More On Legal & Compliancefrom The Advisor's Professional Library
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- RIAs and Customer Identification Just as RIAs owe a duty to diligently protect their clients privacy and guard against theft, firms also play a vital role in customer identification. Although RIAs are not subject to an anti-money laundering rule, securities regulators expect advisors to address these issues in their policies and procedures.
An analysis of IRS reports that large nonprofits fill out every year shows that more than 1,000 organizations disclosed the diversion of hundreds of millions of dollars in assets owing to investment fraud, embezzlement or other unauthorized uses in a 4-year period.
The Washington Post, which conducted the analysis, reported that 10 of the largest loss disclosures it identified amounted to a combined half-billion dollars between 2008 and 2012.
The report said that although the news media had made some of the diversions public, others have gone unreported. Moreover, it said, nonprofits “routinely omitted” material details from their public filings.
About half of the organizations that depend on public donations and government funds did not disclose the total amount lost, the Post said, suggesting that vastly more has gone missing than has been reported.
It noted that nonprofits are required to report only diversions of more than $250,000, or ones that exceeded 5% of a group’s annual gross receipts or total assets.
As part of its analysis, the Post worked with GuideStar, which gathers and disseminates nonprofits’ federal filings, to create a public, searchable database of nonprofits that have disclosed diversions.
The IRS added a question about diversions to forms submitted by larger nonprofits in 2008. Private foundations and smaller organizations submit alternative forms or none at all, the Post said.
So far, the IRS has reported only that 285 diversions amounting to $170 million were disclosed in 2009, according to the report.
The Post analysis found that investment fraud had led to some of the largest losses suffered by nonprofits. For example, the Madoff scheme bilked Yeshiva University and its affiliates of $106 million.
Other institutions lost assets in different ways:
- Global Fund to Fight AIDS, Tuberculosis and Malaria reported misuse or unsubstantiated spending of $43 million in grant funds
- The Conference on Jewish Material Claims Against Germany said it was bilked out of $42 million by people who had created thousands of fake identities (later raised to $60 million, the report said)
- Columbia University disclosed it was defrauded of $5.2 million in “electronic payments” made by a former university accounting clerk and three associates.
Check out 10 Worst Charities in America on ThinkAdvisor.