Embezzlement: How churches and charities can avoid it

FROM: SUNJOURNAL.COM  -

It’s a familiar tale. It’s one that many longtime general practitioners of the law can tell. A concerned member of a nearly defunct but once thriving church or other charitable group walks through my door lamenting that some $50,000 of its funds just can’t be located. The concerned church or club member relates that its treasurer, whom I’ll refer to as “Ellie,” now 87, is reputed to have placed the investments - once earmarked for scholarships - in the ice box of her refrigerator at home.




"Ellie" hasn’t been acting quite like herself recently and the once revered community icon of the once buoyant charitable establishment hasn’t given a report on the whereabouts of the money for about three years now. Moreover, the organization that once boasted 65 members is now down to five. It stopped conducting regular meetings a decade ago, when Ellie was re-elected to her 19th term.



No one wants to ask "Ellie," or her family, for fear that even broaching any questions could be construed as an accusation.



Eventually, someone summons the courage to make the approach. A niece finds old certificates of deposits and bonds stashed away in a paper bag in the attic of "Ellie’s" home. Even though they’re no longer in the refrigerator and though the neglect has resulted in the forfeiture of some interest on the funds, they are indeed retrieved, not long before the charity is dissolved and the funds turned over to a treasurer of another local organization to handle.



The close call with "Ellie" and the temporarily missing $50,000has a sanguine outcome that nevertheless illustrates the perils when well intentioned volunteer groups handle significant amount of community charities over a long period of time.



Others are not so fortunate, however. Take the case of the retired Portland area businessman who embezzled $430,000. Investigators in 2007 proved that Bob Libby, then 76, stole at least that much from four charitable organizations between 1999 and 2006. The victims were three Portland-based Masonic groups and the Maine Charitable Mechanic Association. Among its missions was running a learning center for dyslexic children. Libby had been the sole bookkeeper for the groups, for some of them a period of nearly 20 years and was otherwise an esteemed leader in the Portland fraternal community.



Prosecutors caught up with Libby when water and electricity to one of the organization’s buildings were about to be shut off. By this time, the money was gone. Libby asserted he spent nearly all the stolen funds on home care for his wife, Charlotte, a retired South Portland High School teacher who suffered a stroke in 2002. But a longtime friend of Libby’s, who headed up one of the organizations debunked this explanation, noting that some of Libby’s misuse of funds pre-dated his wife’s illness, and calling him the “the biggest con artist that ever came down the pike.”



Numerous other Maine nonprofit organizations have also been victimized by light fingers from within their midst. Among them:



* Christ Episcopal Church in Augusta, whose part-time financial administrator pleaded guilty in 2009 to embezzling $49,ooo;



* First Congregational Church of Bingham, losing $82,000, its treasurer’s guilty plea also accepted in 2009;



* The state’s second-largest snowmobile club, the Rangeley Lakes Snowmobile Club, victim of a $45,000 embezzlement by its treasurer that likewise resulted in a 2009 guilty verdict;



* NAMI-Maine, the state’s largest mental health patient advocacy organization, hit for $257,000 in an embezzlement that sent its bookkeeper to prison in 2008;



To be sure, these losses involving nonprofits pale by comparison to such multi-billion dollar private sector heists as those entailed in the Bernard Madoff scandal.



There’s something more immediately devastating, however, when the fraud hits home, perpetrated both by and against our own friends and neighbors. Moreover, there’s not a lot that we here in Maine can do to avert another Madoff scandal. We as individuals can, however, take a few simple steps that could markedly reduce both the trauma of embezzlement and the anguish of financial negligence in our local nonprofit organizations. Here’s a few of them:



Make sure your treasurer is bonded. Even groups that raise close to $l00,000 a year find that the annual premium usually runs under $200. It’s worth it.



Always require two signatures on every check. Require that at least one other officer countersigns all checks the treasurer issues.



Require an annual audit. A professional one can be a bit pricey - $3,000 for the $l00,000 organization. If that won’t fly with your group’s board, then recruit some members to provide some periodic oversight of those handling the funds.



Don’t stockpile the funds your organization raises. Though perhaps counter to frugal-Yankee instincts, saving money is one of the worst things some volunteer charities wind up doing. A typical blunder is committed when a local nonprofit establishes the goal of trying to build a $50,000 to $l00,000 scholarship fund. The idea is to use only interest from such a fund so the principal can be a “permanent” never-ending source of assistance to students. It doesn’t take much time, however, once the fundraising goal is achieved, for the sponsoring organization to run out of steam.



Very few of the Grange, Masonic, Odd Fellows, Kiwanis, Lions, Rotary Clubs and churches with us in Maine just a few decades ago are anywhere near as viable today as they were in 1960, if indeed they have managed to survive at all. (Remember that charming wooden 19th-century church down the street that’s now the location of a convenience store?)



Many such organizations raised substantial charitable funds that, like the $50,000 in "Ellie’s" attic, are elusive today if they can be found at all. Instead, use your club or church’s energy to both raise and immediately spend the funds currently demanded for philanthropic purposes. Your group will thus be keeping faith with those who gave the money by seeing to it that it is spent for its avowed purpose. At the same time you’ll likely be removing it from the palsied hand of a fragile future custodian, one who will be neither as willing nor as able to fulfill your present day idealism.



If you do, I think the “Ellie” of the future and her family, not to mention the intended beneficiaries of your organization, will be grateful to you.