High-level charity officials stole or misused at least $1.28-billion from 152 nonprofit organizations during the past seven years, but the organizations recovered less than half that amount while many perpetrators received minor punishment, according to a new study.
The study, by Harvard University’s Hauser Center for Nonprofit Organizations, is based on newspaper reports of fraudulent activity involving directors, officers, and trustees of nonprofit organizations from 1995 to 2002.
Lax oversight in nonprofit organizations contributed to much of the fraud, said Marion R. Fremont-Smith, a nonprofit lawyer and senior research fellow at Harvard who was one of the leaders of the study.
The results are not meant to provide a comprehensive look at charity fraud, Ms. Fremont-Smith said, because some of the cases are pending. And because many people accused of stealing are not prosecuted, she said, newspapers usually do not report on those cases.
Charities sometimes avoid filing criminal charges against people who steal or misuse funds because the organizations don’t want the publicity to scare off donors, Ms. Fremont-Smith said. Many state attorneys general also are reluctant to prosecute nonprofit fraud, she said, because state budgets are tight and prosecutors would rather spend their time and resources pursuing larger cases of corporate fraud.
Among the study’s other findings:
- Four criminal cases involving Ponzi schemes accounted for $1.1-billion of the total stolen from nonprofit organizations. The two largest instances involved the Baptist Foundation of Arizona, which raised money for the Arizona Southern Baptist Convention, and Greater Ministries International, a church in Tampa, Fla., the study found. Donors lost $570-million in the Baptist Foundation of Arizona case, and $353-million with Greater Ministries International. A Ponzi scheme is a bogus investment plan in which cash from recent donors is used to make payments to earlier ones. About half, or $533-million, of the money collected in response to the four Ponzi schemes was returned to donors.
- Nonprofit groups recovered about 2 percent -- $4-million -- of the $177-million that was stolen in cases not involving Ponzi schemes. Insurance companies reimbursed about $2-million of that amount.
- Seventy-four of the 152 people convicted of stealing received no jail time for their crime.
- Theft occurred most frequently at human-services organizations than at other types of charities. About half, or 56, of the 104 criminal cases happened at organizations that provide social services. Of 54 civil cases, 20 involved human-services groups.
For a free copy of a report on the study, contact the Hauser Center for Nonprofit Organizations, John F. Kennedy School of Government, Harvard University, 79 John F. Kennedy Street, Cambridge, Mass. 02138; (617) 496-5675; hauser_center@harvard.edu, or go to http://papers.ssrn.com/sol3/papers.cfm?abstract_id=451240.