May 4, 2011
By Leslie Lenkowsky
Until a few weeks ago, Greg Mortenson was known—and widely admired—as the best-selling author of Three Cups of Tea and the founder of a charity, the Central Asia Institute, that seeks to construct schools in conflict-torn areas of Afghanistan and Pakistan. But following accusations aired on the television show “60 Minutes” and by the writer (and fellow Himalayan mountain-climber) Jon Krakauer, he is now defending himself against charges that he has been using the organization for his own gain and lying about its accomplishments.
If the charges are true, Mr. Mortenson faces not only sizable personal penalties but also the prospect of the Central Asia Institute’s losing support and closing. Moreover, if this scandal affects public confidence in humanitarian groups generally, other charities may suffer, too. They may also face tighter regulation as concern about possible fraud at nonprofits spreads.
Yet, in fact, the best-available evidence indicates that fraudulent activity at nonprofits is not widespread and indeed may be far less extensive than it is in business and government.
However, an article in a prestigious academic journal and follow-up newspaper stories have created a different impression.
The article was written by Janet S. Greenlee, an associate professor of accounting at the University of Dayton, and three other scholars and appeared in late 2007 in Nonprofit and Voluntary Sector Quarterly, the journal of Arnova, the preeminent society for academic researchers interested in philanthropy and nonprofits.
It drew on a biennial survey conducted by the Association of Certified Fraud Examiners, an international group that describes itself as “the leading anti-fraud association in the world, providing knowledge and training used to reduce the occurrence of corporate fraud.”
Ms. Greenlee and her colleagues reviewed the 2004 study by the association, which covered the period since the beginning of 2003. A total of 508 cases of fraud involving $761-million in losses were reported to the examiners’ association. Of these, 12.2 percent were in nonprofit organizations. Over 70 percent were in privately held and publicly traded businesses. The rest were in government.
The association also asked its members for their estimate of how much of its revenue a typical organization in the United States lost in fraud each year. The median response was 6 percent, meaning half thought the figure was higher, while half thought it was lower. Even so, the association report concluded, the loss was “staggering,” translating into $660-billion in the 2003 economy of $11-trillion.
Although the association emphasized that 6 percent was just an “opinion” of its survey respondents, rather than “meaningful data,” Ms. Greenlee and her co-authors used it to estimate the cost of fraud to nonprofit groups.
“A survey conducted by the Association of Certified Fraud Examiners estimates that all organizations lose on average 6 percent of their revenue to fraud every year,” they wrote. “Applying this percentage to the nonprofit sector would suggest that the fraud loss would be approximately $40-billion each year,” they concluded.
Source: The Chronicle of Philanthropy, April 27, 2011
Source: The Chronicle of Philanthropy, April 27, 2011
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