Lax controls lead to nonprofit thefts in the
Southern Tier
Experts believe many heists go unreported
The former executive director of the Boys and Girls Club of Tioga County pleaded guilty to racking up at least $10,828 in unauthorized credit card purchases. / KRISTOPHER RADDER / STAFF PHOTO
Volunteers entrusted with the often-limited dollars of Southern Tier nonprofits have stolen almost $400,000 in recent years, leaving some groups scrambling to stay afloat and restore reputations.
Those responsible for the seven recent Tier nonprofit thefts all played a major role in handling their organization’s finances, taking advantage of a range of weaknesses in the nonprofit sector.
They often duped neighbors and friends who served alongside them on small governing boards. Some clung to powerful positions for years, playing the bully when questioned, or volunteering to take on all the financial duties. Others described their theft as a last resort, calling it the only way out of personal financial struggles.
Smaller nonprofits with poor fiscal oversight are particularly vulnerable in the Southern Tier, a problem fueled by insufficient government regulations. Some cases involved governing boards comprised of volunteers without the necessary experience or commitment to fulfill their responsibility.
But while several local nonprofit thefts have come to the public light, experts believe many simply go unreported. Those in charge worry about tarnishing the organization’s reputation. Rather than risk damaging future fundraising efforts, they prefer to keep cases of mismanagement and stealing quiet.
“Sometimes the groups won’t go to the (district attorney), because of personal relationships and bad reputation. Many try to take care of it themselves,” said Doug Sauer, the chief executive officer of New York Council of Nonprofits. “(Thefts) send a total message to the community about whether people want to give to the group.”
Even when thefts are reported, police, prosecutors and nonprofit officials admit they often don’t know exactly how much was stolen. Poor accounting practices contributing to thefts often make it impossible to fully uncover the damage, and some cases involve schemes investigators believe lasted well beyond legal statutes of limitation.
A review of newspaper archives found the following instances of people stealing from Southern Tier nonprofits, with all cases resolved within the past three years. Nearly every case involved organizations discovering fundamental problems with their financial operations, which they say have since been addressed.
• Patricia Hanes, 47, of Vestal, served as treasurer of a youth sports club, which allowed her to write checks without another volunteer member’s approval, court documents said. She spent the Vestal Youth Soccer Association’s money to pay for family expenses, telling investigators the theft started small to weather household debts and eventually snowballed, until it reached $23,155 and she got caught.
• Valerie Demkovich, 43, of Endicott, pleaded guilty to racking up at least $10,828 in unauthorized credit card purchases on the Tioga County Boys & Girls Club account while serving as executive director, court documents said.
• Sandra Scharnikow, 47, of Endicott, served as treasurer of Vestal Recreational Youth Soccer Association, which is separate from Hanes’ former club. She pleaded guilty to stealing $17,400 by withdrawing club funds from Citizen’s Bank branches in Vestal and Endicott, court documents said.
• Kimberley States, the former treasurer of Monterey Volunteer Fire Co. in Schuyler County, served alongside her husband, Larry States, the former fire chief, on the nonprofit’s governing board. State auditors said the couple used the fire company’s bank account to pay for a range of personal expenses, capitalizing on poor oversight by their five fellow board members to embezzle an estimated $139,000.
• Nicole Rogers said in court documents she had full control of the Sanitaria Springs Fire Company’s automated teller machine card and checkbook as treasurer. She pleaded guilty to stealing $71,000 from the fire department.
• David L. Heckman Jr., 31, a former Newark Valley pastor, served as a member of Habitat for Humanity and treasurer of the nonprofit’s Tioga County chapter. He pleaded guilty to stealing more than $100,000 by using the housing agency’s ATM card and then submitting fraudulent treasurer reports to its governing board. Heckman also had a prior grand larceny conviction and was on probation leading up to the theft.
• A former commander and longtime member of the Veterans of Foreign Wars post in Corning, Edward Bassett, pleaded guilty to stealing $34,670 from the organization. Current post commander Brian DeMeritt said Bassett acted as canteen manager — overseeing VFW events and operations — a paid full-time job during his roughly 20 years with the organization.
“It was our mistake,” DeMeritt said. “We should have looked more into it but we had faith, and the gentleman knew how to work the system.”
Some of these thefts were uncovered relatively quickly, while others spanned several years. Most marked first-time offenses and resulted in conditional releases, which prosecutors said facilitates repayment of stolen money, among their top priorities.
Four cases resulted in conditional discharges; one resulted in a six-month jail term and another brought a 3½ to seven-year prison sentence. The States case remains active, although the state comptroller’s audit report detailed the embezzlement.
Still, some say stricter rules for nonprofits would discourage people from serving on governing boards, especially when it comes to local community organizations. Others counter the growing sector demands more oversight, including for these small groups that are more susceptible to thefts and fraud, because of limited staffing and funding.
“There is a balance to be struck. You have to have some rules. You can’t rely on peoples’ common sense,” said Peter J. Kiernan, chairman of the New York State Law Revision Commission.
“What’s at risk is often the public trust,” he said.
The commission headed up by Kiernan, an attorney with Schiff Hardin based in New York City, consists of five attorneys and law professors appointed by the governor. Kiernan was appointed to his five-year term by former Gov. David Paterson in 2011.
The commission consulted on the Nonprofit Revitalization Act, which was passed June 21 by the state Legislature. Gov. Andrew Cuomo is considering signing off on the bill seeking to improve oversight of nonprofits while streamlining the groups’ registration process.
Nonprofits form a major part of the economic engine of New York. There are more than 100,000 nonprofit corporations, with annual revenue of about $150 billion and other assets, the commission reported. These nonprofits employ about 1.25 million people, or roughly 14 percent of the state’s work force, and offer a wide array of services and programs from art, culture and humanities to education, research and human services.
While these nonprofit figures have steadily grown over the years, the Not-For-Profit Corporation Law regulating oversight hasn’t been changed since about 1970, Kiernan said.
“The nonprofit sector is growing and the regulatory sectors are not growing with it,” he said, adding the Not-For-Profit Corporation Law’s oversight regulations would be improved if Cuomo signs the Nonprofit Revitalization Act.
Some of the changes include requiring more independent audits and internal controls related to conflicts of interest, both of which experts believe could address some of the causes behind nonprofit thefts.
'Relationship of trust'
Directors of philanthropic foundations in the Southern Tier doling out millions of dollars annually in funding have a stake in ensuring sound oversight of the nonprofit sector, which is increasingly relying on these foundations for support as other revenue streams dry up.
Some foundation directors describe trying to address nonprofits’ struggles with limited staffing and insufficient government funding, while touting their own organization’s internal controls and support of regional programs training nonprofit officials on fiscal oversight.
Designated as nonprofits themselves, these foundations protect their community projects with legal contracts, which typically outline fiscal oversight practices that go beyond government regulations.
Jon Jensen has spent the last five years as executive director of the Park Foundation, an Ithaca-based organization handling a multimillion-dollar endowment established by the late Roy Hampton Park, Sr. — founder, chairman, and chief executive officer of Park Communications, Inc., as well as namesake of the Park School of Communications at Ithaca College.
Jensen, who started working in the nonprofit and philanthropy sectors in 1980, said the Park Foundation awards about $18 million in grants each year, with the money going to about 300 different groups, primarily tied to higher education, media and environmental issues.
“Our ability to monitor any of them in a close way is very limited,” he said, noting his organization’s oversight relies on a grant agreement permitting it to rescind funds if problems arise.
The Park Foundation, with its eight staff members, including Jensen, requires grantees to report back annually. These reports include an accounting breakdown to determine whether problems exist, although Jensen said the foundation never withdrew funding during his tenure.
“We’re not in an investigative mode with our grantees,” Jensen said. “For the most part, it’s a relationship of trust, and it’s justified.”
Jensen noted the foundation also does its homework before issuing grants. The approval process involves a review of nonprofits’ financial data reported to the Internal Revenue Service, which is called a Form 990 and posted publicly by several websites promoting sound oversight.
The Form 990 reports provide insight into everything from a nonprofit’s annual income and spending to its internal policies and governing board makeup. A nonprofit generally loses its tax-exempt status and designation after failing to file a 990 report for three consecutive years, along with other criteria based on the nonprofit’s operation.
“If they don’t have that kind of information, that raises red flags,” Jensen said.
George Ferrari, executive director of the Community Foundation of Tompkins County, echoed many of Jensen’s sentiments, including those about looking into area nonprofits.
“The way that we do our work here is predicated on knowing the donors and the boards,” Ferrari said. He added his group prefers dealing with nonprofits’ regulated by governing boards with at least 10 members to better perform oversight tasks, such as having more than one person handling financial duties.
“A board of three to five people gives us cause for concern,” he said.
Ferrari, who started working in the nonprofit sector back in 1984, has been with the foundation since 2005. He oversees its $11.4 million in assets and annual funding allocations of about $420,000, which are focused on promoting arts and culture, education and the environment and health and human services.
But, Diane Brown, executive director of the Community Foundation for South Central New York, noted many nonprofits struggle to recruit qualified people to serve on governing boards. Ideal candidates should come from a diverse background, ranging from law to business management, she said.
Brown, whose organization grants between $400,000 to $600,000 annually, said a lot of people are taken aback by the scope of responsibility involved in serving on boards.
In addition to the time commitment, this includes board members being held legally liable if thefts and other abuses happen. Yet, many nonprofits address the liability issue by taking out insurance policies to protect board members from lawsuits, although they should still feel obligated when problems arise, she said.
“If you don’t provide oversight, then you bear responsibility, whether there is insurance or not,” Brown said.
“Our ability to monitor any of them in a close way is very limited,” he said, noting his organization’s oversight relies on a grant agreement permitting it to rescind funds if problems arise.
The Park Foundation, with its eight staff members, including Jensen, requires grantees to report back annually. These reports include an accounting breakdown to determine whether problems exist, although Jensen said the foundation never withdrew funding during his tenure.
“We’re not in an investigative mode with our grantees,” Jensen said. “For the most part, it’s a relationship of trust, and it’s justified.”
Jensen noted the foundation also does its homework before issuing grants. The approval process involves a review of nonprofits’ financial data reported to the Internal Revenue Service, which is called a Form 990 and posted publicly by several websites promoting sound oversight.
The Form 990 reports provide insight into everything from a nonprofit’s annual income and spending to its internal policies and governing board makeup. A nonprofit generally loses its tax-exempt status and designation after failing to file a 990 report for three consecutive years, along with other criteria based on the nonprofit’s operation.
“If they don’t have that kind of information, that raises red flags,” Jensen said.
George Ferrari, executive director of the Community Foundation of Tompkins County, echoed many of Jensen’s sentiments, including those about looking into area nonprofits.
“The way that we do our work here is predicated on knowing the donors and the boards,” Ferrari said. He added his group prefers dealing with nonprofits’ regulated by governing boards with at least 10 members to better perform oversight tasks, such as having more than one person handling financial duties.
“A board of three to five people gives us cause for concern,” he said.
Ferrari, who started working in the nonprofit sector back in 1984, has been with the foundation since 2005. He oversees its $11.4 million in assets and annual funding allocations of about $420,000, which are focused on promoting arts and culture, education and the environment and health and human services.
But, Diane Brown, executive director of the Community Foundation for South Central New York, noted many nonprofits struggle to recruit qualified people to serve on governing boards. Ideal candidates should come from a diverse background, ranging from law to business management, she said.
Brown, whose organization grants between $400,000 to $600,000 annually, said a lot of people are taken aback by the scope of responsibility involved in serving on boards.
In addition to the time commitment, this includes board members being held legally liable if thefts and other abuses happen. Yet, many nonprofits address the liability issue by taking out insurance policies to protect board members from lawsuits, although they should still feel obligated when problems arise, she said.
“If you don’t provide oversight, then you bear responsibility, whether there is insurance or not,” Brown said.
Taking on responsibility
Although state agencies don’t compile data on thefts involving nonprofits, Sauer, the chief executive officer of New York Council of Nonprofits, believes smaller community groups are more likely to be victimized than large national operations.
“The smaller ones are dealing with the cash compared to the checks and online donations for larger groups,” Sauer said. “The cash is loose and they feel they can get away with it, or they feel, ‘I put a lot of time in anyway, so I deserve it.’”
The close-knit and typically all-volunteer nature of governing boards overseeing smaller nonprofits also seems to create fertile ground for theft and fraud.
“They’re friends, they’re colleagues and they have these relationships, and if they want to have somebody else look at the books, they feel that ‘you don’t trust me,’ but they need to be aware of the importance of their role” Sauer said. “None of them are volunteering for that purpose, but they need to understand that they have this responsibility.”
John Edwards works in leadership development and has spent nearly a decade involved with the Vestal Youth Soccer Association. With four children, he became a coach who eventually volunteered to become president of the small nonprofit’s governing board.
Edwards said he and several other new board members volunteered following the theft by Hanes, which spanned from 2009 to 2011.
The soccer club’s 990 forms showed there were four governing board members during the thefts, and little to no oversight. They didn’t have a conflict-of-interest policy, an outside auditor or a whistle-blower policy, the forms showed. In the 2011 filing, the club had expanded to 10 governing members, although it had yet to address these other oversight issues.
Edwards noted the club, which 990 forms show has an income of about $155,000 and serves about 250 kids, has been implementing oversight changes, including plans to hire an auditor to review finances. He added people involved in the club have always taken pride in its mission of developing youth through athletics, though he acknowledged it took a theft for them to learn more about proper oversight.
His description of the hours spent by volunteers, coaches and board members portrays the typical makeup of a small nonprofit, which relies primarily on membership dues or similar contributions while also conducting some fundraising, thanks to its charitable and tax-exempt status.
“It is not unusual to spend 10 hours a week between games and practices, and then if you’re a board member, it’s even more,” he said. “These really are some dedicated folks.”
Although state agencies don’t compile data on thefts involving nonprofits, Sauer, the chief executive officer of New York Council of Nonprofits, believes smaller community groups are more likely to be victimized than large national operations.
“The smaller ones are dealing with the cash compared to the checks and online donations for larger groups,” Sauer said. “The cash is loose and they feel they can get away with it, or they feel, ‘I put a lot of time in anyway, so I deserve it.’”
The close-knit and typically all-volunteer nature of governing boards overseeing smaller nonprofits also seems to create fertile ground for theft and fraud.
“They’re friends, they’re colleagues and they have these relationships, and if they want to have somebody else look at the books, they feel that ‘you don’t trust me,’ but they need to be aware of the importance of their role” Sauer said. “None of them are volunteering for that purpose, but they need to understand that they have this responsibility.”
John Edwards works in leadership development and has spent nearly a decade involved with the Vestal Youth Soccer Association. With four children, he became a coach who eventually volunteered to become president of the small nonprofit’s governing board.
Edwards said he and several other new board members volunteered following the theft by Hanes, which spanned from 2009 to 2011.
The soccer club’s 990 forms showed there were four governing board members during the thefts, and little to no oversight. They didn’t have a conflict-of-interest policy, an outside auditor or a whistle-blower policy, the forms showed. In the 2011 filing, the club had expanded to 10 governing members, although it had yet to address these other oversight issues.
Edwards noted the club, which 990 forms show has an income of about $155,000 and serves about 250 kids, has been implementing oversight changes, including plans to hire an auditor to review finances. He added people involved in the club have always taken pride in its mission of developing youth through athletics, though he acknowledged it took a theft for them to learn more about proper oversight.
His description of the hours spent by volunteers, coaches and board members portrays the typical makeup of a small nonprofit, which relies primarily on membership dues or similar contributions while also conducting some fundraising, thanks to its charitable and tax-exempt status.
“It is not unusual to spend 10 hours a week between games and practices, and then if you’re a board member, it’s even more,” he said. “These really are some dedicated folks.”
Looking forward
While the Nonprofit Revitalization Act would upgrade New York’s existing oversight standards, the overall approach to monitoring nonprofits nationally would still remain insufficient when it comes to preventing abuses, tracking data and gauging performance, according to Sandra Miniutti, a vice president and chief financial officer of charitynavigator.org.
“It’s really the wild west because there really isn’t a lot of regulation and there are about 1.6 million nonprofits nationally,” said Miniutti, whose website reviews 990 reports and uses the data to rate the largest nonprofits.
Even if the nonprofit reforms are implemented in New York, much of the responsibility for oversight remains with governing boards, especially for the smaller regional and local ones. State and federal government regulatory agencies would continue to focus on catching fraud and abuse in larger nonprofits.
The state Attorney General’s Office — the state-level agency tasked with overseeing nonprofits — was unable to provide information about instances of theft involving nonprofits.
The office denied a request under the Freedom of Information Law for data on grand larceny charges filed in the past 10 years involving nonprofits, saying it doesn’t track that type of data. The office declined to comment for this report or discuss its role in investigating nonprofits.
Unlike many other states, New York requires some additional nonprofit financial reporting at the state level beyond the 990 data. The Attorney General’s Office also has a charities bureau dedicated solely to nonprofit issues, an additional level of oversight lacking in many other states.
Alan Hertel, executive director of the United Way in Broome County, believes people who get involved in the nonprofit sector are motivated by different factors than those in business or other public service roles.
“The nonprofit community takes their work very seriously, a very deep passion for people,” he said, adding the problem with proper governance is rooted in funding and staffing decisions.
It’s a conclusion shared by several others in the field, including Ferrari, who asked a simple question to sum up how the nonprofit sector should approach preventing thefts and similar abuses.
“Do these nonprofits have the resources they need to carry out their mission?”
Via The Ithaca Journal (link)
While the Nonprofit Revitalization Act would upgrade New York’s existing oversight standards, the overall approach to monitoring nonprofits nationally would still remain insufficient when it comes to preventing abuses, tracking data and gauging performance, according to Sandra Miniutti, a vice president and chief financial officer of charitynavigator.org.
“It’s really the wild west because there really isn’t a lot of regulation and there are about 1.6 million nonprofits nationally,” said Miniutti, whose website reviews 990 reports and uses the data to rate the largest nonprofits.
Even if the nonprofit reforms are implemented in New York, much of the responsibility for oversight remains with governing boards, especially for the smaller regional and local ones. State and federal government regulatory agencies would continue to focus on catching fraud and abuse in larger nonprofits.
The state Attorney General’s Office — the state-level agency tasked with overseeing nonprofits — was unable to provide information about instances of theft involving nonprofits.
The office denied a request under the Freedom of Information Law for data on grand larceny charges filed in the past 10 years involving nonprofits, saying it doesn’t track that type of data. The office declined to comment for this report or discuss its role in investigating nonprofits.
Unlike many other states, New York requires some additional nonprofit financial reporting at the state level beyond the 990 data. The Attorney General’s Office also has a charities bureau dedicated solely to nonprofit issues, an additional level of oversight lacking in many other states.
Alan Hertel, executive director of the United Way in Broome County, believes people who get involved in the nonprofit sector are motivated by different factors than those in business or other public service roles.
“The nonprofit community takes their work very seriously, a very deep passion for people,” he said, adding the problem with proper governance is rooted in funding and staffing decisions.
It’s a conclusion shared by several others in the field, including Ferrari, who asked a simple question to sum up how the nonprofit sector should approach preventing thefts and similar abuses.
“Do these nonprofits have the resources they need to carry out their mission?”
Via The Ithaca Journal (link)
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