9 Sobering Stats About Fraud

Every nonprofit manager knows that fraud is a bad thing but too many operate under the belief that it can never happen to them. It's that attitude that can lead to fraud occurring in the first place.

Managers can’t eliminate human weakness, but they can be vigilant in preventing fraud or, if necessary, dealing with it right away. Further, prevention can be helped in part by awareness throughout the organization.

During the recent AICPA Not-for-Profit Industry Conference, Mitchell Lewis, David McRoberts and William Mellon shared several statistics regarding fraud, taken from the Association of Fraud Examiners 2012 Global Fraud Survey (which includes for-profits). Get ready to be demoralized:

• Asset misappropriation schemes made up 87 percent of reported cases.
• The typical organization loses 5 percent to fraud each year.
• Reported frauds last approximately 18 months before detection.
• Some 77 percent of frauds were committed by individuals in one of the following six departments: accounting, operations, sales, executive/upper management, customer service, purchasing.
• Owners/executives and managers committed median losses at $573,000 and $180,000, respectively.
• The median loss caused by occupational fraud was $140,000.
• Median losses for nonprofits totaled $100,000.
• Approximately 85 percent of fraudsters are first-time offenders.
• Approximately 54 percent of fraudsters were between the ages of 31 and 45.

Webinar: Has Your Nonprofit Outgrown Quickbooks?

Update: Missed today's webinar? Not to worry, you can view the complete slides and recording on our online library.

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Over the last year or so, Intacct Corporation has worked with us on a number of informative webinars on the current world of nonprofit financials. They are joining us for another session on one of the more popular accounting programs available: QuickBooks.

"Has Your Nonprofit Outgrown QuickBooks? Taking Financial Management to the Next Level" is the latest in our series of free webinars with Intacct. Many organizations use QuickBooks because it's easy, well known, and it simply works. But as your organization moves beyond the entry level, QuickBooks may hold you back -- slowing growth and draining productivity. Change is hard but this webinar will help you start the transition of moving to a new accounting system.

Here's what you will be learning during this webinar with speaker Joan Benson, Sr. Product Manager, Nonprofit Industry at Intacct:

• Why you need a true nonprofit accounting solution.
• Five signs your organization has outgrown its small business accounting solution.
• How to evaluate the true costs of staying with QuickBooks (hint: it's not just the software).
• How the cloud makes it easy to move to a true fund accounting system.

Register today to get your nonprofit financials back on the right track. The webinar begins on Sept. 19 at 2:00 p.m. EST.

California Nonprofit, Union Spar Over New Contract

A new contract between a Berkeley, Calif., nonprofit and the California Professional Employees (CAPE) union is being held-up because of disagreements regarding a potential pay raise for the organization's workers.

According to a report in The Daily Californian, Building Opportunities for Self-Sufficiency (BOSS) -- which provides food and shelter for the homeless -- and CAPE began negotiations for a new contract in January, but have yet to reach common ground on pay. The union is demanding a 2-percent pay raise, an amount that BOSS Executive Director Donald Frazier said would bankrupt the organization.

"They’re asking me to increase the deficit, and I’m just not willing to do that," The Daily Californian quoted Frazier as saying. "BOSS is not equipped to do that." BOSS has an annual budget of more than $5 million, according to its most recent federal Form 990. The organization has 90 employees, most of whom are members of CAPE.

In an interview with The NonProfit Times, Frazier said they got an extension of the current contract until August 31. As to what happens after that, he said that it's hard to say at this point, but that it's possible they will get another extension of the contract so they can continue negotiations.

"I've asked the union to work with me for one year. We can certainly do a two-percent increase eventually, but we need to stabilize financially first," said Frazier.

A representative from CAPE took issue with Frazier's statement, saying that employees at BOSS have not received a pay raise since 2006. Christoper Graeber, who is CAPE's business representative, reportedly said that the only concession BOSS is offering is to give workers an extra day-off each year.

Graeber reportedly described the wage increases sought as "minimal," and expressed disappointment that Frazier is refusing "to bend at all."

You can read the full story in The Daily Californian.

11 Tips To Limit Fraud At Your Nonprofit

Unless someone develops a way to stop humans from having feelings of greed, nonprofit leaders are going to have to continue to be vigilant about fraud prevention. At a recent AICPA Not-for-Profit Industry Conference, the best ways to do this were discussed.

At the conference, Mitchell Lewis, David McRoberts and William Mellon said that while it is nearly impossible to stop fraud, there are ways to reduce the chances it will happen to you and to limit the damages if it does. They said that one of the main causes of fraud is a work environment where lack of oversight and too much trust are rampant.

With that in mind, Lewis, McRoberts, and Mellon offered five suggestions for organizations to practice:

• Fraud governance structure, including tone at the top, a zero tolerance policy, documented fraud policy statement and a code of ethical behavior.
• Regular education and training.
• A fraud tip line.
• Completion of a fraud assessment to identify fraud exposures and related events that require mitigation.
• An investigation and response reporting process.

In terms of specific anti-fraud controls, they suggested:

• Vendor bidding process;
• Completion of background and reference checks;
• Dual signatures and levels of approval;
• Segregation of duties;
• Mandatory vacations; and,
• Internal audits and use of Computer Assisted Audit Techniques (CAATs).

Report: Budgets Up, But Women Underpaid At Central Florida Nonprofits

A new report from the Rollins Philanthropy & Nonprofit Leadership Center revealed that while budgets have increased at nonprofits in Central Florida, female executives are still being underpaid when compared to their male counterparts.

The 2013 Nonprofit Compensation and Benefits Report, the latest installment in a bi-annual report, studied the compensation practices of over 160 nonprofits in Central Florida. Margaret Linnane, executive director of Rollins Philanthropy, stated that salary disparity between male and female executives represents a continuation of trend found in their previous reports. She noted, though, that the economy seems to be improving, with 70 percent of nonprofits surveyed implementing some kind of pay raise.

"Almost two thirds of nonprofits reported increased budgets and salaries, especially in the development director field," said Linnane. "There was also a higher turnover rate for employees seeking new jobs and considering retirement. These factors indicate a recovering economy, which we haven’t seen in the reports for some time."

The average pay for all CEOs/Executive Directors in the sample was $99,868 per year; for men, the average annual CEO/Executive Director pay was $115,731; for women, the average annual CEO/Executive Director pay was $87,693. While a majority (57 percent) of those surveyed was women, a greater number of men are found in the CEO/Executive Director positions of the largest organizations, which tend to pay higher wages.

You can view the full report by visiting Rollins Philanthtopy's website.

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Want more data on nonprofit salary and benefits? Purchase The NonProfit Times' 2012 Salary and Benefits Reports, and don't forget to participate in our 2013 Salary Survey (deadline for completion in July 26th).

4 Important But Basic Financial Statements

Executives and board members alike generally don't get much joy from financial reporting. They would rather focus on how to best fulfill their organization's mission yet, in order for that to become a reality, the fact of the matter is that these sometimes tedious tasks are a necessary part of any nonprofit.

As Marci Thomas and Kim Strom-Gottfried explained in their book "The Best of Boards," all nonprofits have at least three or four financial statements that must be completed if the organization is to meet federal and state regulations. These statements, which must be read together to have a complete picture of the organization, were described by Thomas and Strom-Gottfried:

• Statement of Financial Position: Also known as a balance sheet, this statement reports the organization’s assets, liabilities, and net assets at a specific point in time (usually at the end of the organization’s fiscal year).
• Statement of Activities: This statement reports the results of operations (revenues and expenses) and change in net assets for the year.
• Statement of Cash Flows: This statement provides information about the cash receipts and disbursements of the organization that result from operating activities, financing activities, and investing activities.
• Statement of Functional Expenses: This statement provides information about the organization’s expenses by function and by natural classification.

North Carolina Nonprofits Could Soon Pay Sales Tax

The North Carolina state Senate passed a measure Thursday that would cap sales tax refunds, a measure that critics say could cost hospitals, universities, and other charities millions of dollars.

According to a report in The Charlotte Observer, the Senate bill would cap sales tax refunds at $7.5 million initially, with that number going down to $100,000 beginning in July 2017. The state House did not include such a cap in their version of the bill, so its fate will be decided when the two chambers enter negotiations. The measure has strong support from Sen. Phil Berger (R-Rockingham), the president pro tem of the Senate who argued that nonprofit hospitals and other large organizations are nothing more than businesses organized as nonprofits. Berger framed the bill as a way to invigorate the state's economy.

“Our compromise plan incorporates feedback from folks across the state, provides much-needed tax relief to North Carolina families of all incomes and propels our state from the bottom of national rankings to the 6th best business tax climate in America,” Berger said in a statement.

On the other hand, the N.C. Hospital Associate has come out strongly against the cap estimating that it would eventually force the state's numerous nonprofit hospitals to pay $220 million a year in sales taxes. The N.C. Center for Nonprofits also estimates that the bill would affect about 250 of its 1,600 members. Don Dalton, a spokesman for the Center, said in a statement that hospitals would also be forced to cut back on services.

“Our hospitals are already facing $780 million per year in decreased payments every year for the next 10 years for serving Medicare patients,” Dalton said. “The State has not yet chosen to expand Medicaid or provide alternative coverage options for the state’s poor. Hospitals will continue to serve these uninsured patients without adequate compensation.”

What Can The Nonprofit Salary And Benefits Report Do For You?

Now that the 2013 Nonprofit Salary and Benefits Survey has begun, you are probably asking yourself: "What's in it for me? What do I get for my time?" A large cash prize might not be heading your way for completing the Survey but you will get something even more valuable: Peace of mind for your nonprofit.

Our annual Salary and Benefits Reports are born out of these surveys and they provide important financial information for all nonprofits. Among the things these reports will help you do are:

• Avoid trouble with the IRS by being able to check YES on your Form 990 regarding salaries for your chief executive and key employees set using comparability data for similar positions.
• Learn about 94 employee benefits — going way beyond dental plans and summer hours.
• Get data by nonprofit field, budget size, number of employees, and region throughout the U.S.
• Attract and retain the best employees by knowing how to offer fair and competitive compensation.

In addition to these benefits, participants also receive a FREE executive summary of the Survey, with full salary data for all positions, and will be entered to win an iPod Nano if your survey is completed by July 31! All of that for just an hour of your time.* So what are you waiting for? Start your 2013 Salary and Benefits Survey today!

 *Good news – this year’s survey is streamlined and even easier to complete! And if you’ve participated in past years, you can use your existing data as a jumpstart and just change any data that is different.

Lehman Bros. Seek Bigger Payments From Nonprofits

A year after exiting bankruptcy, Lehman Brothers Holding Inc. is back and is demanding larger exit payments from a host of nonprofits.

Lehman Bros. is not a name that brings back fond memories for most people. The financial institution's bankruptcy in Sept. 2008 was one of the major causes of the financial collapse that ravaged the economy.

According to a report in Bloomberg, the managers of Lehman's estate feel they were shortchanged by some nonprofits that made exit payments on derivatives that crashed after the bank filed for Chapter 11 bankruptcy, forcing it to sell its assets.

One of these organizations is Buck Institute for Research on Aging in Novato, Calif., which paid Lehman $2 million in Oct. 2008 to cancel a contract with the bank. Lehman has now come back to the organization and demanded $12.1 million more in addition to $4.7 million in interest. These funds are more than half of what the nonprofit spent o Alzheimer's, Parkinson's, and other diseases last year according to its most recent financial statement.

Mary McEachron, Buck’s chief administrative officer and general counsel, declined to comment on the situation to Bloomberg, saying only that the matter has not yet been resolved.

One other organization targeted by Lehman Bros. is a 5,000-student liberal arts college in Boston called Simmons College. The school paid Lehman $5.5 million in Jan. 2009 to exit from three interest rate swaps. In its June 30, 2012 financial statement, Simmons stated it held back $800,000 of that payment for out-of-pocket expenses. This didn't set well with Lehman, which now wants to enter a settlement through mediation with the college.

Lehman exited the bankruptcy process in March 2012 and has since liquidated about $46.2 million in assets. The bank needs $65 million more to repay its creditors by 2016.

You can read the full story in Bloomberg.

NJ Nonprofit Director Charged With Embezzlement

The former director of human resources for a New Jersey nonprofit was charged Saturday with embezzling more than $100,000 from the organization.

According to a report on a Philadelphia CBS affiliate, prosecutors allege that Christopher English generated paychecks from previously terminated employees of the Arc Mercer -- an advocacy and resource group for the mentally disabled -- and deposited those checks into his personal checking account. He allegedly spent that money on items ranging from a new truck to a $30,000 travel trailer.

English faces up to 10 years in prison if convicted.

Authorities say the alleged theft was discovered when the Arc's payroll company reported some discrepancies to the organization. The nonprofit was able to recover almost all of the funds that was taken in English's alleged embezzlement.

The Arc Mercer is located in Ewing, N.J., and has almost 350 employees and an annual budget of close to $17 million.

You can read the full story on CBS Philly's website.

Debt Causes Chicago's Field Museum To Auction Off Collections

If you are hoping to see famous items such as paintings by 19th century artist George Caitlin at Chicago's Field Museum of Natural History, you will be out of luck. Citing massive debt bought on by the Great Recession, the museum has auctioned off these works and some of its other collections in order to stay afloat.

According to report on NPR, the museum saw its endowment take a huge hit after the stock market tanked both in 2002 and 2008. Combined with bonds issued in 2002 to add an undergrounds collection center and make other updates, the Field Museum found itself in massive debt. To make matters worse, an expected increase in attendance did not occur, causing the institution to miss its fundraising goals.

Even after various cost-cuttings and layoffs, Field Museum CEO Richard Larivere told NPR that the institution's budget is still $5 million in the red, and most of that budget is slated to pay off debt.

Larivere became CEO this year and arrived after the previous head had decided that the best course of financial action was to sell off some of its collections. The practice -- known as deaccessioning -- is common in the museum world though there are some generally accepted guidelines on how the funds from these sales are to be used. For example, University of Kansas' Biodiversity Institute states that institute will only deaccession collections to "establish order and purpose to the collection," among other reasons.

The Field Museum used the nearly $15 million in funds from their deaccessioning to pay off certain staff members and to purchase new artifacts, which Larivere said is within the accepted guidelines for the practice. He also said that the museum would continue to sell off collections if it needed more money to balance their budget.

Although deaccessioning is an accepted practice there is some concern that it could cause donors to think twice before donating treasured items to museums.

You can read the full story on NPR's website.

Chicago Proposes Water Rates Compromise For Nonprofits

Chicago Mayor Rahm Emanuel is proposing a compromise for nonprofits that only recently found out they would be losing their exemption from water rates. The announcement came after meetings with leaders from nonprofits and select aldermen.

One of Mayor Emanuel's central promises of his election campaign was to end the practice of supplying free water to the many nonprofits in Chicago in order to help the city's budget. According to a report on DNAinfo.com Chicago, the Mayor had said the practice cost the city $20 million per year.

The water policy was changed as promised, but quickly met resistance from nonprofits, which claimed the rates were negatively affecting their ability to operate. While remaining firm on his pledge that he would not "give away" tax payer's money, Emanuel signaled last year that he would at least "study" a proposal by his aid Bob Fioretti, that would implement a sliding scale for rates based on an organization's assets.

Today's announcement indicates that he agreed with that plan, as the Mayor's compromise shares some of the features of Fioretti's plan. Under the compromise, nonprofits with overall assets under $1 million would not have to pay water fees. Those valued at between $1 million and $10 million, however, would still pay the feed but would get a 60 percent exemption. Those between $10 million and $250 million would get a 25 percent exemption.

Finally, those valued at more than $250 million would receive no additional exemption, although a public-museum exemption would remain at 20 percent regardless of asset level.

You can read the full story on DNAinfo's website.

S&P: Pensions A Burden For Nonprofit Hospitals

Pension liabilities will be continue to be a burden for nonprofit hospitals rating service, Standard and Poor's (S&P), reported Monday.

While there are other factors contributing to the financial problems of the sector, large pension funding demands are the biggest factor according to a report in Reuters. S&P credit analyst Liz Sweeney said in a statement that the promises of these retirement benefits could be a "drag" on nonprofit hospitals for several years despite improvements in the investments used to fund retirement services.

"Low discount rates have hampered the improvement in funding levels despite a rebound in asset values during the past two years," said Sweeney.

Retirement benefits are just one of the many challenges nonprofit hospitals are facing. S&P noted that as pension gaps continue to grow in state and local governments, employers are putting more money into healthcare systems that have redesigned pensions, which could leave less funds for other projects.

"We believe that health systems will continue to implement plan changes to seek the next level of cost savings within the context of organization-wide expense reduction measures," S&P reported.

Changes from the Affordable Care Act, increasing stress on Medicaid and Medicare, and increased healthcare demands in general, are also increasing the financial difficulties for nonprofit hospitals across the country.

You can read the full story in Reuters.

Gates-Backed Charity Targeted In Embezzlement Probe

Twenty doctors with ties to a charity backed by the Bill and Melinda Gates Foundation were arrested over the weekend in Niger for suspected embezzlement of funds.

According to an article on The Huffington Post, the arrests are part of an investigation of some $1.5 million in funds donated by the GAVI Alliance between 2007 and 2010. The arrested doctors were charged with allegedly embezzling these funds from the organization, which has reportedly suspended the financing of health programs in Niger until the money is reimbursed.

The Washington, D.C.-based GAVI Alliance, which was founded in 2000 with help from a $750 million grant from the Gates Foundation, aims to improve access to immunization in the world's poorest countries. The organization also receives support from the World Bank, UNICEF, and donor governments.

The landlocked West African country has made fighting corruption a priority in recent years. In 2011, President Mahamadou Issoufou fired two ministers who allegedly awarded illegal state contracts.

This is not the first time the Alliance has faced financial controversy. In December, the nonprofit suspended $6 million in funding to another African country, Sierra Leone, after an audit revealed misuse of $1.1 million in previously disbursed funds. The report showed undocumented expenses, cash handouts, and overcharged procurement costs between 2008 and 2011.

You can read the full story on The Huffington Post.

Sandy Relief Group Sued For Fraud

The founders of a Hurricane Sandy relief group have been sued by the state of New Jersey for allegedly diverting funds for personal use, while victims of the storm supposedly received little money.

John Sandberg and Christina Terracino founded the Hurricane Sandy Relief Foundation (HSRF) in the aftermath of the deadly super storm to help those affected by it. On Thursday, the state Attorney General's Office and the New Jersey Department of Consumer Affairs (DCA) filed a lawsuit against the two founders and the Foundation. According to a report in The Asbury Park Press, the suit cites numerous violations of NJ's charity code, including allegedly diverting $17,000 in donated funds to, among other things, pay credit card bills and shop online.

“This organization told the state it does not pay its executives, but our investigators found a paper trail reflecting thousands of dollars being transferred into the individual defendants’ personal bank accounts,” said Attorney General Jeffrey S. Chiesa in a prepared statement. “Meanwhile, less than one percent [$1,650] of the money raised, has allegedly been paid out to help the victims of Sandy.”

According to the Foundation's website, almost $631,000 in cash donations were raised. The state's complaint alleges that nearly $39,000 of that money remains missing.

Other accusations against Sandberg and Terracino include, allegedly:

• Misleading donors by falsely claiming the Foundation is a tax-exempt 501(c)(3) charity; and,
• Co-opting the name of the Hurricane Sandy New Jersey Relief Fund, which was founded by NJ First Lady Mary Pat Christie.

You can read the full story in The Asbury Park Press.

D.C. Nonprofit Declines To Say How It Spent Money

An embattled D.C. nonprofit reported receiving $25 million in a recently filed Internal Revenue Service (IRS) report, but decline to say how it spent all of that money.

The D.C. Children & Youth Investment Corp., which was involved in a theft scandal which sent former councilman Harry Thomas Jr., to prison, also did not identify any grantees in its annual tax filing with the IRS, according to a report in The Washington Times. While the Trust did report $25.7 million in funding for the period spanning Oct. 2010 to Sept. 2011, sections of the report for expenditures -- including compensation -- were left blank.

The Trust's senior director of finance, Earl Thomas, told The Times that the organization plans to file an amended report with the IRS as soon as outside auditors finish reviewing two years finances. In a Jan. 29 post on this blog, it was reported that those audits would be released in 30 days.

The nonprofit has been trying to get back on track after the bad publicity from the Thomas Jr., situation. The former D.C. councilman was sentenced to three years in federal prison after pleading guilty to using grant money meant for local children for personal uses, including trips, clothes, a new car, and shoes.

The Trust reported a deficit of almost $3 million last year and, without the completed audits and the incomplete IRS filing, it is unclear whether its finances have improved or worsened.

You can read the full story in The Washington Times.

Troubled D.C. Nonprofit To Release Audit

A Washington, D.C.-based nonprofit that had hundreds of thousands of dollars stolen by a former D.C. councilman will release an audit of its finances.

Keva Sturdevent, development director of the DC Children and Youth Investment Trust Corp., told The Washington Examiner that the organization will release its fiscal year 2010 audit in the next 30 days. Former Councilman Harry Thomas Jr., pleaded guilty last year to stealing $353,000 from the organization in 2010, as well as other charges of tax fraud. He was accused of transferring the money to his bank account for personal use and was sentenced to three years in prison.

"There is no excuse," Thomas said during his sentencing. "What I did was wrong." He went on to explain that he stole the money because he had a sense of "entitlement."

The D.C. Council has long pushed for the release of the 2010 audit, arguing that it could provide valuable insight into Thomas' activities. DC Children and Youth Investment Trust receives the majority of its funding from the District government.

 "We have an unaudited organization that has millions upon millions [of] dollars of D.C. funds," said Councilman Jim Graham, who oversees the organization as chairman of the council's Human Services Committee, on Monday. "The audit is going to tell the story."

Graham was one of the leading voices to get the trust to release its 2010 audit. He had previously asked Council Chairman Phil Mendelson to appoint him as a non-voting member of the nonprofit, and he was subsequently nominated for that position earlier this month.

Robert Bobb, the trust's chairman, criticized that decision in a letter to the council, insisting that his organization could only "prevent repeating the problems of the past by erecting a barrier between the Trust and elected officials."

Graham eventually removed his name from consideration.

The trust says it plans to conduct audits of 2011 and 2012 as well, but has not yet announced when those would be released. The organization's new executive director, Ed Davies, admitted to The Examiner that the trust isn't as independent from politics as it should be, and de-politicizing remains his top priority.

You can read the full story in The Washington Examiner.

Nonprofits Hurt By New Postal Rules

This is an article that appears in the newest edition of our NPT Weekly eNewsleter. For more stories like this, subscribe to it for free on our website.

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Six of the United States Postal Service’s (USPS) new workshare discount rates, that took effect yesterday, are shallower for nonprofit mailers than for commercial mailers, and unfairly discriminate against nonprofits, contends the Association of Nonprofit Mailers (ANM), based in Washington, D.C.

Three of the new discounts -- high density letters, high density flats, and automated 5-digit flats -- are higher than the old rates, two categories (high density plus letters and high density plus flats) are new and the discount for non-automated 3-digit flats is slightly lower than the old rate. But the key issue is the discrepancy between the nonprofit and commercial rates.

According to ANM Executive Director Tony Conway, worksharing discounts are provided when mail is prepared in certain ways, such as presorting it by ZIP code, effectively taking some of the burden of sorting and transporting off the United States Postal Service (USPS). The goal is to create incentives to drive the most efficient mailing behavior.

The difference is less than 4 percent or $0.003 per piece for four of the categories (high density letters, high density plus letters, high density flats and high density plus flats), with auto 5-digit flats being 8 percent or $0.007 per piece and a 13.5 percent difference, or $0.007 per piece, for non-automated 3-digit flats.

“We saw that for certain types, nonprofits are receiving a lesser discount than commercial counterparts,” said Conway. “We called the Postal Service on that, raised the issue with the Postal Regulatory Commission (PRC) and filed comments (in November) saying the discrepancies are not allowed by law.”

Section 403(c) of U.S. Code Title 39 prohibits discrimination among mail users when it establishes fees unless it has a reasonable justification. The USPS claims it cannot equalize the nonprofit and commercial rates “without setting the nonprofit base rate higher than would be most efficient and preferable from a policy perspective,” according to PRS Docket No. R2013-1. Conway said the USPS’s argument boils down to setting rates being a complicated process for everything to work perfectly all the time. That argument does not hold water, said Conway.

“So the PRC, unfortunately, instead of pushing back on the postal service, chose not to do that and told the postal service they could implement the new rates,” said Conway. “From a nonprofit standpoint, they’re doing the same things commercial mailers are doing, and to be provided a lesser discount, that’s just blatant discrimination for no good reason.”

Diana Aviv, president and CEO of Independent Sector in Washington, D.C., said, “Independent Sector has long worked to ensure that nonprofit organizations receive equitable treatment under the law relative to their counterparts in the for-profit sector. The proposed worksharing discount is another example of the disparate treatment of nonprofit organizations that should be rejected.” Independent Sector was a signatory along with eight other organizations on a letter of protest that was sent to Rep. Darrell Issa (R-Calif.), chairman of the Committee on Oversight and Government Reform. Issa has previously helped to block legislation that would eliminate the nonprofit rates.

Conway said his organization is prepared to fight the new rates in court, but he hopes that will not be necessary. When the PRC produces its annual compliance determination report in the first quarter of 2013, Conway said he believes it will recognize and correct the oversight. “It appears it was just sloppy work by the postal service in designing new rates and inattention to the argument we raised,” he said.

That is in contrast to two other cases where Conway said the USPS deliberately kept the nonprofit sector out of worksharing discounts. The first time was 1980, when worksharing discounts were established. The USPS said the discounts were only available to the commercial sector. The organization Easter Seals took the USPS to court and won, and from that case ANM was born. In 1996, the USPS again tried to discriminate against nonprofits, said Conway. This time, ANM was the plaintiff and won the case.

If the PRC continues to accept the USPS’s explanation for why some discounts are lower for nonprofits, Conway said ANM will again go to court. “We hope to get it straightened out through the regulatory process, but we’re geared up to go to court and I’m confident we will prevail,” he said.

If the new workshare discounts are allowed to stand, said Conway, that would “drive more inefficiency and send the wrong signals.” It’s not so much a question of revenue foregone, he said, as it is not allowing discrimination against the sector. “We’re not talking about monstrous overpayment, but it’s the principle,” said Conway. “To not (correct the mistake), be called on it and just blow it off is wrong,” he said.

Nonprofit CEO Faces Fraud Charges

The CEO of a nonprofit that aids disadvantaged youth and families in Cincinnati, OH, was indicted by a federal grand jury today on charges of tax and mortgage loan fraud.

Regina Shields, who is the head of Free Truth Enterprises (FTE), faces, among other charges, four counts of filing false claims for federal income tax refunds, and one count of wire fraud, according to a report in The Business Courier. She is currently free having been released on bond.

According to court documents, Shields allegedly filed federal income tax returns claiming that she received significant W-2 wages and witholdings from FTE. As a result of those deductions, Shields was paid $61,315 in salary from 2007-2010. The indictment goes on to allege that FTE did not have significant receipts or engage in charitable activity.

Shields also faces charges regarding an alleged mortgage fraud scheme involving a property at the address 2985 Timbercrest Drive. The indictment states that she allegedly wrote a $164,000 check through the name Property Negotiation Group for the property during a sheriff's sale. That check was subsequently returned after the bank account it belonged to was revealed to have insufficient funds.

You can read the full story in The Business Courier.

The Fiscal Cliff Deal: How Does It Affect Nonprofits?

Politicians and the members of the media have been talking about the "fiscal cliff" -- the combination of expiring tax cuts and automatic spending cuts -- for so long, it almost seemed anti-climatic when the country tumbled off it yesterday.

Although the Senate had successfully passed -- 89-8 -- a bill that would have averted the cliff, the Republican-controlled House of Representatives declined to take up the bill, opting to consider it on New Year's Day instead. The bill was passed that evening, which closed the door on tax rates and delayed the spending cuts for another two months.

President Barack Obama campaigned on raising taxes on those making $250,000 or more and, though he wasn't able to get Congress to pass a bill with that threshold, taxes were raised on the wealthiest Americans (specifically, individuals earning $400,000 and couples earning $450,000). That is the main headline from the bill, but it also will have an effect on the nonprofit sector.

In an article on The NonProfit Times website, it was revealed that the legislation will cap deductions for wealthy itemizers. It also reduces the amount of itemized deductions by a fixed percentage for each dollar of income (AGI) above a specified amount (up to 80 percent of the total). In this case, it would be 3 percent above the threshold.

Does this mean the charitable deduction has been affected? Not yet, said Joseph Rosenberg, a research associate at the Urban–Brookings Tax Policy Center in Washington, D.C. He told The NonProfit Times that since the cap is based on income, "it essentially operates as an income tax surtax, not a cap on itemized deductions (i.e., deductions retain the full marginal tax value for most taxpayers)."

That doesn't mean nonprofits are out of the woods yet. In a statement shortly after the bill was passed, President Obama expressed his desire to pursue further deficit reduction through a combination of spending cuts and increased revenue from tax reform, which could potentially place a cap on charitable deductions. The spending cuts could also impact organizations, depending on what government programs are targeted.

Stay tuned to the NPT website for more details on the fiscal cliff deal as they emerge.