Western Pa. charities find they must use financial vigilance
A man posing as an employee of United Way of Allegheny County walked into a bank in Delaware, presented the charity's account number and asked for $800,000. The bank gave it to him.
The next day, the local United Way discovered the identity theft and notified authorities. It had all the money back in three days.
“In our case, the controls worked perfectly,” Robert Nelkin, president and chief professional officer of the group, told the Tribune-Review, the first time he has spoken publicly of the 2008 incident. “Within hours of this theft, our staff uncovered it and reported it to me and the bank and the appropriate authorities.”
Not all charities are as prepared.
In 2009, the nonprofit groups began reporting to the Internal Revenue Service any “significant diversions” such as embezzlement, identity theft and investment fraud on their informational tax returns. The Washington Post found that more than 1,000 of the 1.4 million nonprofits in the United States reported some type of theft or other wrongdoing that cost them hundreds of millions of dollars between 2008 and 2012. It is money that could have helped children and the elderly or paid for a myriad of other good works.
In Pennsylvania, 62 nonprofit groups reported diversions totaling at least $47.6 million. Of those, the Trib counted nine diversions in Western Pennsylvania totaling at least $36.6 million.
“It's worth noting that it's a small percentage, but any percentage is no good,” said Diana Aviv, president and CEO of Independent Sector, a coalition of some of the nation's largest nonprofit groups. “I wouldn't make a donation to an organization that had this kind of experience unless I knew they had taken steps to remedy the experience.”
The number of groups victimized and the amount stolen is more than what is reported to the IRS. Not all groups disclose the amount stolen, and some fail to report documented thefts to the IRS at all.
Carnegie Mellon University, for example, announced publicly in 2009 that some officials at Westridge Capital Management took $49.1 million from the university's investment with the company, nearly 90 percent of which CMU has recovered through a court-appointed receiver. But tax records show the university failed to inform the IRS as required. The University of Pittsburgh, which has been reimbursed $46.6 million of the $52.3 million that Westridge officials took from Pitt, reported its theft to the IRS, also in 2009.
Carnegie Mellon officials declined to offer an explanation for the omission on their tax form.
Pitt managed to complete a $2 billion fundraising campaign despite the sting of stolen cash. Other organizations that notified the IRS of problems were not as fortunate.
“People didn't trust us. (They thought), ‘We don't want to send money to an organization that lets their people steal,' ” said Dave Morgan, president of the Crafton Volunteer Fire Department Board. The department's former treasurer was sentenced to two to four months in jail for stealing $143,000 from the group between 2006 and 2011.
Thefts leave organizations feeling sucker-punched.
“Everybody was basically in shock. You never want to believe there was dishonesty and somebody would take money from a nonprofit,” said Stefanie Woolford, executive director of Riverview Community Action Corp. in Oakmont. Her predecessor took about $9,400 from the senior citizens group.
Peggy M. Outon, executive director of the Bayer Center for Nonprofit Management at Robert Morris University, has advised about 1,000 charities across the country.
“It is absolutely true that I have seen an uptick, still a small percentage of the nonprofit sector, that have indicated that there was theft or misappropriation more frequently than there used to be,” Outon said.
“As the amount of money flowing to nonprofit organizations increases, thieves are going to see opportunities as they see it in the for-profit world,” she added.
In 2011, nonprofit groups in the United States made $1.5 trillion, according to the National Center for Charitable Statistics.
Woolford said nonprofits that bounce back from the blow of a theft follow a few guidelines.
“(It) basically comes down to giving everybody a sense that you know what you're doing, being as honest as possible and making sure that people know that this will never happen again,” Woolford said.
A former executive director of the Amyotrophic Lateral Sclerosis Association's Western Pennsylvania chapter misappropriated about $80,000 from the group in part by giving himself unauthorized raises. The group evaluated its financial procedures, hired an outside group to manage its books and prohibited its executive director from writing any check worth more than $500 without a second authorized signature.
“We did not sweep it under the rug,” said Merritt Holland Spier, the current executive director of the ALS chapter. “We were honest with our donors. We were honest with our public. We pressed charges immediately and went to work to get the money back.”
The local United Way chapter immediately disclosed its case of identity theft to the board. It chose not to inform the public. United Way officials don't know how the thief obtained its account number.
“Once we had recovered all the funds, our part of situation was over,” Nelkin said. “It became a matter for law enforcement.” Because Delaware authorities filed the criminal charges, the case didn't catch the attention of local media.
Pitt's board reviewed its loss and decided against changing its investment policy or strategy.
“This was not a question of an unsound investment. It was a question of people abusing the trust that had been placed in them,” said university spokesman Ken Service.
Bill Zlatos is a staff writer for Trib Total Media. He can be reached at 412-320-7828 or firstname.lastname@example.org.