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

National State Attorneys General Program Charities Oversight and Regulation Project Seattle Regional Training September 24, 25, 2009 Identifying and Developing Charities Cases

� 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 ouncil%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??

Registration Data Can Develop Cases 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

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)