Wednesday, February 12, 2014
Nonprofit ‘diversions’ face scrutiny
Posted by Armanino Nonprofit Team
Congress recently launched an investigation into nonprofit finances after a Washington Post investigation revealed widespread under-reporting of losses due to inappropriate diversions of assets.
According to the newspaper’s research, more than 1,000 nonprofits checked a box on page 6 of their Form 990 filing reporting they had discovered a “significant diversion” of assets. Included in this category would be losses attributed to theft, investment fraud, embezzlement and other unauthorized uses of funds. The Post’s inquiry covered the period from 2008, when the question was added to the Form 990, and 2012.
And roughly have of those nonprofits did not specify the full size of the loss, although the tax document’s instructions required that disclosure, the Post reported. Losses topping $1 million were not uncommon and at least two House committees will endeavor to learn the magnitude of the problem and suggest possible solutions.
The Post found more than 100 examples of California tax-exempt groups checking the box, some more than once. Bay Area nonprofits ranged from large organizations to smaller community groups.
Susan Aurelia Gitelson, author of Giving Is Not Just For The Very Rich: A How-to Guide for Giving and Philanthropy, told the Chronicle for Philanthropy the answers lie in nonprofits doing tougher scrutiny of their own operations.
In a posting to the Chronicle’s website, she suggests nonprofits ask themselves:
- Do they have professional and volunteer watchdogs on their boards and inside their groups?
- Have they kept the same leaders in place on the top and throughout their structure for many years without periodic checking of how they have been handling their responsibilities?
- Are at least half of the board members independent and not too closely connected to the organizational staff?
- Are two or more officers and lay leaders required to approve proposals and sign checks?
Nonprofit organizations have specialized audit, tax and operational needs that require specialized service. Armanino has been committed to the nonprofit sector since 1953, and we now work with more than 500 nonprofit clients. This hands-on experience gives our staff of CPAs and former CFOs a deeper understanding of the issues nonprofits face, so we’re able to meet their needs and help them fulfill their missions in the most efficient, cost-effective way possible.