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Non-Profits and Charities Burned by Investment Fraud

recent Washington Post study found fraud, embezzlement and related misconduct at more than 1,000 non-profit organizations based on analysis of tax filings within the past five years. The non-profits indicated in this study cite losses of at least a quarter million dollars each.

What these 1,000+ non-profits had in common was that they all indicated "significant diversion of funds" when they filed their taxes. This check box on tax forms allowed non-profits to reveal various harms such as theft or embezzlement-related diversion of funds.

The Washington Post also reported that out of all non-profit organizations that indicated these types of losses over the past ten years, the ten that suffered the most sustained $500 million combined losses. Joe Stephens, investigative reporter and co-author of this study, stated that many of these organizations were harmed by Bernie Madoff's Ponzi scheme.

One shocking case revealed by this study is that some working from within the Conference on Jewish Material Claims against Germany stole tens of millions of dollars that were supposed to go to Holocaust victims. Mr. Stephens explained that many of these non-profit fraud schemes were run by those within the organization.

Prior to 2008, non-profit organizations were not required to disclose these losses. New regulations require non-profits not only to check the "significant diversion of funds" box, but also offer a detailed explanation of what that entailed.

Non-profit fraud is likely more widespread than this study even indicates. The report only calculates fraud in cases where the organization chose to disclose it, and many non-profits throughout the United States are unregistered.

"The thousand, more than a thousand, we found are just a sliver… it makes it almost impossible to estimate how big the losses are, but they obviously are larger than we had known," said Stephens.

The information contained in The Firm’s posts on its blog, fraud alerts, investigations or elsewhere on the site is based upon information obtained from other sources including, but not limited to, news outlets and federal, state, and regulatory agency filings. All suspects and subjects of postings herein are presumed innocent until proven guilty in a court of law or administrative action and any and all crimes are alleged until a court or regulatory agency finds otherwise .

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