Nonprofit Embezzlers Sell Donated Goods for Millions

By Charles Hall | Asset Misappropriation

Jan 30

Sometimes nonprofit embezzlers sell donated goods. Today, we examine how nonprofit employees can steal assets rather than cash and how you can prevent such thefts.

The Theft

Several workers at a California Goodwill pled guilty to taking over $15 million. Their scheme involved the selling of donated goods by the barrelful to private dealers who sometimes wheeled tractor trailers up to the rear of Goodwill stores.

nonprofit embezzlers sale donated goods

Picture is courtesy of AdobeStock.com

The dealers sold most of the goods in Mexico. The thefts–involving seven primary culprits, four of whom were sisters–occurred over a twenty-year period that started in the mid-70s.

So how were the fraudsters caught?

One culprit went through a bitter divorce, and the husband disclosed the scheme to authorities.

The Weakness

The article describing this case did not provide details of the store operations, but it appears–at the time–inventories of donated goods were not properly documented. When assets, of whatever form, are not inventoried, they are more likely to disappear.

The Fix

Account for all inventories. Also, clothing that is sold in bulk should be documented. So each time a truck backs up to a store, the activity should be recorded—who received the goods, the sales price, who approved the sale, why the goods were sold in bulk. The store should have a policy that cash is not to be received for such sales.

Consider adding a whistleblower hotline. Nonprofit employees sometimes see signs of theft. Make it easy for them to report fraudulent activity. Doing so creates the camera effect. 

Also, install a security camera that records all loading dock activity.

Note–This case was adjudicated in the 1990s, and Goodwill has, since that time, made significant improvements to its controls.

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About the Author

Charles Hall is a practicing CPA and Certified Fraud Examiner. For the last thirty years, he has primarily audited governments, nonprofits, and small businesses. He is the author of The Little Book of Local Government Fraud Prevention and Preparation of Financial Statements & Compilation Engagements. He frequently speaks at continuing education events. Charles is the quality control partner for McNair, McLemore, Middlebrooks & Co. where he provides daily audit and accounting assistance to over 65 CPAs. In addition, he consults with other CPA firms, assisting them with auditing and accounting issues.

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(2) comments

Kim Bawi June 29, 2016

There is apparently no system of check and control in place regarding the inventory. The system should include:
1. One person to request issue of the goods and anther person to approve it.
2. Issue from inventory to be signed by authorized issuer and receiver.
3. Issue to be recorded immediately in bin card/stock register.
4. Regular checking of inventory (monthly, quarterly, etc.)
5. Annual stockcount conducted participated by persons including non-warehouse staff.
6. Inclusion of purchased inventory in Balance Sheet.

Reply
Charles Hall June 29, 2016

Kim, sounds like you’ve done this before! Good suggestions. Thanks.

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