Charities lose billions of dollars to theft, fraud
From today’s Tennessean:
Charities lose billions of dollars to theft, fraud
Nashville groups are among victims
By BOB SMIETANA
Staff WriterCassandra Stanfield liked to spend money.
She bought a $600,000 home outside Memphis, along with a Lexus, a Mercedes, and a Cadillac Escalade, $75,000 worth of clothing, and thousands more on jewelry, electronics and fine furnishings.
Prosecutors said Stanfield earned less than $30,000 a year as head cashier at the Regional Medical Center in Memphis but fueled her spending sprees with money intended for the hospital, operated by the Shelby County Healthcare Corp., a not-for-profit charity.
Stanfield’s case is not an isolated one. It illustrates the national problem of embezzlement among U.S. charities, particularly small ones at which trust gets in the way of solid bookkeeping practices. According to one recent study by the Nonprofit and Voluntary Sector Quarterly, a respected trade publication, charities were bilked of $40 billion in 2006.
Janet Greenlee, one of the study’s co-authors, said fraud happens “all the time at charities” but that few of them are willing to admit it.
“They are afraid it’s going on and not being caught,” she said. “Or they know it’s going on and don’t know what to do about it. Or they are afraid that the news will get out.”
Stanfield was sentenced earlier this month to five years in prison and ordered to repay more than $2 million she had embezzled from her employer.
The West Tennessee wo-man matched the profile of other female embezzlers, the study said. Most are women earning less than $50,000 a year who have worked at the agency for less than three years. They usually do not have a criminal record.
“It’s usually someone who is indispensable,” said Greenlee.
That’s something members of the Granbery Elementary School PTA in Nashville found out in 2006, after discovering that volunteer co-president Julie Ann Taylor Buchanan had stolen nearly $150,000.
At Buchanan’s sentencing, Carol Burgess, the group’s former treasurer, described Taylor’s steadfast service.
“Julie was always there,” Burgess said. “You could always count on her.”
Small groups vulnerable
Dennis Dycus, director of the division of municipal audit for the Tennessee state comptroller’s office, said schools-related groups, like the PTA or sports boosters, are particularly vulnerable to fraud because they have few financial controls in place.
Small nonprofits that rely primarily on volunteers often don’t take basic precautions to prevent fraud, such as having two people present whenever cash is counted, or separating duties when handling a checking account. If the same person who writes checks also reconciles the bank account, that leaves the door wide open for fraud, Greenlee said.
William Maxwell, administrative director for the Tennessee Baptist Convention, said many of his organization’s almost 3,000 congregations are too small to hire professional accountants. But they can safeguard funds by using “the rule of two,” where financial duties are always split.
“If it’s a small church with volunteer treasurer,” he said, “we talk about delegation of duties, like having a different person to count the money, a different person to write the checks, and a different person to balance the checkbook.”
Ken Behr, president of the Evangelical Council for Financial Accountability, said putting those kinds of simple principles into place can drastically reduce fraud.
“An ounce of prevention goes a long way, he said.
Having hard and fast financial procedures seems foreign to many small nonprofits, which thrive on a culture of trust and friendship. But when it comes to money, trust is a luxury nonprofits can’t afford, Greenlee said.
3 motivating factors
Most people who steal from charities do so because of three factors: opportunity, some kind of personal crisis, and an ability to rationalize their actions.
“It usually starts out with someone who needs a little cash to get through to the end of the month,” Maxwell said, “and it will snowball from there.”
The study in the Nonprofit and Voluntary Sector Quarterly is the second recent report to suggest that charity fraud is widespread.
The findings were similar to a 2007 study conducted by two researchers at Villanova University in suburban Philadelphia who surveyed chief financial officers at 174 U.S. Catholic dioceses about theft. Seventy-eight dioceses responded and researchers were shocked to learn that 85 percent had experienced fraud at local parishes within the last five years.
Tennessee isn’t immune
The impact on charities and churches in Tennessee is difficult to calculate because no central agency collects comprehensive statistics. But it happens here.
In January 2007, Sherry Dorris, the part-time treasurer for Neely’s Bend Baptist Church in Madison, was sentenced to eight years probation for embezzling more than $97,000 from the church.
In November 2006, Zoya Tanmaya Zakwan, bookkeeper for the First Cumberland Presbyterian Church in Murfreesboro, was indicted for stealing more than $60,000, mainly by using church credit cards for personal purchases.
In February, she pleaded guilty to theft over $1,000, got two years probation and was ordered to pay $73,256 in restitution.
Davidson County Assistant District Attorney Jim Milam said there had been eight cases - two involving about $150,000 each - brought to trial over the last two years in Davidson County.
When auditors discover fraud at large charities, they are required to report it to the state comptrollers office. Anti-fraud experts also say it’s essential to call the police, even if fraud happens at a church. Otherwise, a thief may simply go on to rob another charity.
“We want these cases to be prosecuted so that someone who steals from a charity cannot turn around and victimize another charity without being punished,” Milam said.
He added that almost any charity that experiences fraud is likely to end stronger afterward. “They almost always end up with better financial controls,” he said.
Habitat bounced back
At least one Nashville-area charity found the silver lining after experiencing fraud.
In 2001, an employee of Nashville Habitat for Humanity was charged with embezzling more than $40,000. Kathy L. Dixon pleaded guilty and received a 12-year sentence for theft of property.
Until that time, the charity had run an operation more concerned about the feel-good aspects of its work than the business side of charity, said Chris McCarthy, executive director of Nashville Habitat.
When McCarthy joined Habitat in 2002, she instituted strong financial controls and staff training.
“I wanted to set up policies so that if I was going to give them money, I wanted to be sure it was going to be used well,” McCarthy said. “This is too much hard work to let anyone steal from donations.”
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