Scourge of Healdton, Oklahoma

Healdton's treasured treasurer took advantage of an oblivious city council and city manager and defrauded the city of at least $80,000 using three different methods. Her story shows how small nonprofits are particularly susceptible to fraudsters. 

District Associate Judge Lee Card asked Karen Kardaleff what she had done. "Took money," she responded. "How did they catch you?" "The audit." He asked her why she had done it. "It was too easy," she said. "I didn't buy anything big." She said she used the nearly $80,000 she stole to pay bills and give to friends. Card sentenced the former treasurer of Healdton, Oklahoma, to a year in jail and ordered her to pay back the full amount to the city. (See "Former Healdton city clerk pleads guilty to embezzlement," by Michael Pineda, The Daily Ardmoreite, May 29, 2014, http://tinyurl.com/odds8ut.) Lack of controls and an oblivious city council and city manager allowed Healdton to freely loot the coffers.

Vulnerable nonprofits

Losses at nonprofit organizations are rampant. A Washington Post report states that a thousand nonprofits in the U.S. recorded losses of $250,000 or more from 2008 through 2012. (See Inside the hidden world of thefts, scams and phantom purchases at the nation's nonprofits, by Joe Stephens and Mart Pat Flaherty, Oct. 26, 2013, The Washington Post. The Washington Post's website also contains data from IRS filings, and shows the amount of nonprofit losses by name of organization.)

The CB Wealth Advisory reports that fraud is found in 20 percent of philanthropic organizations. The ACFE 2014 Report to the Nations on Occupational Fraud and Abuse states that nonprofits made up 10.8 percent of the fraud cases analyzed, and the median loss for these organizations was $108,000.

Of course, such losses are significant in these small organizations. The Report to the Nations indicates that the major forms of fraud are billing schemes, fraudulent reimbursements and check tampering. The major organizational weaknesses that lead to fraudulent activity are a lack of both internal controls and management oversight. Independent auditors don't detect most of these fraud schemes. The Report to the Nations shows that auditors detect only 3 percent of frauds compared with 7 percent of the frauds detected by accident. Accidents trump audits.