CFO of Detroit Nonprofit Indicted
David Fahrenthold of the NYTimes has a story of an indictment of the CFO of a Detroit Nonprofit issued by Federal Prosecutors on Wednesday June 5, 2024. It’s an interesting one as it suggests at least that this nonprofit had the appearance of good controls and of being in good shape, and yet.
From the story: “On Wednesday, federal prosecutors said Mr. Smith abused his power to pull off an astonishing fraud: He stole nearly $40 million between 2012 and this March, they said, equal to 39 percent of all the money that the group had reported spending in that time, burning through the group’s cash reserves.
Mr. Smith, 51, was charged with bank fraud and wire fraud, both felonies that can come with as much as 30 years of prison time.
The case highlights an enduring problem among nonprofits. A lax or informal approach to financial management can leave groups that handle millions of dollars in public and private funds vulnerable to waste, runaway costs or, in the worst cases, insider theft. When this happens, it’s often hard to catch. While the Internal Revenue Service has oversight over nonprofits, the average annual audit rate by the agency is less than 1 percent.”
“The nonprofit’s outside auditing firm, which had conducted annual financial checkups, declined to comment.
The group has successfully redeveloped a long stretch of the city’s Detroit River waterfront and, until recently, had shown no public signs of distress. Local foundations contributed to it annually and it received grants from the Environmental Protection Agency, among others. In 2013, Mr. Smith was named a finalist for “C.F.O. of the year” by a local business magazine.
But the nonprofit discovered problems with its finances this spring and invited Michigan State Police to investigate, according to reporting by The Detroit News. The police then handed the case to the F.B.I. In May, the group fired Mr. Smith.”