If funds are stolen from a 501(c)(3) charity, does the Board have an obligation to report it to the police if the funds are returned?
Generally, citizens have no duty to report the commission of a crime to law enforcement authorities. Whether you want to press charges will probably depend on many factors, including the amount involved, the history of the culprit, insurance requirements, and the circumstances that caused the theft. Boards reach different conclusions in different situations.
We recently heard of one national organization with local fundraising chapters that had a policy of prosecuting in any case of theft. It felt that the deterrence from the message sent to employees saved it a lot of money in the long run and gave donors a sense that it wanted to protect their contributions. Prosecutors will tell you that in many cases when they find someone who has stolen from a nonprofit, the person had done it before at some other organization and had been dismissed without prosecution.
If you are required to file the new Form 990, and if the diversion exceeds the lesser of $250,000 or 5% of the assets of the organization at the end of the year, you will be required to report it on the Form with an explanation of what happened. At that point, if you haven’t reported it to authorities, your donors may begin to ask why not.
Sunday, June 14, 2009