Information concerning a major accounting and fiscal scandal at the United Way of the National Capital Area continues to trickle out. An ongoing criminal investigation is being conducted by the U.S. Attorney’s Office in Alexandria, Virginia. Several investigative elements of the federal government have been involved at varying stages of this ongoing investigation, including the U.S. Department of Labor auditors, the FBI, and auditors from the U.S. Office of Personnel Management.
Charitable organizations identified as providing “human services,” the latter including services which assist in the physical, emotional and sometimes spiritual growth and development of individuals, families, groups and communities, are defined as “nongovernmental organizations” [NGO], and are identified also as the “third sector” of civilized society. A study was published by Margaret Gibelman, DSW, and Sheldon R. Gelman, Ph.D., and presented to the International Society for Third Sector Research on July 7, 2000, at the Society’s Fourth International Conference held in Dublin, Ireland.
Gibelman and Gelman’s study, entitled “Very Public Scandals: An Analysis of How and Why Nongovernmental Organizations Get in Trouble – A Working Paper,” serves to explain the very type of administrative breakdowns now evident at the United Way of the National Capital Area [UWNCA].
Gibelman and Gelman offer some informative background in their study, stating that, “The third sector has become a more significant economic and social force throughout the world and its growth substantially exceeds the other economic sectors. The burgeoning growth and development of NGOs in the last quarter of the 20th century relates, in part, to the world-wide quest to find alternatives to government in the provision of human services, a quest largely borne out of a disillusionment with government’s handling of the welfare state.”
The Gibelman-Gelman study continues, “NGOs occupy different roles and functions within their respective host countries. Throughout the 1990s, articles about NGO wrongdoings began to appear in the U.S. press. Our review of instances of wrongdoing on the part of NGOs reveals that all have involved money and are opportunistic in nature. The incidents are motivated by self-interest (greed), perceived entitlement, or sexual fulfillment. Most have occurred over a lengthy period of time, are not precipitous, reflect a lack of board oversight, and have long term impacts on the organization.”
All of these basic attributes are applicable to the current UWNCA scandal. In fact, the study cites a previous United Way of America case dating back to 1992. In that incident, United Way’s chief executive was at the center of the scandal. The study offers, “A ground-setting case involved the United Way of America (UWA), one of the nation’s largest and most esteemed fund raising arms for third sector services. The United Way is a network of over 2,000 local organizations that raises over $3 billion a year for charity.”
“This case is instructive because it shows the longevity of scandals afflicting NGOs and the long-term salience of wrongdoing in the public’s mind. In 1992, in response to concerns expressed by local UWA affiliates, the United Way Board of Governors set up an independent investigation of the allegations against the chief executive officer, William Aramony, who had served in his position for 22 years. The resulting report concluded that Mr. Aramony’s ‘haphazard’ management style resulted in a breach of trust placed in him by the United Way’s Board and the public,” relate Gibelman and Gelman.
The study summarizes the criminal charges filed against Aramony: “After a two year investigation, Mr. Aramony was indicted by a federal grand jury of conspiring to defraud the United Way, filing false tax returns and falsifying records to hide the diversion of money, [and] following a lengthy and well-publicized trial, Mr. Aramony was found guilty of 25 felony charges and was sentenced to seven years in prison.”
The most startling similarity between the Aramony case, and the current case of former United Way Executive Vice President, Oral Suer, is that the misappropriation of funds, advances against salary, and non-business expenditures, along with a lack of accounting records and documents, occurred over a great span of time.
The Washington Post in an August 17th article entitled “Dealings of Charity Executive Concealed,” by staff writers Peter Whoriskey and Jacqueline L. Salmon, points out that, “The financial dealings of Oral Suer, the former United Way chief accused in an audit last week of taking more than $1.5 million in questionable payments from the local charity, were first flagged by auditors more than 15 years ago but remained a closely held secret among a handful of prominent board members even as the losses mounted over time, audits and interviews show.”
Some of the glaring infractions listed in the audit report uncovered by the auditors from PricewaterhouseCoopers, LLP, engaged by the law firm hired by the new UWNCA Board of Directors to represent them, were: “…apparently unreimbursed and/or potentially questioned payments total[ing] approximately $786,000, for the period 1974 to 2002, and this amount excludes the approximately $1,747, 500 in regularly authorized payroll also made payable to him in the same period. These payments took the form of:
- Unreimbursed advances
- Potentially questionable vacation/sick leave cash payments
- Apparently excess deferred compensation paid.”
The August 7th PricewaterhouseCoopers report was sent to the law firm of Covington & Burling. The report indicates that $230,407 was also paid to Mr. Suer borrowing against his pension fund, which he never repaid. The report also indicates that, “Mr. Suer on a number of occasions made payment of his own personal pledges to UWNCA campaigns via UWNCA advances requested by him and paid to him.” In other words, Suer made “donations” to the United Way by asking them for advances, and then paid “pledges” to UWNCA with their own checks.
The report cites evidence that, “Mr. Suer’s payments of unused vacation and sick leave, assuming his eligibility for 42 possible days of accrued leave per year, equated to his receiving payment for roughly 28 years worth of untaken vacation and sick days. This is also despite the anecdotal evidence we received indicating that he was often away from the office and regularly took leave.”
A key point found in the Executive Summary of the PwC report cited the “lack of existence of relevant period financial records.” The report also reveals, “We were also told by an employee that Mr. Suer, upon his departure from UWNCA, took away ‘several station-wagon loads’ of UWNCA files from the office.”
There are approximately 379,000 federal workers in the DC area, and they contribute either on a one-time basis, or periodically during the year through regular payroll deductions, to a charitable program called the Combined Federal Campaign, or CFC. UWNCA has always supervised and managed the CFC campaign, providing the federal sector with their charitable campaign administrative experience.
Suer, with no authority other than his own signature, “borrowed” $3 million from the CFC fund without explanation, and although the money was repaid in a month, interest for that month in the amount of $13,273.91 was credited as a liability to the CFC, but never paid. This situation brought on an audit by the Government’s Office of Personnel Management, the agency responsible for the CFC. Another custodian for the D.C. area has been selected for this year’s effort.
The Gibelman-Gelman study explained that NGO fraud occurs over extended periods of time, and pointed to a “haphazard management style” best exemplified by a total lack of accounting and reporting disciplines. When combined with a lack of governing board oversight, and further compounded by allowing exposed questionable practices to continue unabated in the hopes of dealing with the situation “privately” some time in the future, an environment is created that can easily be capitalized upon by greed.
It appears that only government intervention in the form of increased regulatory standards for charitable organizations, organizations created “out of disillusionment with government’s handling of the welfare state,” will be required to inject the integrity absent these days in both the public and private sectors.
“Published originally at EtherZone.com : republication allowed with this notice and hyperlink intact.”