N.Y. Times: $40 billion is stolen annually from charities

A March 29 story by Stephanie Strom in the New York Times reports that a new study by four professors who specialize in nonprofit accounting found that an estimated $40 billion was stolen from American charities in 2006, some 13 percent of the roughly $300 billion given to charity that year.

The story cites cases such as that of the volunteer treasurer of the Madison County Humane Society in Indiana who was charged with using $65,000 of the charity’s money to buy jewelry and makeup and that of the CFO of the Music Concourse Community Partnership in San Francisco who was fired for allegedly taking $3.6 million to play the stock market.

“Nonprofit leaders tend to shrug off such cases as evidence of ‘just a few bad apples,’ ” Strom wrote, but the new report suggests otherwise, the story said. It found “the typical theft from a charity was committed by a female employee with no criminal record who earned less than $50,000 a year and had worked for the nonprofit at least three years. The amount she stole was less than $40,000.” The most costly crimes, according to the study, involved male executives who earned $100,000 to $149,000 a year and typically had been with the organization the longest.

The total of $40 billion stolen in one year is “a surprisingly large number,” Paul C. Light, a professor of public service at New York University told the newspaper. Light conducts surveys of public confidence in charities and is a frequent speaker at nonprofit gatherings including here in Hawai‘i. “We really need to take a good hard look at what’s going on in these organizations,” he said.

To come up with the $40 billion estimate, the new report’s authors used data from the Association of Certified Fraud Examiners that found that “all organizations,” whether government, for-profit or nonprofit, “lose on average 6 percent of their revenue to fraud every year.” They applied that percentage to nonprofits’ total 2006 revenue of $665 billion to reach the $40 billion estimate.

Diana Aviv, president and CEO of the Independent Sector, took issue with that number, noting that it was based on an overall fraud estimate across all sectors including government and for-profit businesses. “It could be that the for-profit sector experiences a higher level of fraud, while the nonprofit sector and government experience lower levels,” she said.