Is the Non-Profit World Teeming With Fraud?

When we recently wrote a column suggesting that philanthropies be run more like businesses, one factor we didn’t look into — but perhaps should have — was fraud.

According to a Times report by Stephanie Strom, fraud and embezzlement in the non-profit sector account for a loss of $40 billion a year, or roughly 13 percent of philanthropic giving.

The article is based on a report (gated) recently published in the Nonprofit and Voluntary Sector Quarterly. Strom’s article peaked at about No. 6 on While Strom’s article hasn’t hit the Times’s “most e-mailed list“; I am guessing that just about everyone in the non-profit world has read it by now, and are readying their replies to anxious donors.

Thirteen percent gone to fraud! That’s about the same loss experienced by the Bagel Man — and he didn’t even have anyone watching the till.


There is a lot of "politics" in non-profits. This leads to people having their territory.

I do not think most people start out stealing, but take a little out at first as a loan. This may happen more since the economy is tanking.

Since there is little oversight over these territories the first time a person "borrows" the money it is realized how easy it is and with people living beyond their means it is easy to justify their using the money because of how underpaid they are.

Someone other than the people who have access to them should reconcile bank accounts and cash accounts.

I'm sure a lot of theft in these organizations is not reported, unless the amount has grown to large to cover up, because of the bad publicity.


# 27 "If the U.S. government needs money, simply have the IRS audit all of the non-profits and hold the board of directors financially responsible."

That would probably have the reverse affect. While the amount of money that the non-profit sector receives has been growing (currently about $280 billion and 80% from individuals), it has not been increasing as a percentage of GDP (steady at about 2%). Meanwhile, the Federal budget for social programs has been increasing and will soon engulf the Federal budget.

Non-profit organizations may not be as efficient and effective as they could or should be with promoting the common good, but they are still more so than any government. Increasing government regulations would probably only cause more harm than good to non-profits, which in turn would put organizations out of business, open government agencies up to increase their bureaucracies, increase tax burden, and increase inefficiency.

Market forces will improve the non-profit sector. Donors will demand more accountability, transparency, and better stewardship. The organizations that provide greater satisfaction in this regard will survive and maybe thrive while others will be exposed and close.


Troy Camplin, Ph.D.

Actually, it's the specialists and the humanists who have gotten Africa to where it is: nowhere, and worse off. How about we fire all those people and cut off all aid so that these countries will be forces to make the free market and property rights reforms that are the only things that that will result in and have ever resulted in prosperity? It seems to me that the primary barrier to people getting out of poverty is the existence of people whose livelihoods are made by "helping" the poor.


Any comments about the ACS?

Michael Ilyinsky

If the U.S. government needs money, simply have the IRS audit all of the non-profits and hold the board of directors financially responsible.

Dr. Jean-Christophe Paquin

The last comment about Rwanda couldn't have been more accurate, having lived and worked there, as well as in Swaziland. In fact, 13 % appears rather low as a percentage. Two things come to mind immediately: poverty, indeed, and what is referred to as neo-colonialism. Changing the way aid receivers view donors is a daunting task; we've too often heard the saying "give them a fish a they will have food for a day; teach them how to fish and they will feed themselves for the rest of their lives." Alas, it's not as simple as that.
I too attended lavish expat parties where poor people were outside begging for food, chased away by guards: no one really cared, even the national about. The ones who genuinely care are often disillusioned and quit too early.

Mentalities die hard and the problem won't be resolved overnight: we need more "specialists" and more humanists.

J.C. Paquin

Karl Forister

Including religious organization, based on my life's journey, 13% is much too low! Cash-handling nonprofits, in general, do not have a reputation for practicing basic, fundamental, "due diligence" by performing pre-employment background screening and following that with scheduled post-employment Credit Reports and criminal records checks. Those that do the minimum, their own county's criminal records search, ignoring the remainder of the nation and federal courts's records, plus searches for civil court records and credit reports, cast a microscopic "net" that will rarely identify any jail bird applicants who simply migrate to another state when sentence is served and look for another "soft" nonprofit. Criminals are attracted to nonprofits in general because they know that the odds are in their favor that the nonprofit will not spend the money to do a thorough background check in full compliance with Fair Credit Reporting Act recommended protocols.



I have served as a consultant to many not-for-profits and am on the board of one. I have observed many of the issues discussed above and feel that the reasons for the problems are not going away in the near future.

Nevertheless, there are several comments more favorable to NFPs that I would like to make:
>the $40 billion is a made-up number, derived by a 'fraud estimate" of 6% of revenue to NFPs based on an estimate of losses by "all organizations" - FP, NFP, and government - to NFP income. There is no mention of any data to support for the idea that all organizations suffer fraud at the same rate, or that 6 % is applicable in any way to NFPs. It is alarming to see such a fuzzy number treated as a fact.
>there is increasing pressure from donors, including organizations such as United Way, for more accountability, more quality control, etc., to demonstrate that the $$ that are donated are wisely spent. The NFP world is becomingly increasingly competitive as organizations have to meet higher standards to get their share of donations
>Both the larger fraud cases and the "overstaffing" cases (eg people with no work to do) are limited to the few NFPs with significant resources - large income streams or big endowments. Most of the NFPs I have worked with don't have the money to pay people to sit around or the assets available to steal in large amounts. Many of the NFPs work on such narrow margins that a loss of 6% of income would be noticeable.
>In the increasingly competitive NFP world, the importance of having a good CEO cannot be underestimated. A good one can energize and inspire an organization. A Board would want to keep such a person happy.

There are many, many NFPs that function properly, spend their money wisely, and do as well as they can to fulfill their mission. The biggest problem is lack of access to experts. Most depend on pro bono work from lawyers, accountants, investment advisors, etc., and the amount generously donated by the professional communities should be considered as well.
Similarly, the Board members donate a great deal of personal time, often in their fields of expertise (the Chairman of our Finance Committee is a banker who personally reviews checking account statements and other financial statements regularly) ; the portrayal of Boards as generally lazy and clueless is uncalled for.


Betsy Kain

It is not technically fraud, but the public is often misled by glossy, clever ads by agencies that spend a huge amount of the money donated to them, on development and corporate expenses. In Rwanda, a major American NGO is housed in expensive(for Kigali)office space, on a major thoroughfare that is paved. A huge banner, in English, is spread across the entire front of the building. While not far from this expensive banner and office space, many poor Rwandans are fortunate to eat even one meal a day. Meanwhile,some other American aid agencies manage, in their cramped, small work spaces, off of rutted dirt roads. Before donating, I suggest visiting www.Charity or another such website to look at the rating given to these organizations. The very poor and hungry need the money more than the comfortable executives. We Americans need to be aware of how an agency spends our money. It is not difficult to investigate. It will be time very well spent.



I've worked in the religious non-profit sector for over 11 years and at seven different organizations. Each place was a management crisis and my job was to maneuver most through their crisis. The common problem was a status quo culture, nobody striving for more efficient and effective activity. Hence, any change agent was undermined because he caused more or unfamiliar work.

Where do many nonprofits get into trouble? For the most part, I think it comes down to the fallacy that working in the non-profit sector means paying employees less. Organizations that hire employees who are willing to work for less-than-market wages in some other sector could equate to hiring more inefficient and ineffective workers than other sectors.

Non-profits usually operate on tight budgets, where every dollar needs to be stretched to its greatest elasticity, and that requires unique skill sets. However, non-profits create a vicious cycle of inefficiency by attracting less skilled employees. Rather than pay workers less to make a dollar work harder, they should try to attract the highest skilled employees to be more efficient and effective.

Federal and state government impose regulations on nonprofits, regulations that are easy to run afoul of via any of the following:
Financial reporting fraud -Overstating program expenses/understating fundraising and administrative expenses, charging unallowable costs to grants or inflating contributions.
Fundraising fraud -Making misleading statements to donors or noncompliance with restrictions.
Program reporting fraud -Misrepresenting program accomplishments or failing to comply with regulations.
Poor control of unsolicited donations -Failing to have controls in place so that unexpected funds (e.g., Tsunami relief) are not used fraudulently.
Tapping restricted funds -"Borrowing" restricted funds when cash flow is tight.

The last organization for which I worked was a nightmare of malfeasants. Executives were willing to do things as illegal as accounting fraud, tax fraud, stock trading fraud, banking fraud, insurance fraud, and fundraising fraud; basically everything stated in the preceding paragraph. Remember, this was in the religious non-profit sector too, but if the executives are willing to substitute ethics for less consequential values, then it is no wonder why organizations are inefficient, ineffective and teeming with fraud.


Sandy Frost

For more information about what I describe as the biggest non profit fraud scandal of our time, please visit my site at There you will read my two year investigation into the Shriners and their sub-group, the Royal Order of Jesters, three members of which were recently caught by the FBI transporting women over state lines to Jesters parties for the purposes of prostitution. In March, 2007, Stephanie Strom did an outstanding job describing this very thing in a front page story about how those reporting Shriner crime are intimidated, "tried" by kangaroo courts and otherwise bullied into silence instead of prosecuting the crimes.
Thank you,
Sandy Frost

Gerard Verschuren

19 years ago I was stranded in Goma, Zaire for 10 days with a party of 6 other kiwis. During that time, we were taken out clubbing on several evenings by a couple of ex-pat millionaires from an EU country. They unashamedly told us that they had made their millions by selling to the locals the clothing that western countries had donated as aid. I have viewed all such aid programmes very differently since then, and I suspect that a good deal of what is given in aid goes into the pockets of the un-needy.

Troy Camplin, Ph.D.

ALong with that last comment, my wife pointed out that at one of her jobs she would typically get all of her week's work done on Monday and have to look busy the rest of the week. Her friend, on the other hand, had the responsibilities that should have gone to 5 people, meaning much of his work was made up.

Troy Camplin, Ph.D.

My wife used to work for nonprofits, and she said that aside from monetary fraud, the nonprofits are rife with corruption -- especially those that get most of their money from government. Maybe 13% of the paperwork done is actually legitimate. She says that maybe 10% of the people her organizations tried to help actually needed help, and that most of the rest wouldn't even show up to get something for free. She's talked to me about all the ways people would scam the system, filling out applications in such a way as to ensure they would never get a job offer while filling out enough applications to continue getting government services. If you really want an interesting article, you should get my wife to write one for you exposing what welfare is really like. She should know, having worked in the system for many years. She had to leave because she could no longer continue being a moral person while working in the system.


charles labrecque

Good morning,
In Canada Québec gouv. ad discover the same problem few years ago so , they have requeird back a five years IRS audit sign by a professional to all of the non-profits, and hold the board of directors financially responsible.

you will be suprise of what you will discover and the board of directors wil fly away like bomb shell splinters.


Does that 13 percent include the charities that _are_ frauds?


The non-profit is littered with individuals with
ba of arts, social sciences etc. Mostly idle
and looking to sustain their idleness.


It may be interesting to look at those nonprofits receiving federal earmarks in light of this report.


I don't know how much of a story this is, I mean was there any doubt that this was happening. It shouldn't and it is outrageous, but it happens every where, so why wouldn't someone assume it happens in charity foundations as well?

It would be nice if it was a problem that could be fixed, and I hope they come up with some sort of solution.

The baked blogger


The Time articles points out the source of the 40 billion-- it is calculated based on total nonprofit revenue of 600+ billion multiplied by 6%, which is an estimate of ALL fraud cross ALL organizations whether for profit or not, including governments. Although 40 billion is numerically 13% of roughly 300 billion that were donated, it is not true that 13% of donations were lost to fraud, as a cursory reading of the article would suggest. The article never suggested that nonprofits lost more or less than other organizations.

It would be way more helpful to compare fraud in different KINDS of organizations instead of lumping them all for an overall percentage and then PENALIZING the nonprofits because they have two main sources of income.