May is for Embezzlement Convictions

EmbezzlementYesterday was a good reminder for charities that any organization is susceptible to embezzlement. First, a man was sentenced to three years in prison after admitting he had defrauded charities by billing them for, but not delivering, prizes to be auctioned at fundraisers. The prizes included a walk-on role on Desperate Housewives and tickets to the Tony Awards. He was able to persuade charities to pay up-front retainers and commission fees based on his ability to secure the prizes.

The charities he stole from included a school for autistic children and organizations in New York that fund research on leukemia, lymphoma, and diabetes. He has been ordered to return the $768,000 he stole to at least 17 charities. He also agreed to pay more than $250,000 in criminal forfeiture.

Second, the former executive director of Center for Independent Living of Southwest Florida, a charity that served people with disabilities, was sentenced to 39 years in prison for embezzlement. He had diverted $900,000 from the charity and used it for extravagant charges, including personal travel and luxury-hotel stays. The organization itself went bankrupt in 2011.

Remember that your organization must have reasonable and prudent procedures in place to provide appropriate financial oversight. And when board members spend a charity’s money, their fiduciary duty requires them to act with reasonable prudence to protect the charity’s assets. This includes properly vetting vendors, including individuals who help with fundraising events. The day will come when directors will be held liable for the loss to a charity when the organization’s board fails to do so.

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