The Office

of

Foundation

Oversight

The Office of Foundation Oversight is more than a watchdog group, we are the eyes and ears of the U.S. Government and represent the interest of all American Citizens.  Our independent investigations into corruption, misconduct, and conflicts of interest help achieve a more effective, accountable, and ethical nonprofit community.   We will not be intimidated by the seemingly "untouchable" elite board members so many nonprofit boards wield, shielding them from criminal prosecution.  Not only do we have the United States Government in our corner, we have the judicial muscle of Tucker Global Initiatives' contracted forces. We collaborate with IRS Special Investigations and the Office of the Inspector General, so we do not cower, we grow stronger. We are not alone in our fight as we are a coalition united to bring justice to those who abuse that which they have been entrusted. We will continue to fight for stronger sentencing for first time convictions involving the abuse of donated funds and/ or program dollars earmarked to help the disadvantaged.  We will push for stronger consequences for all persons involved in covering up these crimes and enforce full disclosure to patrons seeking charitable contributions, regardless of the level of generosity requested.  We will insist Nonprofits practice with full transparency regarding their financial management, or be refused their nonprofit status and the ability to solicit donations. 

Fact: The theft of funds is not generally covered by insurance.  The employee dishonesty provisions of a standard insurance policy does not protect a charity  from loss when an employee conducts an unauthorized fund-raising campaign and uses the proceeds for himself, according to the First Circuit Court of Appeals. The Court affirmed a District Court decision denying coverage for the Special Olympics International and its Massachusetts affiliate.  In that case, an area manager hired a telemarketer to launch a fund raising campaign using the Special Olympics name and logo without the organization's knowledge. He deposited the raised funds in an unauthorized bank account opened in the organizations name from which he wrote checks to himself totaling over one million dollars. When this was ultimately discovered, as it usually is, Special Olympics sought to recover those funds under their employee fidelity policy. Not only did they not recover a single dollar, they lost even more by way of legal fees, payroll dollars, and undetermined donations withheld from benefactors whose confidence was now lost.

 

Insurance policies are intentionally ambiguous, so it is up to the insured to read and understand the fine print. A simple re-wording of a clause can change the entire meaning, so if it's not transparently clear, have them reword it.  Remember Insurance Companies are not in business to pay out claims.  An Executive over a federally funded and/or charitable trust has the fiduciary responsibility to read every page, every provision and every clause, no matter how time consuming and boring it may be, and not  sign anything that is not fully understood. Asking for additional clarification does not make one look foolish or ignorant, quite the opposite.

Oversight is a way to ensure that various groups, organizations and government operate legally, ethically,  and follow whatever mission statement they claim as tenet.  The burden of direct non-profit oversight falls upon each organization's Board of Directors, which often is not enough. A nonprofit’s board of directors is legally responsible for exercising the care an ordinarily prudent person would exercise in overseeing the organization’s operations. This includes the organization’s finances and legal compliance.  Unfortunately, it has been proven that board members are often culpable in the crimes they are appointed to prevent, or acting alone, violate Federal and State laws in addition to the bylaws of the charter. This includes concealing a crime committed while on their watch.  Some claim to have good intentions for concealing such misappropriations, but it is still a crime, one that continues when they seek financial contributions claiming to be moral, ethical and financially sound.  True non-profit Oversight must operate as a completely unbiased third-party with no connection whatsoever to the organization in question.  External Oversight's main purpose is to watch over Internal Oversight. All government agencies answer to Oversight in some form, so nonprofits and their Board of Directors should too, especially when they rely on public donation or government grants for their funding. 

Despite the increase in fraudulent activity reported in nonprofit organizations, the majority of United States nonprofits still operate in an ethical and accountable manner. However, nonprofits are not immune to damage caused by unscrupulous and fraudulent solicitors, financial improprieties, and executives and/or  board members who place personal gain above the organization’s mission. Because nonprofits are held to such high standards and depend on the public's trust, many safeguards have been initiated to defend against fraud and corruption:

  • Boards – All nonprofits are governed by a board of directors or trustees consisting of a group of volunteers that is legally responsible for making sure the organization remains true to its mission, safeguards its assets, and operates in the public interest. But, as this office has seen first hand, not all boards or directors are ethical.  Conflict of Interest cases are the highest reported complaints filed by insiders.  Some boards have even elected to "unofficially" remove that stipulation from its policy, while continuing to claim compliance to government officials.  

  • Private Watchdog Groups – Private groups made up of everyday citizens, usually those with a vested interest, monitor the behavior and performance of  nonprofits in their local community. With the right attitude and fortitude, these Groups are extremely effective. 

  • State Charity Regulators – The Attorney General’s office maintains a list of registered charitable solicitors and investigates complaints of fraud and abuse. The AG is the first and best place to report any misappropriation or misconduct of a nonprofit. 

  • Internal Revenue Service – The Tax Exempt/Government Entities Division is charged with ensuring that nonprofits are complying with the requirements for eligibility for tax-exempt status. As a result of the thousands of audit investigations, a handful have their tax-exempt status revoked; others pay fines and taxes.

  • Donors & Members – Some of the most powerful safeguards of nonprofit integrity are individual donors and members. By withholding their financial support, donors can strongly encourage nonprofits to reappraise their operations.

  •  Media – Many nonprofit leaders may feel misunderstood or even maligned  by negative media coverage, however, this media watchdog role has  resulted in increased awareness and accountability throughout the sector. Often it is the fear of being caught and the publicly exposure that deters a would-be fraudster. Hiding the crime only leads to more crime. Showing those who have been caught and the humiliation and punishment associated is the best way to deter others from following that same path. Harsher penalties now means fewer crimes in the future.

In an extraordinary development, all fifty states, the District of Columbia, and the Federal Trade Commission filed a federal lawsuit in May 2015 against four charities and their operators, alleging that they had defrauded more than $187 million from donors. While the dollar amount was staggering, the most unusual aspect of the lawsuit was the incredible level of cooperation among state nonprofit regulators.  ...read more...

The RISKS and Realities of Nonprofit

FRAUD

"With more than than 1.5 million nonprofit organizations registered in the United States it was a statistical certainty fraud and misappropriation was going to infect the philanthropic community". --Bruce Tucker, Founder

The risk of fraud is a serious concern for all types of enterprises, but fraud can be particularly damaging to a nonprofit organization,where a damaged reputation can have devastating consequences.  It is an increasing concern with  financial fraud enforcement agencies as statistics reveal a steady increase in incidents every year. When corruption begins, it tends to spread like a virus, infecting all areas of an organization. In dealing with the crime internally, the the Board of Directors have suddenly morphed from guardians of a trust to conspirators in a cover up. Lying, falsifying, and betraying the general public and obstructing justice. They are suddenly accomplices after the fact. Before long, what was an ethical and worthwhile charity has become sham.  ...read more...

Ethics and Nonprofits:

Understanding the Psychology and Morality

In dealing with the crime internally the fraud infects the whole organization  starting with the board of directors. Their participation in a cover-up and lack of disclosure to authorities and the general public makes them accomplices after the fact. Suddenly, what was an ethical and worthwhile charity has morphed into a deceitful sham.  To solve the problem we must examine the factors that influence moral conduct, the ethical issues that arise specifically in charitable organizations, and the best ways to promote ethical behavior within organizations.    ...read more...

 

REPORTING  SUSPECTED FRAUD

Experts estimate that nonprofits lose almost $77 billion a year to fraud. Nonprofit fraud harms not only those who give to charity but the nonprofit itself. In order to report nonprofit fraud, you should gather evidence of the fraud, such as financial records or confidential emails. Then you should contact the police and other organizations.

NUMBER one:

Identify the fraud. Any nonprofit that defrauds people has committed a crime. Although fraud can take many shapes, there are two fraudulent schemes nonprofits often commit:

  • Deceptive fundraising. The nonprofit might make misrepresentations about charitable giving, such as the fair market value of donated assets or whether the nonprofit complies with donor-imposed restrictions on a gift.

  • Fraudulent financial reporting. The nonprofit might misclassify donations in order to mislead donors or charity watchdogs; misclassify expenses for fundraising and administration; or issue fraudulent statements of compliance.

NUMBER two:

Gather evidence of the fraud. The police would benefit from receiving as much evidence as possible that supports your accusation of fraud. Be sure to gather the evidence legally. For example, don’t break into someone’s computer or office. Also, don’t secretly tape a conversation since this is illegal in many states.[1] Instead, get copies of evidence available to you:

  • Financial records. If the nonprofit has committed financial fraud, then you will want copies of the records which show the fraud.

  • Advertisements. The nonprofit might misrepresent its activities or purpose to the public. You should get samples of any misleading flyer or advertisement.

  • Letters or other communications. If the nonprofit lies to a donor, then you should get a copy of the misleading communication, provided you can legally access the letter or email.

NUMBER three:

Notify the police of the fraud. You should report the crime to the local police first so that they can determine if an investigation is warranted.  If it does, they may have a division specific to that type of crime, or may need to be transferred to  a higher authority, such as the FBI.  Visit the police station in person as a face to face interview will help take you seriously. If you can't go in person, then call. If the police want to see your evidence, then share copies of all documents with them. Tell them only about the facts you have, not your personal speculation and do not embellish it. Do not make comments relating to the suspect's character. It will do more harm than good.  Be positive in your statements and do no waiver.

  • Your state may also run a charities watchdog group that you should contact as well.  

DO NOT spread rumors or speak of it to anyone that doesn't need to know. It could derail the investigation. The criminal may be tipped-off and have time to destroy evidence and even pin the misdeeds on someone else. Maybe even you.  

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A slideshow PDF on how to spot and prevent Grant Fraud.

REPORT SUSPECTED NONPROFIT FRAUD TO THE OFFICE OF FOUNDATION OVERSIGHT:

The Office of Foundation Oversight  provides a confidential evaluation of your situation to determine the best course of action is right for you.  This may be done via phone call, email, or one-on-one consultation. The Office will never charge a fee for any work, advise, or other actions performed on a client's behalf. We do not accept charitable donations, nor do we receive federal grant funds. This office is the product of volunteers that believe truth and justice are not outdated concepts. 

(c)Copyright 2019 Bruce W Tucker, Director, Tucker Global Initiatives.