For a long time to come, financial experts will be going over bank reports and trying to reconcile accounts to unscramble a scandal. Kinde Durkee, who has pleaded guilty to five counts of mail fraud and is expected to be sentenced as early as this summer, is alleged to have swindled more than $7 million from politicians' campaign treasuries and the bank accounts of nonprofits.
The word-of-mouth referrals and obvious political connections that drew business to the Burbank, Calif., offices of Durkee and Associates may also have lulled unsuspecting new customers into assuming that their money and financial records would be safeguarded and accurately reported. Federal officials say they weren't. The case can serve as a cautionary tale for small Latino organizations and others that, due to their size, outsource their accounting services.
"It is a challenge for small organizations to have the high level of internal controls," said Elizabeth Hernandez, a certified public accountant who serves as HIP director of Finance and Programs. "However, there are ways to minimize risk of material errors and fraudulent activities.
"As an example, the accountant should not have signatory authority on the organizations bank accounts," Hernandez said. "The executive director and/or Board treasurer should review the check register and the monthly bank account reconciliation. And, on a sample basis, they should review check images, which are offered on most bank accounts for a nominal fee to insure the checks are made out to and endorsed by the appropriate party."
Long Beach Nonprofit Partnership Executive Director Judy Ross appeared to agree about the hands-on board involvement in monitoring the nonprofit's financial management.
"That's a pretty important job because they have the fiduciary responsibility and can ultimately be sued," Ross said.
The Durkee and Associates case has led some charities and nonprofits to question how much money should be in their accounts. These include at least two Latino nonprofits, the Latino Diabetes Association and Southern California LEAD Foundation, as well as the California Association of Club Executives and the Michael Antonovich Charitable Foundation (named after a Los Angeles County supervisor), according to press reports.
Some nonprofit leaders apparently used Durkee because she had been highly recommended when their predecessors had hired her, which was the case with Yolie Acosta, executive director of the Latino Diabetes Association, a HIP grantee. She and her board hope that other nonprofits will benefit from their experience.
She alleged that her nonprofit could be missing as much as $50,000 and that it hopes to recover losses through a civil complaint against Durkee and the nonprofit's bank, among other plaintiffs.
Acosta said that, after the nonprofit was notified by the FBI of the investigation last September, it could not access its funds for a time and had no money to pay for its phone service, electricity and other expenses. She said that Sen. Feinstein met with Latino Diabetes Association officials and helped them to line up a pro bono attorney.
Acosta, who has been with the Latino Diabetes Association since 2006, said the nonprofit had a budget of $160,000 last year and has re-started its Sabor y Sazón cooking classes and Mi Vida Yoga sessions in the heavily Latino southeastern Los Angeles County communities that it serves, thanks in part to a grant from HIP.
"When I inherited Durkee, I didn't know if she was paid or not. She billed us for another $6,700, and we paid it," Acosta said, stressing the importance of using a licensed CPA. "Aside from her doing our accounting, she also did our filing. Our attorney has to go back and check all of our 990s. The reason we originally hired Durkee was to make sure that someone was doing oversight.
"That being said," Acosta added, "we should have done our due diligence background check of Durkee."
Durkee, 59, is free pending sentencing. She was arrested in September on suspicion of mail fraud in connection with the submission of falsified campaign finance reports to election officials. The state's Fair Political Practices Commission audits also uncovered campaign treasury irregularities.
"This is believed to be the largest embezzlement scheme ever by a campaign treasurer," U.S. Atty. Benjamin Wagner said in announcing the charges. Federal authorities believe that there were as many as 50 political candidates and nonprofits involved in the case.
"We don't have it listed out how many [nonprofit] agencies were affected," said Lauren Horwood, spokeswoman for the U.S. Attorney's Office in Sacramento, which Wagner heads. Politicians whose campaign accounts were involved in the investigation include U.S. Sen. Dianne Feinstein (D-Calif.), and three congresswomen: Loretta Sanchez, her sister Linda Sanchez, and Susan A. Davis.
Regarding defrauded nonprofits, the agreement that formed the basis for her guilty plea on March 30 said that Durkee and Associates allegedly misappropriated $180,000 from National Popular Vote, a nonprofit that advocates for direct popular elections of the U.S. president through a modification of the way the Electoral College works. Two National Popular Vote and National Popular Vote Institute officials did not return calls for comment.
Durkee used the money for personal expenses, payroll and other business expenses and "to repay unauthorized withdrawals from other client accounts," according to the plea agreement, which said she would sometimes take money from one account to reimburse monies that had been removed previously from other accounts. The scheme had the net effect of reflecting larger balances on paper than actually existed in some of the accounts, according to the agreement. Her lawyer, Daniel V. Nixon, did not respond to a request for comment about allegations of additional nonprofits having been involved in the case.
Although many organizations struggle with funder requirements of audits, Ross cautioned against over-reliance on them. She said the Long Beach, CA, nonprofit management support organization that she has headed for 13 years just completed its most recent audit, the second since the board decided to have outside firms conduct audits every three years at the small nonprofit, which has an annual budget of more than $500,000.
"I know organizations, and I'm sure you do too, that had audits and it [financial mismanagement] hasn't been caught," she said.
The series of safeguards should kick in as soon as the mail arrives, according to Ross. "The same person who opens the mail and records what comes in shouldn't be creating the record in QuickBooks. Yet another should keep track of bank statements," she said.
She also said that it is really important that nonprofit leaders exercise due diligence in hiring. "People say a lot of things on paper--as again we find out the hard way," she added.