Time for a change
The American taxpayer wants to believe — and should be entitled to believe — that the nation’s nonprofit organizations that enjoy significant tax breaks are impeccably managed and vigilant stewards of their assets, but now we know that’s not necessarily the case.
The Washington Post on Sunday published the results of its investigation into incredibly costly dishonest behavior by individuals or organizations connected to some of the major nonprofits and, to everyone but the terminally cynical, the results are astonishing.
For example, The Post disclosed that one such nonprofit, the American Legacy Foundation (with headquarters just blocks from the White House), had one loss estimated at $3.4 million that was “linked to purchases from a business described sometimes as a computer supply firm and at others as a barbershop, and to an assistant vice president who now runs a video game emporium in Nigeria.”
“We’re not innocent in this,” Legacy’s chief executive, Cheryl Healton, conceded. “We are horrified it happened on our watch … The truth hurts — we screwed up.”
But Legacy is far from alone when it comes to financial misdeeds by America’s nonprofits.
The Post’s analysis of filings from 2008 to 2012 found that Legacy is in fact just one of more than 1,000 nonprofit organizations that reported they had discovered a similar “significant diversion” of assets. They attributed these losses to theft, investment fraud, embezzlement and other unauthorized uses of funds.
“The diversions drained hundreds of millions of dollars from institutions that are underwritten by public donations and government funds,” the newspaper’s report continued, adding that just 10 of the largest disclosures cited combined losses that potentially totaled more than a half-billion dollars.
“While some of the diversions have come to public attention, many others — such as the one at the American Legacy Foundation — have not been reported in the news media,” the report continued. “And The Post found that nonprofits routinely omitted important details from their public filings, leaving the public to guess what had happened — even though federal disclosure instructions direct nonprofit groups to explain the circumstances. About half the organizations did not disclose the total amount lost.”
Nonprofit organizations are required to report only diversions — that’s a code word for thefts, apparently — of more than $250,000 or those that exceeded 5 percent of an organization’s annual gross receipts or total assets.
Filing instructions direct nonprofits to disclose “any unauthorized conversion or use of the organization’s assets other than for the organization’s authorized purposes, including but not limited to embezzlement or theft.”
What’s particularly alarming about The Post’s report is the sheer number of nonprofits that have been afflicted with what it called “financial skullduggery.” There are many such agencies in the District of Columbia, but they’re also all over the United States.
Even the AARP, the nation’s chief advocate for the causes of the elderly, has been caught up in the “skullduggery” tsunami. In 2011, The Post reports, it lost more than $230,000 due to embezzlement and billing irregularities, but the organization conceded nobody has been charged in connection with these losses.
Also in 2011, Columbia University reported it had been defrauded of $5.2 million in “electronic payments.” A university spokesman confirmed to The Post that the disclosure referred to an incident involving a former university accounting clerk and three associates who were later convicted of redirecting $5.7 million meant for a New York hospital.
There are many other nonprofits that suffered similar losses, and so the question arises: Shouldn’t new rules be established for the management of such organizations in order for them to be entitled to the tax breaks they now enjoy?