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FORENSICS INSIDER

Think Before You Give

In Ronald Reagan’s famous words, “trust but verify” before giving charitably.

By Brad Sargent, CPA/CFF, CFE, CFS, Cr.FA, FABFA

Winter 2012

The holiday season may have been and gone, and with it the “for-profit” world’s bid for our disposable income, but the desire to give to nonprofits and charities lingers far beyond the festivities for many of us. At all times of year, and especially during the winter, churches, homeless shelters, local food pantries, animal welfare organizations, children’s charities, veterans’ groups, community outreach groups, and more, actively seek donations of food, clothes, money and time to help those less fortunate survive.

But are they always worthy causes? What if the charity you’re eyeing is, in fact, a scam? Take this scenario: A phone call from someone representing a charitable organization, looking for donations of clothes and household items, will have a truck making pick-ups in your neighborhood. You’re not home during the day, so you tell the caller you’ll leave the items on your front porch. Who, exactly, have you just invited to your empty house? Will the neighbors think twice when a big truck starts loading your household items when some of them are already out on your front porch? Did you also mean to “donate” your cash, jewelry and electronics?

Floyd D. Perkins, Esq., CPA, is a member of the Illinois CPA Society Board of Directors and a partner at the law firm of Ungaretti & Harris, LLP. He concentrates his practice on counseling businesses and charities on financial and compliance matters, litigating business and financial disputes, and representing clients in contested probate and chancery matters. Prior to joining Ungaretti & Harris, Perkins was bureau chief of the Illinois Attorney General’s Charitable Trusts Division for 14 years, where he was responsible for many of the office’s complex financial and business litigation matters concentrating in the chancery and probate practice.

Perkins offers this simple advice: “Give but give wisely. Know who you’re giving to; the cause may be great but the people soliciting may not be delivering to the cause. Check them out before giving.”

Another caveat: Even the most legitimate charitable organizations may not always exercise an appropriate level of internal due diligence. Many individuals join charitable organizations (accepting lower compensation in the process) for the reward of doing something for a cause in which they believe. Fraudsters are aware of this altruistic culture and seek to embed themselves within an entity, gain trust and steal at will.

Sadly, the very attributes that make these legitimate organizations effective in their missions can lead to a failure to maintain proper internal controls. Many large-dollar frauds are committed in the charitable sector, but are almost never reported since nonprofits rely heavily on their positive public image. I’ve investigated major frauds that rose to criminal levels, yet the respective boards chose to resolve the matters quietly. I urged them to set a more rigorous tone at the top and pursue all means to prosecute the fraudsters, and in return was given a personal tutorial on the precarious nature of these entities and their public personas, and a primer on how discretion is essential for their continued existence.

Lisa M. Noller, Esq., is a litigation partner with Foley & Lardner LLP, where she is a member of the firm's Government Enforcement, Compliance & White Collar Defense, Business Litigation & Dispute Resolution, and Securities Enforcement & Litigation practices, as well as the Health Care, Medical Devices, and Life Sciences Industry teams. She is an experienced trial lawyer, having spent more than 15 years investigating and litigating complex criminal and civil cases. Her practice focuses on responding to government investigations, conducting corporate internal investigations, and litigating a wide variety of civil and criminal matters in state and federal courts.

Noller states that, “The government doesn’t differentiate for purposes of charging, plea negotiating or sentencing; fraud is fraud. Charities and nonprofits would do well to follow their for-profit counterparts and implement rigorous compliance programs and institute internal controls to detect and combat fraud. Doing so doesn’t undermine the traditional culture of nonprofits. Rather, with strong policies and procedures for internal audits, investigations and remediation, nonprofits and charities can ‘trust but verify.’”

The “trust but verify” phrase is often attributed to Former President Ronald Reagan, when he addressed the former USSR and its leader, Mikhael Gorbachev. Upon hearing Reagan’s proclamation, Gorbachev famously responded, “But you say that at all of our meetings!” In reality, Reagan quoted a Russian saying which he knew would be familiar to Gorbachev.

Regardless of the source, these words ring true. Arm yourself before you give; look into the organization or individual contacting you, validate that your assets will be allocated to a worthy cause, and conduct due diligence to provide assurance that your assets will be used wisely and in pursuit of the cause of your choice.


Brad is the managing member of The Sargent Consulting Group LLC, which specializes in forensic accounting and financial investigation. He is a frequent lecturer and chair emeritus of the American Board of Forensic Accounting. A member of the Illinois CPA Society since 2002, Brad also serves on the Society’s Board of Directors.


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