Feds: Charity Boss Stole $4 Million

Brian James Brown, the former head of a charity advocating for Native Americans, pleaded not guilty Monday to charges that he stole $4 million from the organization.

According to a report in The Oregonian, Brown was arrested on Sunday at Portland International Airport, just as he was returning from a month-long trip to Thailand. Authorities say that his excursion was paid for, in part, by the funds allegedly stolen from National Relief Charities (NRC).

The arrest comes 11 days after a federal grand jury in Portland handed up an indictment against Brown, which charged him and unnamed co-conspirators with attempting to defraud NRC. The indictment further stated that Brown stepped down as head of the organization in 2005 to form his own nonprofit, Charity One Inc., which did business as the American Indian Education Endowment Fund.

Brown allegedly convinced NRC to fund Charity One with $4 million from 2006 to 2009, saying the funds would be used to offer scholarships to Native Americans.

"Instead," the government wrote in a news release, "Brown and unnamed co-conspirators allegedly used the entire $4 million for their personal benefit."

To keep the checks of either $100,000 or $200,000 coming in, Brown allegedly delivered falsified financial statements to prove that the money was being used appropriately.

Brown was allowed to go free after his arraignment as he awaits his Dec. 17 trial. He was ordered by U.S. Magistrate Judge Dennis J. Hubel to surrender his passport, wear a GPS ankle monitor, and stay at home from 8 p.m. to 5 a.m.

You can read the full report in The Oregonian.

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.

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).

Prosecutors: Ex-Mayor Stole Millions From Husband's Foundation

The former mayor of San Diego is accused of stealing millions from her late husband's foundation to feed her gambling addiction, according to a report in The New York Times.

Maureen O'Connor spent the last 10 years betting more than a billion dollars at casinos across the U.S., liquidating her savings, auctioning her belongings, and selling off her real estate in order to continue her wagers. Prosecutors also say she stole $2,088,000 from her husband's foundation, leaving it bankrupt. The name of the foundation was not listed in the report.

O'Connor appeared in court Thursday to answer the charges against her, and tearfully admitted to them. She blamed an addiction to gambling aggravated by a brain tumor for her decisions, and told reporters that she didn't mean to harm the city.

"Those of you who know me here would know that I never meant to hurt the city that I love," she said. “I always intended to pay [the money] back and I still intend to pay it back,” she said.

While the money she stole did not come from the city, the money taken from the trust of her husband, Robert O. Pearson, founder of the Jack-in-the-Box burger chain, most likely would have gone to local charities.

Documents filed in court by her lawyers state that after Pearson died in 1994, O'Connor turned to gambling to deal with the loss. “She began to seek an outlet in gambling,” her lawyers wrote. “The pattern fits the syndrome known as grief gambling.”

While she made over a billion dollars through bets at casinos in Las Vegas, Atlantic City, and San Diego, she still lost over $13 million.

Under an agreement made with federal prosecutors, O'Connor will get treatment for gambling addiction and has two years to pay back the foundation and taxes owed to the government.

You can read the full story in The New York Times.

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.

8 Things That Make Nonprofits Vulnerable To Fraud

Nonprofit boards and executives never want to believe that fraud can happen to their organization. It's one of those things that happen to the unprepared, they think, surely it can never happen to us.

Unfortunately, that is far from the truth. Fraud can happen to all nonprofits because, according Marci Thomas, CPA, MHA and Kim Strom-Gottfried, Ph.D. In their book "The Best of Boards," the two authors wrote that nonprofits are especially vulnerable to financial crimes because they rely on the trust of their donors, funders, and employees. If that trust is broken, organizations will have a hard time finding success.

Thomas and Strom-Gottfried wrote that organizations must have strong internal controls to make sure these factors don’t lead to fraud:

• Control by a chief executive; employees believe that there is no one to whom they can report unusual actions or requests;
• Existence of transactions, such as contributions, which are very easy to steal;
• Environment of trust, especially in financial personnel;
• Focus on the mission to the exclusion of administrative systems of controls and risk management;
• Failure to devote sufficient resources to financial management;
• Failure to include people with financial oversight expertise on the board;
• Failure of the board to challenge the chief executive for fear of losing the person; and,
• Fear that the cost of implementing controls will outweigh the benefit and spending money that, in their view, would be better spent on programs.

"Jewish Indiana Jones" Reined In

File this one under "bizarre but true."  Menachem Youlus, a self-proclaimed "Jewish Indiana Jones" who co-founded a Jewish charity to rescue Torah scrolls, has been arrested according to a report in The Wall Street Journal.  Youlus will be prosecuted in New York City on charges of defrauding donors of hundreds thousands of dollars.

According to the charges against him, Youlus made up accounts that his charity, Save a Torah, found Torahs in Europe.  These scrolls were said to have been lost or hidden during the Holocaust, and the charity claimed to have found some in concentration camps.  Youlus used these stories to get money for Save a Torah, which raised $1.2 million between 2004 and 2010.  To make matters worse for him, he is accused of embezzling $145,000 of those funds to the personal bank accounts of his Maryland business, the Jewish Book Store. 

But wait, there's more!  Youlus was also said to have claimed that Torahs he bought from dealers were rescued, using those claims to submit inflated and doctored invoices to his charity.  This allowed him to be reimbursed at a far higher price than he actually paid for the scrolls.  If convicted, Youlus will face up to 20 years in prison.  No word as of yet if he claimed to have found the Holy Grail.

You can read the full article of this bizarre story in The Wall Street Journal.

Another Nonprofit Executive Caught in Fraud

After the former CEO of the National Center for the Employment of the Disabled, Robert Jones, was sentenced to jail for fraud in March, we now learn that The former office manager for Big Brothers Big Sisters of the Bluegrass in Lexington, KY has pleaded guilty to bank fraud.

According to the US Attorney’s Office, Bendrea Wilson cashed more than $430,000 after issuing 142 fraudulent checks between the years 2008 and 2009. In her guilt plea, she admitted to keeping most of the money and paying smaller amounts to those who cashed the checks.

Committing fraud doesn't come without a huge price, and Wilson will received a tough sentence.  She faces up to 30 years in prison, a fine of up to $1 million, and up to five years of supervised release. She was also ordered to make restitution, though none has been made as of this writing.

NPTtv Summary: Who is William Alexander?

Note: This is a summary of a story in the latest episode of The NonProfit Times TV.\

Who is William Alexander, and why is he working at thousands of nonprofits in the US?  It looks like The Internal Revenue Service might have an explanation.

According to The IRS, more than 2,200 organizations at risk for revocation because they hadn’t filed paperwork in several years. To make matters worse, it appears someone decided to take advantage of this by sending along paper work in an attempt at identity theft for possible fundraising activities. Going by the name of William Alexander, the individual is listed as an officer at all of these nonprofits.  He also apparently works in an office building in Las Vegas.

No fraud has, of this moment, been reporting.  We can only hope that what happens in Vegas really does stay in Vegas.