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Giving in LA Giving in L.A. is a go-to source, an aggregator for strategies and points of view about trends and issues in giving, challenges for philanthropists and philanthropic organizations, tools and techniques for individuals or families, insights and opinions from experts, and more – all centered on Los Angeles County.

April 23, 2014 ~ 0 Comments

The Case for Effective “Policing” of Nonprofit Funds

By Edward J. Loya, Jr.

Charitable giving in the United States is big business. From 2008-2012, nonprofits received more than $1.5 trillion in donation from charity-minded Americans.[1] The nation’s 965,000 nonprofits[2] range from one-person operations to huge, multinational organizations and represent a diverse spectrum of viewpoints, causes and approaches. What they all have in common is the trust of the public that their donations will be spent responsibly. To protect that trust, donors, nonprofit boards, and nonprofit management all have a part to play in preventing fraud, embezzlement and misuse of charitable funds.

In March 2014, Public Counsel invited me to co-author a client alert setting forth guidelines for handling nonprofit internal investigations involving employee fraud and theft. As a former federal prosecutor, I was able to bring my experience dealing with these issues to this important project.

From 2008-2013, I served in the Public Integrity Section of the Criminal Division of the U.S. Department of Justice, investigating and prosecuting government officials at all levels (local, state, and federal). Given the overlap between government and philanthropic and community-based programs, many of our cases dealt with fraud and embezzlement in the nonprofit sector.

Some representative cases include our successful prosecution of the executive director of a local commission who stole more than $325,000 intended to fund community-based programs and the successful prosecution of a former acting executive director, grant administrator, and nonprofit legal assistant who stole more than $150,000 from a now-defunct nonprofit organization that provided free legal services to the poor. Today, as a lawyer in the L.A. office of Venable LLP, I devote part of my white-collar investigations practice to assisting nonprofits with internal investigations.

According to the Washington Post, more than 1,000 nonprofits reported hundreds of millions of dollars in losses from 2008-2012. These numbers suggest that nonprofit funds intended to serve the public are at serious risk of being diverted and/or stolen if proper safeguards are not put in place.

Individuals and organizations involved in donating or awarding funds to nonprofit organizations—and nonprofit organizations receiving these funds—should ensure that recipient organizations take necessary precautions to protect the funds, specifically:

  • Require checks to be signed by two signatories
  • Segregate duties regarding payment requests, payment authorizations and record keeping
  • Require annual fixed asset inventories
  • Use automated controls, including electronic notification of bank account activity
  • Require background and credit checks for new hires
  • Implement a sound whistleblower reporting program;
  • Implement a strong compliance program, including a detailed code of ethics
  • Require annual audits
  • Ensure that the organization has proper insurance coverage, including a policy that protects against employee dishonesty and covers costs associated with hiring outside counsel to conduct internal investigations.

Prospective donors who are contemplating a substantial donation might consider asking about the nonprofit recipient’s internal control policies.

Equally, if not more important, is the sensitive task of handling allegations of employee fraud and/or embezzlement. Donors, nonprofit boards, and nonprofit management have a shared interest in protecting and/or recovering the organization’s stolen funds or assets; identifying wrongdoers (and clearing innocent employees); ensuring that the organization’s stakeholders are properly informed about these matters; protecting the nonprofit organization’s reputation; and, where appropriate, reporting these matters to authorities, including law enforcement officials. Given the importance of these matters, nonprofit organizations often retain experienced outside counsel to assist them.

One cannot help but wonder how much of a better place the country would be if the hundreds of millions of dollars that was reportedly stolen from 2008-2012 had actually been used to fund the community services and programs for which the money was given. As the nonprofit sector continues to grow, donors and nonprofit organizations will need to develop intelligent ways to deal with the threat of employee fraud and embezzlement. In addition to making sure that funds are made available to deserving nonprofit organizations, individuals working in the nonprofit sector must take steps to ensure that the funds are properly protected.

* * *

Mr. Loya is a trial lawyer in the Los Angeles office of Venable LLP, a DC-based law firm with substantial experience representing nonprofit organizations on the East Coast and the West Coast. He can be reached at eloya@venable.com.


[1] http://www.givingusareports.org/

[2] http://www.usatoday.com/story/news/nation/2013/02/02/nonprofits-grow-in-numbers/1886317/

March 19, 2014 ~ 1 Comment

Tell us what you think!

As GivinginLA begins its third year highlighting the trends, issues and challenges of philanthropy and the nonprofit sector in Los Angeles County, we want to know how we can better tell the stories that matter to you.

L.A. County is a land of both great needs and tremendous resources. It contains an enormous population of vulnerable residents, yet it also has an incredible number of dedicated philanthropists, volunteers and nonprofit workers who have committed their time and money to making this imperfect paradise a better place for all Angelenos.

To better serve you and others who who work to improve their communities, we’re making some changes to the site over the next few months, and we want to know what you think. Are we raising the questions that you want to discuss? Are we telling the types of stories that interest you? Please take a moment to fill out this brief survey so that we can bring you more engaging, useful content that focuses on the areas that matter most to you.

Thank you for your feedback, and thanks for your commitment to building a better Los Angeles.

February 27, 2014 ~ 2 Comments

Investing in College Success Yields High Returns

smiling gradsFrom the rag traders of the early 20th century who founded multi-billion dollar media companies to today’s Silicon Valley venture capitalists, California has always been a magnet for smart investors. The state’s culture of innovation and entrepreneurship has made it the world’s 8th largest economy, with a Gross Domestic Product between that of Russia and the United Kingdom. With Los Angeles County facing a major college graduation crisis, these same smart investors are backing the educational future of low-income students. They realize that giving isn’t just good, it’s good for business.

By some estimates, only 12 percent of Los Angeles 9th graders will go on to graduate from college. This is a crisis, not just for the students who will miss out on the benefits of higher education, but for California’s economy as a whole. According to a report released by Public Policy Institute of California, 40 percent of all jobs in California will require a bachelor’s degree by the year 2025. Low college attendance rates mean that there is a projected gap of 2.3 million degree holders to fill those jobs. With a shortage of skilled employees, the leading companies of tomorrow will go elsewhere, and California’s economy will suffer.

So what’s behind the crisis? Since 1980, the average tuition cost at a four year institution has grown by over 530 percent. Even when students can get scholarships, they are often only for a single year, meaning students may get to college but still can’t afford to get their degree.

For many first-generation college students, informational resources and support networks are just as critical as financial support in helping them get to and graduate from college. Some students have financial obligations for their families. Others lack the college know-how or self-esteem to believe that college is even an option. And many students find campus and academic life too rigorous or foreign to continue. But information can make a huge difference. A study from the Stanford Institute for Economic Policy Research found that low-income, high-achieving students are 53 percent more likely to apply to college when they receive customized information kits outlining the net costs of various colleges and universities.

Investors around the country agree that reversing this crisis is a top priority. The Kresge Foundation recently announced a $1 million commitment to the Los Angeles Scholars Investment Fund, which aims to increase college success for low-income Angelenos by combining multi-year scholarships with college advising and support services such as mentoring and academic training. This joint initiative, established by California Community Foundation and College Access Foundation of California, gives low-income Los Angeles students the best chance of graduating from college. Kresge President and CEO Rip Rapson stated, “As a national funder interested in expanding opportunities in America’s cities, we feel a responsibility to invest in college success for low-income Los Angeles students.”

Solving this crisis has the potential to create an enormous return on investment. Californians who earn a bachelor’s degree average nearly $1 million more in lifetime earnings. If these earnings are spent in Los Angeles County, the benefit is multiplied throughout the community, meaning higher tax revenues, more jobs and more successful businesses. Ultimately, it means a stronger, healthier Los Angeles. To Chet Pipkin, Founder, Chairman and CEO of Belkin International, that’s a winning investment, “We can’t thrive as a city without their contributions,” Pipkin said. “It’s our responsibility as a community to do our part to support them in their path to college completion. Philanthropists, businesses and lovers of L.A. alike have a stake in their future.”

Los Angeles Scholars Investment Fund is a joint initiative of the California Community Foundation and College Access Foundation of California. It is part high-performing mutual fund, part innovation incubator. Now in partnership with the Kresge Foundation and a number of individual investors in Los Angeles, it continues to expand the investment pool of $12 million initially committed by CCF and CAFC.

To learn more and to become an investor of L.A.’s future, go to LASIF.ORG

Christine Oh is the Scholarship Manager at the California Community Foundation, administering all scholarship funds and managing the Los Angeles Scholars Investment Fund.