Wasden-chaired nonprofit comes clean on its dirt

The American Legacy Foundation disclosed a $3.4M embezzlement - and he's glad it did

zkyle@idahostatesman.comJune 18, 2014 

As part of a 2013 investigation, a Washington Post reporter saw that the American Legacy Foundation had marked a "significant diversion of assets" on its tax form.

The Post called Legacy, an anti-smoking nonprofit based in Washington, D.C., about the diversion.

Idaho Attorney General Lawrence Wasden, then the foundation's chairman, had a decision to make: Talk to the newspaper or not?

Wasden decided to cooperate, granting interviews and providing financial documents. The resulting article reported that Legacy was one of more than 1,000 nonprofits nationwide that checked the "significant diversion" boxes on their annual tax reporting forms from 2008 to 2012. The top 10 diversions alone totaled more than a half-billion dollars.

Legacy told The Post that its former information-technology director and vice president, Deen Sanwoola, embezzled $3.4 million from 1999 to 2007, the years Sanwoola worked at the foundation's headquarters.

The foundation alleges that Sanwoola made purchases for computer equipment that either was never delivered or was inflated in price. For example, Sanwoola authorized an $18,000 purchase of a computer processor and related equipment that auditors said was worth less than $7,000, according to the foundation.

Wasden told The Post that the suspicious purchases uncovered by the audit began the month Sanwoola was hired and stopped when he left.

WHISTLEBLOWER IGNORED AT FIRST

An employee reported that inventory was missing in 2007 or 2008, but the supervisor receiving the report didn't take action because Sanwoola had been a trusted employee who was well-liked, according to Legacy officials interviewed by The Post.

The same employee reported to a different supervisor three years later. That time, the report was taken seriously. CEO Cheryl Healton ordered a forensic audit. When the investigation indicated fraud, Legacy called the local U.S. attorney.

Because Sanwoola controlled ordering and inventory in the department, no controls were in place to tip off other Legacy executives that money from the nonprofit's $50 million annual budget was disappearing, Wasden said.

Sanwoola was operating a video-game emporium in Nigeria when the article ran. He was incredulous when The Post contacted him for comment, saying he knew nothing of the embezzlement.

No charges were filed. The U.S. Attorney's Office told The Post that Legacy had taken too long to report the missing inventory and lacked records of its inventory.

LEGACY REPORT TO IRS INCOMPLETE

Wasden didn't become the Legacy chairman until 2011, four years after Sanwoola left. The foundation reported the missing money on its 2011 Form 990, saying only that at least $250,000 had been diverted because of fraud, not the full amount lost. Legacy said the disclosure satisfied reporting requirements, though a charity consultant told The Post that charities are obligated to report the actual dollar amount.

"It wasn't a matter of Legacy waiting three years" (to report), Wasden said. "It was that somebody blew it. It's a serious problem, a serious mistake."

After The Post reporters inquired about the diversion, some Legacy leaders were uncomfortable about the idea of airing their dirty laundry, Wasden said. He convinced his colleagues that Legacy would remain under public suspicion if it withheld details.

Wasden flew from Boise to Washington, D.C., to meet with the reporters and to provide documents, said Julia Cartwright, the foundation's senior vice president of communications.

"The very reason we were the centerpiece of that article was we gave them so much information," she said. "But General Wasden was adamant that this is what we'd do."

NONPROFITS SCARED OF LOSING DONORS

Most nonprofits are reluctant to disclose fraud because they fear they'll lose trust of the agencies and donors that support them, said Denise McClure, owner of Averti Solutions, a forensic accounting service in Boise. She said nonprofits that come clean usually come out ahead, as the Boise affiliate of the Susan G. Komen for the Cure did in 2008 after admitting an employee stole more than $170,000 intended for breast cancer research, screening, education and treatment.

McClure said Komen regained donors it lost after the disclosure because it re-established trust.

"Most nonprofits don't look at it that way," McClure said. "They think they have to stay out of the public eye, that they'll get bad press that hurts the organization. But in the long run, the opposite is true."

ANTI-SMOKING

Wasden's tie to tobacco and smoking deterrence dates to the days of a big tobacco settlement.

American Legacy Foundation started in 1999 as part of the Master Settlement Agreement between tobacco companies and 46 states, including Idaho. Under the settlement, seven tobacco companies agreed to change how they marketed tobacco products and to pay $206 billion to states.

The settlement funded and called for the creation of Legacy to work as an educational nonprofit to prevent teen smoking and encourage smokers to quit. Legacy produces educational campaigns.

Legacy has received about $1.7 billion from the settlement and maintains a balance of about $1 billion to support operations in perpetuity, the foundation said.

WASDEN: BEING FORTHCOMING IS BEST

Wasden was Idaho's deputy attorney general at the time. Attorneys general in the case served in a dual role of working with tobacco companies when they were in compliance with terms of the agreement and cracking down on them when they failed, Wasden said. So organizations such as Legacy that were born from the settlement were required to have some representation from the attorneys general on their boards.

Wasden was one of two original attorneys general representatives on the Legacy board. He became treasurer in 2005 before becoming the chairman in 2011.

Wasden told the Statesman that he also served on an auditing committee while the embezzlement took place. He said he asked auditors if they received cooperation from managers and was told they had the access they needed. The audits did not detect the embezzlement, and Wasden said he received no hints that anything was wrong.

Wasden said Legacy increased financial controls after the fraud, including conducting forensic audits of the organization and its IT department. Employees were trained how to spot embezzlement. The whistleblower received a bonus.

Wasden said cooperating with The Post exposed Legacy to embarrassment and criticism but removed any lingering suspicion that would come with refusing to comment.

"The way to deal with this isn't to hide it under a rock," he said. "It's to be forthcoming. Legacy had to take some hard lumps, but it also helps Legacy in the long run."

Zach Kyle: 377-6464

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