Washington Post Investigates “Significant Diversions” of Nonprofit Funds as Reported to IRS

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October 26, 2013; Washington Post


An investigation by the Washington Post looking for nonprofits where money had gone missing started from the simplest possible place: The reporters looked for those organizations which had checked the box on their 990 form confirming that the organization had a “significant diversion of funds.” (“Significant diversion” is defined as anything more than $250,000 or five percent of the organization’s gross receipts or net assets.) This question was quietly added in 2008. The question was phased in and reportedly was only asked of larger public charities, although not consistently. Private foundations and smaller nonprofits did not get the question, although it is unclear why.

The list is contained in a searchable database provided here, and it includes such brand names as New York University, the Trustees of Columbia University, Feed the Children, AARP, Memorial Sloan-Kettering Cancer Center, and more. In this database, you can peruse the explanations where they exist. You will note that some of these stories have already been reported, but the size of the problem is significant. In just 10 percent of the misdirection of funds reported in the 1000 organizations studied, more than a half-billion dollars was identified as having gone missing. The article points out that some of these losses have never been covered in the news.

One such example is the American Legacy Foundation, which manages hundreds of millions of dollars derived from a settlement with big tobacco companies. It checked the box saying that they had “became aware” of a diversion “in excess of $250,000 committed by a former employee.” But the losses are estimated at $3.4 million, according to the Washington Post, and were “linked to purchases from a business described sometimes as a computer supply firm and at [other times] as a barbershop, and to an assistant vice president who now runs a video game emporium in Ni­ger­ia.” Apparently, Legacy did not report the problems to officials for nearly three years after problem indicators began to emerge.—Ruth McCambridge

  • paul jolly

    “linked to purchases from a business described sometimes as a computer supply firm and at [other times] as a barbershop, and to an assistant vice president who now runs a video game emporium in Ni­ger­ia”?!?!? Sounds like a caracachature of an email scam.

  • Stefan Karoly

    Thank you for the link. Did anyone else note the large number higher education organizations and labor unions on this list. IRS should put more resources in investigating these types of organizations

  • Puzzled

    Why do you think that diversion is necessarily a misuse?
    an instance of turning something aside from its course.
    “a diversion of resources from defense to civil research”
    synonyms: rerouting, redirection, deflection, deviation, divergence More
    an alternative route for use by traffic when the usual road is temporarily closed; a detour.
    plural noun: diversions
    “the road was closed and diversions put into operation”
    synonyms: detour, bypass, deviation, alternative route More
    an activity that diverts the mind from tedious or serious concerns; a recreation or pastime.
    “our chief diversion was reading”
    synonyms: entertainment, amusement, pastime, delight, divertissement; More

  • Doug Pearson

    The WP article is a good resource and points to a fairly common situation in the sector. Organizations are very averse to involve outside investigations of discovered criminal activity. They see little “upside” to reporting such activity. And, obviously, when a situation rises to the level of rediculous–as in the example noted in this article–it does not look good for the organization’s management and governance structure. However, I would appeal to organizations to please report this activity to your state regulators, or local police if for no other reason to prevent the perpetrators from stealing from other good organizations. There are real predators that do in fact target the sector and they know you do not want to report them.

    It is rare that cooperative and helpful organizations suffer much in the press for reporting being the victim of criminal activity. However, it rarely looks good when it is discovered that an organization quitely allowed a crook to skate while pursuing some misguided public relations strategy.