Embezzlement – the Dirty Secrets of Non-Profits



Notes from an investigative article in the Washington Post.

Hundreds of millions of dollars worth of public donations and government grants are drained each year from US institutions by fraudsters working within the organizations. A culture of silence allows many of the scammers to escape without penalty. The institutions are usually too embarrassed to bring charges because the publicity will expose their poor administration of the funds entrusted to them. The information was only uncovered by the journalists delving into mandatory disclosure reports that the non-profit organizations are required to file.


Findings included:

Failing to act

One youth charity reported a misappropriation of $2 million by a former employee. The charity did not act for over two years, until the Post raised the issue with them. The employee has since been charged and sentenced to four years jail.

Poor understanding of financial terminology

An education charity which lost $7 million to Bernie Madoff’s Ponzi scheme described it as a “paper loss”. Perhaps they used that term to make it sound less tangible, but it is an actual loss, not just on paper.

Poor book keeping

A legal aid bureau disclosed a loss of $1.1 million. After a couple of years, they have now come to think the amount of the loss was closer to $2.5 million.

A university administrator paid himself $390,000 in “unapproved compensation” over four years from an account the university did not even know existed.

Long running frauds

A Holocaust survivors charity reported losing $42 million over the course of a decade. The estimate of this loss has since been scaled up to $60 million.

Executive incompetence

A tobacco victims’ fund, responsible for managing over $1 billion failed to notice a long term multimillion dollar purchasing scam until months after the perpetrator quit his job. When it was discovered by a junior employee, an executive refused to investigate it on two occasions. The fraud would not have been uncovered if the junior officer had not persevered and raised the issue with a second executive.


The scale of the problem

The article gives many more examples like these. However, the hundreds of millions of lost dollars declared are probably a small percentage of the total. The fraud disclosure question has only appeared on the forms for the past three years, and it is only asked of the largest public non-profit groups. Private funds and smaller groups do not have to report this information.

There are more than 1.6 million registered non-profit organizations in the US, controlling over $4.5 trillion in assets. There are an additional 700,000 churches and small groups which do not have to register.



Even the biggest non-profits are plagued by incompetence, mismanagement and fraud. The scale of the fraud problem is not known but is likely to be huge.

Do not trust an organization that does not open its books to public scrutiny. Only donate to charities that can demonstrate clearly to you how they will use your funds.

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