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Largest charity fraud in U.S. history playing out in Cleveland courtroom.


State officials are cracking down on charity fraud, but at least one expert says more oversight is called for to scrutinize the massive non-profit sector that accounts for one in 10 jobs in America.

“At the very least there ought to be as much regulation and transparency in charities as there is in other organizations,” said Janet Greenlee, an accounting professor at the University of Dayton and national expert on charity fraud. “It’s like a black box.”

The call for reform comes as one of the largest charity fraud cases in U.S. history comes to a close in a Cleveland courthouse this month, and as countless people consider opening their hearts and wallets to charity this holiday season.

The man known as Bobby Thompson is scheduled for sentencing Dec. 15 in Cuyahoga County Common Pleas Court after he was found guilty of collecting more than $100 million – including nearly $2 million in Ohio from an office in Cincinnati — for his sham charity called the U.S. Navy Veterans Association. He faces a minimum of 10 years in prison and a maximum of 67 years.

Thompson, whose real name is John Donald Cody, used a complicated scheme including an entire board of directors and management structure that didn’t exist. It went on for about eight years until it was exposed by a 2010 newspaper investigation in Florida.

“I believe with some closer regulation or some more auditing, I think that could have been found out earlier,” Greenlee said.

Greenlee helped author a 2007 study that estimated $40 billion a year is lost by charities to fraud, assuming the fraud rate for non-profits is the same as for-profits. She said the IRS is poorly suited to enforce non-profit rules and a quasi-governmental agency similar to the Securities and Exchange Commission for publicly traded companies should be established for tax-exempt groups.

But Ohio Attorney General Mike DeWine, who prosecuted the Thompson case, has reservations about increasing requirements for charities.

“The more compliance you require, the more paperwork you require them to file obviously the higher their overhead is going to be to comply with the state requirements,” said DeWine, a Republican. “It’s a balancing test.”

The Thompson case is one of six criminal cases brought this year by DeWine’s office against allegedly fraudulent charities. Others include a woman in Mansfield who raised money for a firefighter but allegedly kept it for herself, and another alleged veteran charity fraud in Columbus. The state took civil action in 26 other cases.

Last year the state also started requiring non-profits to file their financial records electronically, allowing the Attorney General’s office to do computer analysis and look for red flags such as out of control salaries, exorbitant fundraising costs and board members that each have the same last name.

“We want the public to have confidence that when they’re solicited and they give money, that money goes to who it’s really supposed to go to,” DeWine said in an interview.

‘Just be careful’

Experts urge the public to be careful when donating to charity.

“They’re getting better at (cracking down on fraud), but there’s so many out there,” said Ted Vander Roest, executive director of the Springfield Foundation, a nonprofit that provides grants to area charities. “It’s hard to police everything.”

Vander Roest said donors can best ensure their money is helping people in need by donating to a familiar charity, preferably a local one so the money doesn’t funnel back to wherever the charity is based.

“Just be careful,” he said.

He admitted it’s hard for donors to educate themselves because the information that’s publicly available is inconsistent and confusing. This includes IRS form 990s, which all charities are required to file. The information is self-reported and most people would have a hard time reading it.

He thinks every form 990 should have a cover sheet written in plain English saying how the money is spent.

Charities spend 0% on services

The state — or any regulator — has a massive task to oversee non-profits claiming to be charities.

There are more than 30,000 non-profits registered with the state as operating in Ohio. An analysis by this newspaper of state records found more than 100 raising money for veterans, not including VFW halls, Amvets and the American Legion. Another 600-plus include the words “children” or “kids” in their name.

The newspaper examination found more than 2,000 charities that reported spending zero percent of their annual expenses on services.

And an analysis of IRS data maintained by the website Guidestar found numerous charities in Ohio that reported to the IRS that they spend more than 90 percent of their budget on administration and fundraising.

“We look at that percentage and sometimes we use that as a tip off to see that there’s a problem,” DeWine said, noting Thompson’s charity spent 90 percent of its revenue on fundraising.

Federal oversight lax

Greenlee said Ohio indeed has become more aggressive over the past 10 years, especially compared to states that have no state-level investigations of non-profits.

But oversight is still lax on the national level, she said. It takes three years of a nonprofit not filing a form 990 before they lose their non-profit status, and in the meantime, no one is watching the money, she said.

Few charities are audited, according to Greenlee.

“Once you get it (non-profit status) you very rarely lose it,” she said.

‘It’s diabolical’

The current structure didn’t catch Thompson largely because the Harvard-educated attorney filed the proper paperwork to operate in 41 states, filed his form 990s on time — though he invented an entire governing board and administrative staff — and looked legitimate on paper.

He was arrested in Portland, Ore., on a warrant out of Ohio after eluding authorities for nearly two years. He was convicted on 23 counts last month and is scheduled for sentencing Dec. 16.

Only a fraction of the $100 million he stole was ever found: money that was supposed to go to Navy veterans.

“It’s diabolical,” said Mike Nichols, president of a veterans charity in Dayton that is working to help veterans find jobs. “The frustrating part of that is there are so many organizations who are trying to do good things for our veterans that to cast doubt or aspersion against any kind of effort like that is disheartening.”

“As a society we need to take a hard look at how he was able to do that and maybe come up with ways not to be duped next time.”

Staff Writer Jim Otte contributed to this report.



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