fraud was in the nonprofit sector.  Our response:  Too prevalent!  As we provided her with both statistical and anecdotal evidence, we could sense her eyes widening. 

If she still doubts us, she only need look at yesterday’s Chicago Tribune.  Ex-Treasurer Theresa Carlquist of Downers Grove League is Charged with Stealing $100,000 (August 24, 2010).  Of course these are allegations, so there is the presumption of innocence.  But take a closer look at the some of the alleged facts... .  

CONNECTICUT ATTORNEY GENERAL DOESN’T LIKE ARBITRATION IN WESLEYAN DISPUTE

DATELINE: August 24, 2010, Chicago

On January 8, 2010, we wrote about the dispute between the Wesleyan and its former chief investment officer.  As we noted at the time, the civil allegations against Thomas Kannan were initially eye popping, but after examining the known facts, we thought that Kannan could...

CHURCH CONGREGATION LOST EXACTLY WHAT IT DESERVED: PRIEST ALLEGEDLY STEALS $1.3 MILLION TO FINANCE ESCAPADES IN NEW YORK CITY

I'm feeling rough, I'm feeling raw, I'm in the prime of my life, Let's make some music, make some money, find some models for wives...We're fated to pretend.

MGMT, Time to Pretend from Oracular Spectacular

DATELINE: JULY 7, 2010, Chicago

Some may feel that we are being a bit harsh today.  We, however, hearken back to a January 5, 2007 article by Laurie Goodstein and Stephanie Strom of the New York Times, which reported on a survey conducted by the Center for the Study of Church Management at Villanova University.  Embezzlement is Found in Many Catholic Dioceses.  Surveys were sent to the CFOs of all 174 Catholic dioceses in the United States.  78 responded.  Of those, 85% reported embezzlements over the prior five years.   Of those, 11% had experienced thefts of at least $500,000.  One-third of the reporting dioceses indicated that they had experienced thefts under $50,000.  Here's our more detailed coverage.

Now for the juicy stuff,...

THE 2010 REPORT ON FRAUD FROM THE ASSOCIATION OF CERTIFIED FRAUD EXAMINERS: THE BEAT GOES ON

DATELINE: June 2, 2010, Chicago

We have written about nonprofit fraud in any number of posts during the last six years.  Unfortunately, we see no reduction in media headlines, or the amounts stolen, which often are in the $200,000 to $400,000 range.  Hopefully the IRS will release data from the 2008 Form 990 that quantifies the level of fraud reported by tax-exempt entities.  In the meantime, we have the ...

CALIFORNIA DEFINES FIDUCIARY DUTIES IN SUIT AGAINST CORPORATE DIRECTORS

DATELINE: May 27, 2010, Chicago

A state attorney general is at it again, throwing down the gauntlet against alleged abuse in the nonprofit sector.  This time it is California’s Jerry Brown, with Senior Assistant Attorney General Belinda J. Johns in the lead, playing her usual prominent role in the litigation.  One of the named defendants, Shanda LeBoeuf, called the suit “dispiriting to the people who work in that field,” according to Virginia Hennessey of the Mercury News.  Monterey County Aids Project Accused of Misusing $2.8 Million (May 25, 2010).  If the  allegations are true, we disagree:  The conduct is...

NO FINANCIAL CONTROLS, NO MISSION

DATELINE: April 22, 2010, Chicago

Too often we hear board members say that they should not be responsible for financial oversight because they are focused on mission--mission people.  This is a false dichotomy if there ever was one.  No organization can have mission without financial oversight.  The latest evidence in support of that assertion is Family Connections of Austin, Texas, a nonprofit.  Its executive director, Louanne Aponte is suspected of misappropriating...

THE SPECIFIC ALLEGED ACTS ARE LESS INTERESTING THAN THE CONTEXT: NEW YORK STATE THEATRE INSTITUTE

DATELINE: April 21, 2010, Chicago

Yesterday, the State of New York Office of the Inspector General (OIG) issued a report detailing its findings from its investigation of the New York State Theatre Institute.  The details center on the conduct of Patricia Snyder, its Producing Director.  She essentially functioned as its executive director or CEO. 

The Institute is a New York public benefit corporation established to provide theater and education programs for children.  By statute, the Institute is a state agency, according to the OIG's report and the Institute's employees are required to abide by state ethics laws.  Neither the report, nor a New York Times story by Danny Hakim refer to the organization as a Section 501(c)(3) entity, but a quick check of GuideStar’s database reveals an organization referred to as the New York Theatre Institute Corporation & Science Learning.  Danny Hakim, Report Sees Corruption in State-Financed Institute (April 20, 2010).  It is a Section 501(c)(3) organization.  The two organizations appear to be the same one, which adds a dimension to the story that neither the OIG, nor the Times mention—the IRS also may have jurisdiction over the entity.

The Times story and the OIG's report caught our attention because of the allegations, which...

I HAVE A DREAM: IMPROVED INTERNAL CONTROLS AND BYLAWS

DATELINE: January 28, 2009, Chicago

The Atlantic Journal Constitution has reported that the Southern Christian Leadership Conference (SCLC) is experiencing serious governance problems, including what appear to be allegations involving misappropriation and misuse of SCLC funds.  Rhonda Cook, Judge Orders Previous SCLC Leadership Reinstated (January 21, 2010); and Rhonda Cook, $569,000 May Have Been "Diverted" from SCLC Funds (January 14, 2010).  In December 2009, the board of the organization founded by Rev. Martin Luther King, Jr.  voted to...

WESLEYAN LAWSUIT AGAINST FORMER CIO HOLDS LESSONS ABOUT E-MAILS AND CONFLICTS

DATELINE: January 8, 2010, Chicago

The Wesleyan Argus is reporting that Wesleyan University filed a lawsuit against its former Vice President of Investments and Chief Investment Officer, Thomas Kannan, for breach of fiduciary duty, civil theft, breach of contract, fraud, statutory forgery, and unjust enrichment.  Rob Wohl and Ezra Silk, University Sues Former Investment Officer Thomas Kannam for $3 Million (January 4, 2010).  Our initial reaction was to utter...