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Which Non-Profits Are Accountable?

The NYT reports on how two non-profit organizations — ACORN and the Points of Light Foundation — responded to the discovery of embezzlement or other financial irregularities.

Acorn chose to treat the embezzlement of nearly $1 million eight years ago as an internal matter and did not even notify its board. After Points of Light noticed financial irregularities in early June, it took less than a month for management to alert federal prosecutors, although group officials say they have no clear idea yet what the financial impact may be.

A whistle-blower forced Acorn to disclose the embezzlement, which involved the brother of the organization's founder, Wade Rathke.

The brother, Dale Rathke, embezzled nearly $1 million from Acorn and affiliated charitable organizations in 1999 and 2000, Acorn officials said, but a small group of executives decided to keep the information from almost all of the group's board members and not to alert law enforcement.

Dale Rathke remained on Acorn's payroll until a month ago, when disclosure of his theft by foundations and other donors forced the organization to dismiss him. . . .

Wade Rathke stepped down as Acorn's chief organizer on June 2, the same day his brother left, but he remains chief organizer for Acorn International L.L.C.

He said the decision to keep the matter secret was not made to protect his brother but because word of the embezzlement would have put a "weapon" into the hands of enemies of Acorn, a liberal group that is a frequent target of conservatives who object to its often strident advocacy on behalf of low- and moderate-income families and workers.

Wade Rathke is right. It doesn't look so good for ACORN.

By contrast, consider what happened at the Points of Light Foundation:

Officials at Points of Light began looking into complaints about a store the organization operated on eBay and by late June had discovered what its president and chief executive, Michelle Nunn, called "abnormalities" in the business practices of an independent contractor hired to run the store, which did a brisk business auctioning travel packages and items donated to the organization.

The travel auctions were stopped immediately, Ms. Nunn said, and the store was shut down a short time later. Points of Light also posted a statement on its Web site last weekend about the problems and contacted the United States Attorney's Office in Washington, as well as people who had bought the travel packages.

Matt_T:
<i>He said the decision to keep the matter secret was not made to protect his brother but because word of the embezzlement would have put a "weapon" into the hands of enemies of Acorn, a liberal group that is a frequent target of conservatives who object to its often strident advocacy on behalf of low- and moderate-income families and workers.</i>

Essentially, his argument boils down to "We can't let groups who think we're scoundrels see this information...they might be able to prove that we are!"
7.9.2008 11:56am
Bruce Hayden (mail) (www):
So, they run out the statute of limitations on the embezzlement, and pretend that it was for the good of the organization.

Of course, isn't this the organization that has become synonymous with fictitious voter registrations? If so, what should we expect from them. I did find interesting that they have campaigns going right now for affordable housing, and against predatory lending and foreclosures. Some how, I suspect that they don't see the necessary conflicts between their support for all these.

I, for one, would never contribute to an organization that covers up embezzlements and the like. But then, I wouldn't borrow money from a bank that did so either.
7.9.2008 12:06pm
FXK (mail):
Isn't Acorn also the organization that wanted to pay people less than the minimum wage to solicit support for increasing the minimum wage?
7.9.2008 12:30pm
Philadelphia 2004 (mail):
ACORN tolerates illegal activity?! Say it ain't so!
7.9.2008 12:42pm
ejo:
if the entire organization is a fraud, why should fraudulent activities surprise anyone? it would be like the mob complaining that someone skimmed its skim.
7.9.2008 12:47pm
byomtov (mail):
He said the decision to keep the matter secret was not made to protect his brother but because word of the embezzlement would have put a "weapon" into the hands of enemies of Acorn,

Actually the embezzlement and, more important, the coverup, are what gave ACORN's enemies a weapon. Quick action, including prosecution, once the embezzlement was discovered, would have mitigated the negative effect substantially. Did the executives even insist on reimbursement?
7.9.2008 12:48pm
Smokey:
RICO!!
7.9.2008 1:00pm
Happyshooter:
The brother, Dale Rathke, embezzled nearly $1 million from Acorn and affiliated charitable organizations in 1999 and 2000, Acorn officials said, but a small group of executives decided to keep the information from almost all of the group's board members and not to alert law enforcement.

Dale Rathke remained on Acorn's payroll until a month ago, when disclosure of his theft by foundations and other donors forced the organization to dismiss him. . . .


Does this meet the standard for RICO, if we assume the decision to keep silent was a relationship or agreement with a fellow ACRONer?
7.9.2008 1:03pm
AKD (mail):
The executives likely thought that revelation of this activity would lead to drastic measures by the board against the staff, although all signs point to ACORN not having a board that actually exercises its responsibilities.
7.9.2008 1:05pm
neurodoc:
Is it beyond question that the statute of limitations has run in the ACORN case and criminal prosecution would no longer be possible? If someone files a fraudulent tax return, and I think it very likely that the embezzler did not report all of his ill-gotten gains, isn't that prosecutable though the fraud may not have been discovered by the IRS until years later?

And no possibility of civil action to recover the monies because 8 years have gone by? If a tortfeasor (e.g., a negligent professional did something that injured his/her client) keeps the party he/she injured from learning of the negligence, and the injured party would not be expected to have looked into it and figured out for themselves that their injury was attributable to the tortfeasor's negligence, that can extend the period of time the victim has to file a lawsuit.

If ACORN has a significant presence in New York, perhaps Andrew Cuomo will pursue the matter. This kind of thing should be his cup of tea.
7.9.2008 1:19pm
Sarcastro (www):
Clearly, the point to this post was to point out how bad ACORN is, not make any more general point about how to run a nonprofit.

Because only liberal nonprofits hide embezlements.
7.9.2008 1:29pm
Happyshooter:
If ACORN has a significant presence in New York, perhaps Andrew Cuomo will pursue the matter. This kind of thing should be his cup of tea.

The best snarks are the most understated. Nicely done.
7.9.2008 1:32pm
ejo:
ACORN is bad, sarcy-fraud is its reason for being. voter fraud, housing fraud, you name it. they have done it all over the place, all in the name of progressivism, of course.
7.9.2008 2:03pm
Just Saying:

If ACORN has a significant presence in New York, perhaps Andrew Cuomo will pursue the matter. This kind of thing should be his cup of tea.


Might as well close Volokh Conspiracy for the day. Regardless of what happens next, it's all downhill from this comment.
7.9.2008 2:13pm
A. Zarkov (mail):
ACORN is the outfit that helped bring about the subprime mortgage mess. See this article. Of course banks and Wall Street were the primary perpetrators, but ACORN's actions provided the catalyst. Note the use of bogus a statistical study. Funny how invalid statistics gets used to make national policy (DC study on gun control) and the critics simply get ignored.
7.9.2008 2:17pm
neurodoc:
The best snarks are the most understated. Nicely done.


This one was so understated that that the speaker himself failed/fails to get it. Happyshooter, please tell us/me, what you perceive to be snark in that.

Cuomo threatens to make his predecessor look in retrospect narrowly focused and not all that zealous a prosecutor. The man who aspires to follow in his predecessor's footsteps to Albany, reclaiming the governor's mansion for his family again, and not screw it up as his predecessor did, may have decided not to keep pressing Spitzer's civil case against former NYSE head Richard Grasso, but Cuomo has certainly gone after a good many others with pretty fair success, e.g., student lenders.

If some federal or state attorney other than Cuomo can do something with this ACORN matter, I hope they will undertake it. If a for-profit chooses not to go after an embezzler, that is their call to make. When an embezzler empties the till of a non-profit, there is a public interest in recovery of the monies and prosecution of the wrongdoer, so whether to pursue the matter or not isn't always the non-profit's call to make on its own.
7.9.2008 2:23pm
pete (mail) (www):
On the plus side, this means ACORN had $1 million dollars less to dedicate towards false voter registration and other forms of voting fraud.

Here are some links that show some of the history of ACORN to those not familiar with it. Long PDF partly about ACORN's involvement in registering felons to vote in the 2004 presidential election in Milwaukee. Here is a Seatle Times story about some felony voter fraud charges against several ACORN employees in Seattle from a while back. And here is a Wall Street Journal story about some of their Kansas City workers who were under indictment for submitting false voter registrations and it also gives a general history of the group. Here is a story about ACORN's fraud in St. Louis where it registered hundreds of fake addresses. The FBI was investigating that one, but I am not sure if that was a seperate investigation from the previous one. There are so many it gets confusing.
7.9.2008 2:56pm
David M. Nieporent (www):
ACORN is bad, sarcy-fraud is its reason for being. voter fraud, housing fraud, you name it. they have done it all over the place, all in the name of progressivism, of course.
ACORN is not bad because it commits fraud, although it may. ACORN is bad because its raison d'etre is to take money from the government to use to lobby the government to give it more money which it can use to keep the cycle going.
7.9.2008 2:59pm
d:
A.Zarkov states:
ACORN is the outfit that helped bring about the subprime mortgage mess. See this article. Of course banks and Wall Street were the primary perpetrators, but ACORN's actions provided the catalyst. Note the use of bogus a statistical study. . . .

Of course, the "article" he links to is an editorial from the NY Post. Not only is this just an editorial - it's also a bad one: unsourced an unbelievable. It makes ridiculous assertions. For instance, it asserts that the Boston Fed's manual says that banks should not use credit scores for underwriting, because that is an "outdated criteria"! Of course, like every other assertion in the blog post, this assertion is uncited, so there's no way to check whether it's true or not. (that includes its assertion about a "bogus study" - we're just supposed to trust the blogger that the study was "bogus").

I've received a number of mortgages since the events recounted in this editorial. My credit score was checked for all of them. One of the loans was one of the most egregious types of "subprime" loans: a no-doc loan - underwritten SOLELY on the basis of credit score. Indeed, to the extent that this blog post claims that failure to consider "traditional" underwriting criteria led to more subprime loans, that claim is definitely untrue in the case of no-doc loans.

Only one claim in this editorial rings true: that underwriters started to use participation in a credit-counselling program as an underwriting criterion. The article actually claims that some underwriters used such participation as a SOLE criterion, a laughable claim (of course unsourced).

Sure, it is arguable that any consideration of participation in a credit counseling program - even if it is not the sole criterion - would lead to bad loans. If so, then the editorial has pointed out ONE fault in SOME types of subprime loans. It fails to link that fault at all to ACORN. It fails to show how many loans were made using that criterion. So it entirely fails to support Zarkov's claim that ACORN "provided the catalyst" for the subprime crisis.
7.9.2008 5:11pm
A. Zarkov (mail):
"Of course, the "article" he links to is an editorial from the NY Post."

The essay is signed by Stan Liebowitz, and editorials are generally not signed.

Not only is this just an editorial - it's also a bad one: unsourced an unbelievable.

Again it's not an editorial, and the author provides evidence from his own experience. He says, "That study was tremendously flawed - a colleague and I later showed that the data it had used contained thousands of egregious typos, ..." Are you asserting that Liebowitz is simply lying? Do you hold Krugman to the same standard? His articles appear on the editorial page and are generally not sourced. The following Liebowitz article appeared in Economic Inquiry in January 1998, Mortgage Discrimination in Boston. He provides calculations, data and references. Tell us specifically where he goes wrong.

You provide no evidence that any of the assertions in the New York Post are are wrong, you only say that you personally don't find them believable. But of course others do.
7.9.2008 7:04pm
Tony Tutins (mail):
Stopping redlining did not cause the subprime mortgage crisis. Not even Warren Buffett could have gotten a mortgage in a redlined neighborhood. The elimination of redlining meant hard-working people who paid their bills on time could get home mortgages -- period.
7.9.2008 11:07pm
A. Zarkov (mail):
Redlining is a different issue. We are talking about banks being pushed to reduce their underwriting standards, and they did.
7.9.2008 11:29pm
Cornellian (mail):
I guess this doesn't bode well for Acorn's chances to develop into a mighty oak.
7.9.2008 11:35pm
David M. Nieporent (www):
Of course, the "article" he links to is an editorial from the NY Post.
It's an Op/Ed, not an editorial.
Not only is this just an editorial - it's also a bad one: unsourced an unbelievable.
Are you implying that "good" editorials are "sourced"? Perhaps you're unfamiliar with the format. It's not a journal article. Op/Eds generally do not contain footnotes.
It makes ridiculous assertions. For instance, it asserts that the Boston Fed's manual says that banks should not use credit scores for underwriting, because that is an "outdated criteria"! Of course, like every other assertion in the blog post, this assertion is uncited, so there's no way to check whether it's true or not.
Really? No way? I've heard tell of this thing called "Google." You could check it out. Maybe it's at google.com?
(that includes its assertion about a "bogus study" - we're just supposed to trust the blogger that the study was "bogus").
Which blogger? The only blog here is the one linked to by Zarkov, and that blogger didn't call any study bogus; he cited the editorial.
7.10.2008 6:27am