On May 10, the New York Attorney General filed a civil complaint against an accounting firm and its founding partner, for allegedly preparing fraudulent unqualified financial statements for a charity that the state had previously closed.
The complaint appears to be styled somewhat in terms of an “aiding and abetting” claim; i.e., that by its professional services, the accounting firm helped to perpetuate the multi-year existence of “a sham charity,” the Breast Cancer Survivors Foundation. This particular charity has ceased operations on a national basis following a settlement with (including a $350,000 payment to) the Attorney General.
The complaint includes allegations that the accounting firm inflated by over 300 percent the value of the charitable activities performed; did not report major internal control deficiencies, and issued audit reports that falsely gave the charity an unqualified audit opinion (in knowing violation of GAAS).
The Attorney General asserts its jurisidiction under authority granted by both state charitable solicitation rules, as well as its fundamental parens patriae power to protect charitable property, protect the public from fraudlent solicitation and to protect the integrity of the nonprofit sector. The Attorney General sought restitution and damages, attorneys fees and civil penalties, among other elements of relief.
This complaint demonstrates the willingness of state charity officials to broadly pursue allegations of fraudulent charitable solicitation, and to use both state statutes and common law authority to litigate their concerns.