Reposted from the This Week in Nonprofit Fraud Blog – August 11, 2014
August 4, 2014: Stephen Dennis, the former mayor of Grandview, MO, was sentenced this week to one year in prison after pleading guilty to wire fraud in February 2014. He resigned in January after the public revelation that he embezzled donations to a phony nonprofit which he had founded. To give the nonprofit an air of legitimacy, Dennis included several Grandview Aldermen as “directors” in corporate filings without their knowledge. Dennis had accepted two donations totaling $35,000 from the Grandview-based International House of Prayer, which he deposited into his nonprofit’s bank account. Dennis subsequently transferred the money into his own personal accounts and used the funds to pay personal expenses, instead of “providing relief for the poor and elderly” as intended. Dennis also accepted $20,000 in “scholarships” for his daughter from a major Grandview-area real estate developer (who was also a major campaign contributor), which he also spent on personal expenses.
See more on this case at The Kansas City Star
- Once again, we see an elected official taking advantage of his post and using the position for his own financial gain. As an elected official, Dennis used his considerable clout in the community to solicit donations, preying on a local religious organization dedicated to supporting the same community Dennis represented.
- Fraudsters use a variety of means to try to give their schemes an air of legitimacy. In this case, Dennis used the reputations of the Grandview Board of Alderman by pretending that they were members of his nonprofit’s Board of Directors.
Raffa Forensic Practice Tips:
- Know your business partners and remember that an organization is more than one person, so don’t rely on your relationship with just one piece of the organization.
- Does your organization have a formal due diligence process for business partners?
A Judge’s Nonprofit
Photo courtesy of Wikimedia Commons
August 8, 2014: Former traffic court judge, Robert Mulgrew, has been sentenced to 30 months in prison for defrauding the state of Pennsylvania out of $199,274, which he has been ordered to reimburse to the state. Mulgrew served as Vice President of Friends of Dickinson Square, a Philadelphia-area nonprofit, which received state grant money from the Pennsylvania Department of Community and Economic Development to help revitalize his south Philadelphia neighborhood. Between 2002 and 2008, he and co-conspirator Lorraine DiSpaldo (a subject of a prior issue of This Week in Nonprofit Fraud) would create “make-work” projects in which they paid relatives and associates for work not done, including paying two permanently disabled friends of a state congressman for work they were physically unable to perform. The duo also used state grant money for personal expenses. As Vice President of the organization, Mulgrew signed off on the grant contracts with the state. He will begin to serve his sentence on September 2nd.
See more on this case at Philly.com
- When multiple employees of an organization collude to commit fraud it is less likely to be uncovered, as there is always someone there to cover their tracks or provide explanations for any financial discrepancies.
- The fraud involved the duo creating “make-work” projects, in which they would create work, hire and compensate relatives and associates for jobs they did not do. An audit of the status, progress and completion of these projects by the grantor agency would have helped to uncover this scheme.
Raffa Forensic Practice Tips:
- Fraud involving executives in an organization, specifically when collusion is involved can be best detected with the oversight and governance of a fully engaged Board of Directors.
- Does your organization have clear conflict of interest policies which govern hiring and contractual relationships with associates?
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For more information on the Raffa Forensic Accounting Services Practice please visit us at www.raffa.com/ProfessionalServices/Forensic/ and the Nonprofit Fraud Prevention Institute at www.raffa.com/Fraud.
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