Identifying and Developing Charities Cases Identify sources of - - PowerPoint PPT Presentation

Seattle Regional Training September 24, 25, 2009

Identifying and Developing Charities Cases

National State Attorneys General Program Charities Oversight and Regulation Project

Identify sources of charity cases Case Selection—Criteria Anatomy of an Investigation Subpoena/Civil Investigative Demands

What to Request

Investigators Role What if I Have No Investigator? Using an Organizations Own Filings

Registrations, Forms 990, Financial Statements, Management Letters, etc.

Identifying Violations of the Law

Solicitation issues Governance Asset management

Using the IRS Form 990 to Find Violations of State

Law

Multi-State Enforcement Actions

Charities cases can be developed from a wide variety of sources

“Insiders” often refer or report matters:

Present or former board members or officers “Stakeholders” or consumers of the charity’s programs services Employee Whistleblowers

anonymous complaints

(These needed to be taken with a grain of salt but some are meritorious)

consumer complaints about solicitation

(It’s a good practice to have a complaint form on your website—it generates cases)

Government Agency Referrals Referrals from law enforcement agencies

Police Fire Consumer protection agencies Legislators making constituent referrals or inquiries

The organization’s own documents and filings

Read the newspaper!

Mail drops Obtain a P.O. Box and donate through the P.O.

Box

Old lady mail collectors Dummy phone lines, telemarketing calls

received by AG's themselves

Ask your colleagues to collect their direct mail

Local BBB Offices can make referrals Reach out and establish a relationship with your

local BBB

Leverage technology

FTC Listserve—let others due the sleuthing Do it yourself—take testimony and build a case. Take advantage of Internet based investigation tools and search engines www.nasconet.org

Forms, CID’s, Court decisions, multi-state achrives, etc.

Monitoring of the FTC’s charity2 listserve for

State charity regulators can alert you to problems with charities or solicitors in other states.

Those charities or solicitors are likely active in

your state too.

The listserve also generates “multistate”

enforcement activity

Paul Luehr presented “Beyond Google: Internet

Investigative Techniques and Tips” at the 2006 NASCO Conference

Copies of his Powerpoint and Favorite

Bookmarks are available

The charity’s own documents can often be used

against them. Examples include:

Registration statements IRS Form 990 Websites Recorded Calls

• http://www.state.ia.us/government/ag/latest_news/releases/may_2009/State_Police_Officers_C
• uncil%202_2_09%20(edit).mp3

Telemarketing “Scripts”

The charity’s own documents can often be used

against them. Examples include:

Direct Mail Financial Statements CPA’s Management Letter CPA Communications under SAS 112 and 115

Using an Organization’s Documents: CPA’s Management Letter

Auditors have traditionally provided their clients

with a management letter at the end of the audit which points out internal control problems, issues, and weaknesses that the auditor has detected during the course of an audit

This “letter” is written to management and the board

and is not considered a public document

Using an Organization’s Documents: CPA’s Management Letter

In the past, the letter was largely voluntarily and

could be communicated orally or in writing

Beginning with 2006 (applicable to years on or

after December 15, 2006), the letter was formalized and is now part of the audit process. Certain aspects of it are no longer voluntary

SAS 112 and 115: Three Aspects

• Mandatory—SAS Nos. 112 and 115 deal with communicating

internal control related matters identified in an audit SAS N0. 112 issued in 2006. Turned out to be overly complex in its

• definitions.

SAS No. 115 issued in 2008 (applicable to years ending on or after December 15, 2009). It keeps much of SAS No. 112, but simplifies the

• definitions

Must be provided within 60 days after issuance of the auditor’s opinion

• Mandatory—SAS No. 114 deals with the auditors
• communications with those charged with governance
• Voluntary—SAS Nos 112 and 115 permit the auditor to discuss
• Voluntary Nos. other issues in the letter, but do not require further discussion
• Charity regulators and investigators should be interested in
• these two required communications (which are often
• combined as one letter)

SAS 112 and 115: Three Aspects

Auditors must disclose deficiencies in internal controls that they encounter during the audit which are either

Material weaknesses Significant deficiencies

Critical point:

• In the NPO world, the auditing standards do not require the auditor

to look for or find control deficiencies as an end in and of itself But in the course of performing the audit, the auditor is required to examine, test, and document internal controls as necessary in the auditor’s professional judgment to permit the auditor to identify and address audit risk and satisfy the auditing standards. So the auditor inevitably will find internal control issues; perhaps minor, or conceivably major

The Management Letter

The auditor must provide a letter identifying significant weaknesses and material deficiencies detected during the audit process

• The auditor:

Can provide a letter indicating that no material weaknesses

came to the auditor’s attention if there were no material weaknesses identified

Cannot provide a letter indicating that no significant

deficiencies were uncovered even if none were uncovered. As the audit process is not designed to look for this, it is possible that significant deficiencies do exist

Internal Document: Board Minutes

Minutes should:

List who attended, the date and time of the meeting Describe the actions taken at each meeting and votes for and against them and major thread of discussion Describe committee reports to the board. Describe other business List all conficts discussed.

Internal Document: Board Minutes

Minutes As a Tool:

Prepare:

A table of the attendance record of each director A table of employees who attended each meeting A List who attended, the date and time of the meeting A chronological list of financial decisions considered A list of new programs and services Describe the actions taken at each meeting and votes for and against them and major thread of discussion Describe committee reports to the board. Describe other business List all conflicts discussed.

Internal Document: Board Minutes

No or poorly maintained minutes have

informational value:

Assess whether the Board is dysfunctional and if so, how Make inquiries of employees about their perception of the board and management Look for overrides of controls Look for violations of conflicts of interest policy

There are a number of documents prepared by or filed by an organization that can be very useful in build a case

No body is related.

Not married but same names??

1 DEPARTMENT OF THE ATTORNEY GENERAL 2 STATE OF HAWAII 3 IN RE INVESTIGATION OF: ) AG Subpoena No. ) 2009-028 4 Animal CARE Foundation ) ) 5 ) ) 6 ___________________________ ) 7 8 9 10 11 12 EXAMINATION UNDER OATH OF SABINA DE GIACOMO 13 Taken on behalf of the Attorney General's Office at 14 the offices of Department of the Attorney General, 425 15 Queen Street, Honolulu, Hawaii, commencing at 9:57 16 a.m. on May 29, 2009, pursuant to Notice. 17 18 19

Registration Data Can Develop Cases

19 Q. Do you reside with Frank De Giacomo? 20 A. He lives in the house. 21 Q. Are you married to him? 22 A. It's somebody's definition. Legally the 23 paperwork has not been changed to a divorce. 24 Q. So you obtained a wedding license? 25 A. Yes.

13 Q. Did either of you petition the court for a 14 legal separation? 15 A. Not on paper. 16 Q. Okay. So then you're not legally separated. 17 A. Okay. 18 Q. You are currently married. If neither of you 19 has petitioned or received a separation from the 20 court, you remain legally married. 21 A. Okay.

No Management expenses?

It turns out that the Animal Care Foundation did

not properly allocate its expenses among programs services, management and fundraising

The Foundation failed to list its officers and

directors on its Form 990

The Foundation failed to report the sale of

inventory (pet food, medicine, supplies)

Private Foundation returns are filed with the

Attorney General of Each State in which the Private Foundation is domiciled, registered or created.

Treasury Reg. Sec. 1.6033-3(c)

Note the zeros and the handwriting. Suspicious? Nothing entered

• n most lines

Red Flag

Note that the president took a whopping tax deduction and then lived tax free on the Foundation’ dime

Did the Foundation Managers Take Compensation?

But so underpaid.

I’m Sure the Supporting Schedules Explain Everything!

In this case, the $35,000 in “occupancy” expenses were for a luxury condominium in the Ilikai Hotel for the President of the organization. Note the travel expenses too. Who lived here and traveled?

Pick a good “poster child” case.

Badge Fraud Veterans Groups Disabled and Terminally ill Children, etc.

Good publicity generates new referrals and

complaints when the public at large becomes educated about the AG’s role