An investigation by the Washington Post may have found the Pandora’s box for nonprofits missing some money. In an obscure box added in 2008, quietly phased in and reportedly only asked of larger public charities, the 990 form asks nonprofits to disclose “a significant diversion of funds.” A simple YES typed in the box presents a mystery waiting to be unraveled or, as in many cases, kept under cover. Until now.
For 14 years, the American Legacy Foundation has managed hundreds of millions of dollars drawn from a government settlement with big tobacco companies, priding itself on funding vital health research and telling the unadorned truth about the deadly effects of smoking.
Yet the foundation, located just blocks from the White House, was restrained when asked on a federal disclosure form whether it had experienced an embezzlement or other “diversion” of its assets.
Legacy officials typed “yes” on Page 6 of their 2011 form and provided a six-line explanation 32 pages later, disclosing that they “became aware” of a diversion “in excess of $250,000 committed by a former employee.” They wrote that the diversion was due to fraud and now say they believe they fulfilled their disclosure requirement.
Records and interviews reveal the full story: an estimated $3.4 million loss, linked to purchases from a business described sometimes as a computer supply firm and at others as a barbershop, and to an assistant vice president who now runs a video game emporium in Nigeria.
Also not included in the disclosure report: details about how Legacy officials waited nearly three years after an initial warning before they called in investigators.
In fact, the Post’s research of filings from 2008 to 2012 found more than 1,000 nonprofit organizations had checked the box indicating that they had discovered a “significant diversion” of assets, disclosing losses attributed to theft, investment fraud, embezzlement and other unauthorized uses of funds. As the Post reports: