Attorney General Takes Action

April 11, 2012 Posted by The Law Firm for Non-Profits, P.C. in Board, Director Duties, News

In most states, the Attorney General has the authority to govern organizations that administer or solicit charitable funds. While the authority varies by state, most Attorneys General require initial registrations as well as annual updates.

But the Attorney General plays another important role. It acts on complaints about abuses and misuses of charitable assets.

Corrective action often includes monetary fines against directors to make the charity “whole” for losses caused by breaches of their fiduciary duties. They also can be forced to resign.

This scenario recently played out for Central Asia Institute director Greg Mortenson, best known as the author of “Three Cups of Tea.” After an investigation, the Montana Attorney General found that Mortenson mismanaged the organization and misspent its money. Record keeping was sloppy, resulting in little or no documentation regarding how donations to the organization were spent. There also was too much overlap between the organization’s and Mortenson’s personal finances. (Read more of the specifics here.)

Although no criminal wrongdoing was found, Mortenson will have to repay the organization $1 million. He is also barred from continuing as a voting director, even though he will continue to serve as an employee of the organization.

Mortenson serves as a good example of what not to do. Unfortunately, it appears that he suffered from founder’s syndrome. Directors must monitor and oversee founders who act as executive directors in an effort to protect both the organization and the founder. Directors must also ensure that the charity’s finances are not commingled with those of the founder or anyone else. Meticulous bookkeeping is also a must.

NOTE: The information contained herein is not intended to be legal advice and the reader should know that no Attorney-Client relationship or privilege is formed by the posting or reading of this article which is also not intended to solicit business.

Casey Summar, Partner, The Law Firm for Non-Profits,1812 W Burbank Blvd, #7445, Burbank, CA 91506

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