Financial fraud
9:41 am
Thu October 31, 2013

Fraud Against Washington Nonprofits Exposed

White-collar crime often occurs in the very profitable realms of Wall Street and big business. But financial fraud also takes place in the nonprofit world. A Washington Post investigation out this week found more than a thousand nonprofit groups have reported their money going missing in recent years.

In Washington state, nonprofits have reported embezzlement and fraud totaling more than $1.3 million since 2008, the year the IRS started requiring nonprofits to disclose when they noticed their assets disappearing. Nonprofits large and small, including the Seattle Rotary Club, the YWCA of Seattle and the organ donation agency LifeCenter Northwest, have suffered six-figure losses.

Some of the bigger cases make the news if the alleged embezzler is prosecuted, but many cases slip away unnoticed, their only public disclosure in obscure tax filings, known as 990s, filed by nonprofit groups.  

The IRS requires nonprofits to check off a box if they’re aware of any significant “diversion of assets” — usually financial fraud by a dishonest employee. The groups also have to disclose how much they lost,  how it happened and what they’ve done to keep fraud from recurring.

Two dozen nonprofits in Washington have reported fraud to the IRS. Nearly half of them failed to disclose the amount involved, as required.

Washington State Nonprofits Reporting Diversions Of Assets

Source: IRS “990” tax filings compiled by the Washington Post.

Nonprofit watchdog Chuck McLean with the GuideStar Foundation said the IRS filings known as 990s show that it’s rare for nonprofit employees to divert their organization’s money into their own pockets. He said 0.2 percent of the 990 tax filings compiled by GuideStar over the past four years report any asset diversion.

“Obviously you can also make the argument that if the form 990 is being filled out by the person doing the diversion, they might be unlikely to check the yes box,” McLean said.

McLean said nonprofit groups tend to be less sophisticated financially than for-profits of the same size. He said it’s important for both kinds of groups to have independent auditors look over their books.

At a nonprofit school in Shoreline called “Hurray for Me,” one employee apparently took the school’s name a bit too literally. The unnamed employee reportedly took $120,000 of the school’s money for himself or herself. Officials at the school, which has since been renamed the Horizon School, couldn’t be reached for comment on Wednesday. Hurray for Me’s 2010 IRS filing said the employee was fired and criminal charges filed.