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Embezzlement
Old 10-12-2018, 01:12 PM   #1
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Embezzlement

I run a small nonprofit recovery community center for folks dealing with addictions and mental health issues. We have recently come to believe we're being embezzled from. Looks to be a significant 5 figure amount (When you are a small nonprofit, ANY 5 figure amount is significant). Without going into detail, we have gotten lawyers and law enforcement involved.

I'm curious: If you've had a similar misfortune what was your experience of the legal and accounting processes like?

Any advice?
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Old 10-12-2018, 02:33 PM   #2
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Retired fraud investigator here. If law enforcement can make a case and the prosecutor will prosecute it in court they'll normally do so. If found guilty in criminal court a judge will usually, but not always, order restitution as part of sentencing.

One part of the issue is the size/expertise of the local law enforcement agency. If it's a small town department with say, ten officers with high school degrees, an embezzlement case, especially if there are any complications to it, may well be beyond their capabilities. If you're in a big-city area and the police have experienced fraud investigators who do nothing but that, there should be no issues. If you're really lucky, you'll get a forensic accountant handling it but that's unlikely. Those folks generally make far more money in the private sector.

The attorneys you hire will probably sit back and wait to see what happens on the law enforcement side. If the state can clear the bar for a criminal conviction a successful civil suit, where the standard of proof is far lower, is a slam dunk. And if a criminal court judge orders restitution they may not bother - what's the point?

That does not mean the community center is going to be made whole. If the suspect spent all the money (usually the case) and now has a net worth of a dollar ninety-eight you're not getting the money back. If he/she has a steady job there may be some hope of some recovery but that's the exception and not the rule.

Sorry to make the prospects sound so dismal, but that was my experience.
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Old 10-12-2018, 02:48 PM   #3
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Your experience matches my expectation. No blood from a stone. Thanks for the insight.

We're lucky: the crime is in a mid size city. So, PD has somewhat specialized detective on the case.

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Retired fraud investigator here. If law enforcement can make a case and the prosecutor will prosecute it in court they'll normally do so. If found guilty in criminal court a judge will usually, but not always, order restitution as part of sentencing.

One part of the issue is the size/expertise of the local law enforcement agency. If it's a small town department with say, ten officers with high school degrees, an embezzlement case, especially if there are any complications to it, may well be beyond their capabilities. If you're in a big-city area and the police have experienced fraud investigators who do nothing but that, there should be no issues. If you're really lucky, you'll get a forensic accountant handling it but that's unlikely. Those folks generally make far more money in the private sector.

The attorneys you hire will probably sit back and wait to see what happens on the law enforcement side. If the state can clear the bar for a criminal conviction a successful civil suit, where the standard of proof is far lower, is a slam dunk. And if a criminal court judge orders restitution they may not bother - what's the point?

That does not mean the community center is going to be made whole. If the suspect spent all the money (usually the case) and now has a net worth of a dollar ninety-eight you're not getting the money back. If he/she has a steady job there may be some hope of some recovery but that's the exception and not the rule.

Sorry to make the prospects sound so dismal, but that was my experience.
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Old 10-12-2018, 03:13 PM   #4
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Keim,
Was in nonprofit finance for 35 years, including as a nonprofit lender to small and very small nonprofits. Recovery of lost funds is always nice, but as you note blood from a stone is often impossible. In embezzlement situations, I always asked "where was the CFO (or head of Finance/Acounting), where was the CEO (or Executive Director), and where was the Board." when the embezzlement was happening. If they exist, I would also ask "where were the auditors". Five figures are tough to lose, but hopefully the organization will assess how such a thing happened and then take appropriate action to prevent it from happening again. No different than in the for-profit sector, but sometimes nonprofits forget they are businesses too.
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Old 10-12-2018, 03:23 PM   #5
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Keim,
Was in nonprofit finance for 35 years, including as a nonprofit lender to small and very small nonprofits. Recovery of lost funds is always nice, but as you note blood from a stone is often impossible. In embezzlement situations, I always asked "where was the CFO (or head of Finance/Acounting), where was the CEO (or Executive Director), and where was the Board." when the embezzlement was happening. If they exist, I would also ask "where were the auditors". Five figures are tough to lose, but hopefully the organization will assess how such a thing happened and then take appropriate action to prevent it from happening again. No different than in the for-profit sector, but sometimes nonprofits forget they are businesses too.
Yes. Those questions have been asked. This was a somewhat unique nonprofit start-up and we believe the administrator took advantage of the naivete of an inexperienced board. We believe the problem has been identified, and correction steps are being taken. Currently assessing damage and designing forward plan.
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Old 10-12-2018, 04:05 PM   #6
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How unfortunate this happened. Ironically you may find out the culprit has a drug addiction or a gambling addiction or a spending/shopping addiction. People seldom do things like this to put food on their table.


The sad part is people have long memories and the malfeasance will cast a long shadow over your program and its future fund raising.
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Old 10-12-2018, 04:13 PM   #7
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How unfortunate this happened. Ironically you may find out the culprit has a drug addiction or a gambling addiction or a spending/shopping addiction. People seldom do things like this to put food on their table.
That was my experience too. Not so much the gambling (not much around where I worked) but drug addictions drove ~70% of it. The rest was just greed, stupidity, sometimes way behind on credit cards. I guess that could fall into "spending/shopping addiction".
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Old 10-12-2018, 04:27 PM   #8
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Yes, that's a concern. We are attempting to keep it quiet locally.
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Old 10-12-2018, 04:37 PM   #9
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Yes, that's a concern. We are attempting to keep it quiet locally.
You know people will find out, IMO best not to appear to be covering it up, it won't work anyway.
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Old 10-12-2018, 04:44 PM   #10
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Nope, not hiding. Not doing a press release either...
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Old 10-12-2018, 06:53 PM   #11
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The attorneys you hire will probably sit back and wait to see what happens on the law enforcement side. If the state can clear the bar for a criminal conviction a successful civil suit, where the standard of proof is far lower, is a slam dunk. And if a criminal court judge orders restitution they may not bother - what's the point?

That does not mean the community center is going to be made whole. If the suspect spent all the money (usually the case) and now has a net worth of a dollar ninety-eight you're not getting the money back. If he/she has a steady job there may be some hope of some recovery but that's the exception and not the rule.
Precisely so. Long ago, I represented some companies who had been victims of embezzlement. In my experience, the perpetrators had drug and/or gambling problems. Consequently, the money was all gone and there was simply no way to be made whole, whether by criminal restitution or by civil suit.
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Old 10-12-2018, 07:25 PM   #12
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This comes at a strange time . A friend of ours has a small company and his office manager went out and created American Ex. cards then ran them up . This person did this for over 2 years . The result was nearly 300K . Now Amex has made his company right and the person has been arrested and is bonded out , but the dirty laundry is awful . Seems Amex doesn't play around.
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Old 10-13-2018, 10:07 AM   #13
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Boy I've seen a lot of fraud in my days as an auditor, and now I am in a situation where I've started as a treasurer to a non profit that gets a lot of cash donations off the street. I'm really worried about how to protect not only the cash, but myself as there are no real controls on the volunteers other than to record the cash and put it in the safe. They could easily pocket the cash and not record and the treasurer (now me) could easily skim.
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Old 10-13-2018, 10:20 AM   #14
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Boy I've seen a lot of fraud in my days as an auditor, and now I am in a situation where I've started as a treasurer to a non profit that gets a lot of cash donations off the street. I'm really worried about how to protect not only the cash, but myself as there are no real controls on the volunteers other than to record the cash and put it in the safe. They could easily pocket the cash and not record and the treasurer (now me) could easily skim.

Only thing I can think of is two-person control. Always have a second person when possible. It's always tough when dealing with cash and trust issues of the volunteers.
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Old 10-13-2018, 10:27 AM   #15
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+1. When I was managing the multi-million dollar endowment for my church, we had it set up so that I could direct the investments but never, ever remove money from the account. Only the treasurer could do that. We also received three separate account statements - one mailed to me, one to the pastor and one to the treasurer. Similarly, with our day to day church accounts, one person was the financial secretary who collected and deposited the tithes and offerings into the account. A separate person was the treasurer who could write checks from the account. Both of them had an assistant with full access to the books and records. These institutional barriers made it much more difficult for any embezzlement to occur.
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Old 10-13-2018, 11:39 AM   #16
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My church recently dealt with a dishonest employee. If you haven't already, make sure you protect your computer & data. Change passwords, bank account numbers, all of your door locks, etc.... Let all companies that you have charge accounts with know that this employee is no longer authorized, things like that.

Our former employee got into our computer system and really caused a lot of damage before we knew there was a problem.
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Old 10-13-2018, 02:25 PM   #17
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Nothing I can add here on the legal side; but a personal anecdote.

At one time our VP of accounting was a weird, little, mysterious guy. Really, really bright guy who knew how smart he was. Would work at the office until 3AM sometimes and be back at 7.

Strange cat, but if you casually mentioned to anyone in the office that you might be going to Vegas they'd say: "Oh, go ask Jim (VP of accounting) about where to go, he goes there almost every weekend! He's a card counter"

Sure enough, one day the FBI shows up; seems ol' Jimmy had pocketed a few mil from us to feed his gambling addiction.

In hindsight, when your accountant "...goes to Vegas every weekend" it should've been a red flag but at the time no one thought anything of it.
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Embezzlement
Old 10-13-2018, 02:31 PM   #18
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Embezzlement

I was a non profit director for 30+ years. We were embezzled from 3 times. We took in cash weekly for child care fee payments and always had to audit our centers to see all the cash got to the bank. Each time, the person stole about $5000. I was surprised each time at how creative they were in their methods. We called the police and the DA prosecuted and in each case they made restitution to stay out of jail. Our bond insurance covered the thefts and we reimbursed the insurance company when we received the money, 3-4 years down the road. Itís a slow process and in two cases, I had to go to the grand jury, because initially they fought it. Sorry this happened to you!
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Old 10-13-2018, 02:58 PM   #19
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Apparently... he wasn't a very good card counter.


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Nothing I can add here on the legal side; but a personal anecdote.

At one time our VP of accounting was a weird, little, mysterious guy. Really, really bright guy who knew how smart he was. Would work at the office until 3AM sometimes and be back at 7.

Strange cat, but if you casually mentioned to anyone in the office that you might be going to Vegas they'd say: "Oh, go ask Jim (VP of accounting) about where to go, he goes there almost every weekend! He's a card counter"

Sure enough, one day the FBI shows up; seems ol' Jimmy had pocketed a few mil from us to feed his gambling addiction.

In hindsight, when your accountant "...goes to Vegas every weekend" it should've been a red flag but at the time no one thought anything of it.
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Old 10-13-2018, 03:09 PM   #20
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I run a small nonprofit recovery community center for folks dealing with addictions and mental health issues. We have recently come to believe we're being embezzled from. Looks to be a significant 5 figure amount (When you are a small nonprofit, ANY 5 figure amount is significant). Without going into detail, we have gotten lawyers and law enforcement involved.

I'm curious: If you've had a similar misfortune what was your experience of the legal and accounting processes like?

Any advice?
I don't know the state you are located in, but in my state, NH, the attorney general's office takes care of non profit affairs. They act quickly on situations such as you mention. You might reach out to them for help.
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