Tuesday, February 14, 2012

The Case Of The Disappearing Donations

The Los Angeles Times wrote today that 200 nonprofit groups have reported that all of their donated funds have vanished after the organization that watched over the money, the International Humanities Center, shut down last month.  While the closing of the operation may have come as a bit of a surprise, it was a bigger shock when many of its clients found they were missing hundreds of thousands of dollars.

Directors at 40 of the nonprofits affected have tallied their potential losses at $877,000.  The California attorney general's office is currently investigating the matter.

The nonprofits that used the International Humanities Center were mostly small organizations that didn't have the resources to handle the donations and their related paperwork.  The center acted as a financial services organization and handled all of this work for a small fee.

Steve Sugarman, the center's executive director, assured his clients in an e-mail that their funds had been spent appropriately.  This set off a bit of a red flag because fiscal sponsors are not supposed to spend a client's money for its own reasons.  When pressed on this, a consultant for the center, David DelGrosso, told nonprofits that their donations were used to pay legal fees and other bills, but he had been assured those funds would be replaced.  This consultant also said that the center had wasted project funds on a scam e-mail campaign.  This scam cost the center $200,000, and was a big factor in its downfall.

For now, many of the affected nonprofits are unable to pay their staffs or bills.  Some of them have little hope that they will ever see the money again, and have explained the situation to their donors.  This case is a perfect example of how careful nonprofits need to be when handing their funds over to third party.

You can read the full story in The Los Angeles Times.

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