Sneak Preview: Arkansas Nonprofit Must Repay Embezzled Funds

January 9, 2014 | By Jerry Ashworth | Post a Comment

xgran_bookshot(The following was excerpted from an article in the Federal Grants Management Handbook.) An Arkansas organization receiving federal grant funds is obligated to repay $345,000 in embezzled funds even when a change in its accounting systems no longer has records documenting long-running embezzlement within the organization.

This was the basis behind the Department of Health and Human Resources Departmental Appeals Board’s recent decision to uphold an Administration for Children and Families disallowance of more than $162,200 sought by the Black River Area Development Corporation, an Arkansas-based nonprofit community action agency. ACF disallowed about $345,026 in Head Start and Early Head Start funding BRAD had received from September 2001 to June 2012 after it was discovered that BRAD’s chief financial officer had embezzled almost $391,000 from the organization during this period.

Although BRAD agreed to repay ACF about $182,800 of the disallowance, it argued that there was insufficient documentation related to repaying the remaining $162,200. BRAD cited a new accounting system and three-year record retention requirement as justification.

In mid-2012, BRAD found out that its longtime CFO had written checks to herself from various BRAD checking accounts and then altered the organization’s records to disguise the payments. As a result, BRAD had been repeatedly misreporting its costs to ACF and other organizations from which it received funding. Upon discovering the embezzlement, BRAD terminated the CFO and notified ACF that it would arrange for an independent audit to investigate the extent of the scheme. In response to the auditor’s findings, BRAD informed ACF that it had erroneously charged about $345,026 to the Head Start/Early Head Start programs, which ACF in March 2013 disallowed.

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