Funds Misappropriated at 2 Nonprofit Groups
STEPHANIE STROM NYT July 9, 2008

Two prominent national nonprofit groups are reeling from public disclosures that large sums of money were misappropriated in unrelated incidents by an employee and a former employee.
   The groups, Acorn, one of the country's largest community organizing groups, and the Points of Light Institute, which works to encourage civic activism and volunteering, have dealt with the problems in very different ways.
   Acorn chose to treat the embezzlement of nearly $1 million eight years ago as an internal matter and did not even notify its board. After Points of Light noticed financial irregularities in early June, it took less than a month for management to alert federal prosecutors, although group officials say they have no clear idea yet what the financial impact may be.
   A whistle-blower forced Acorn to disclose the embezzlement, which involved the brother of the organization's founder, Wade Rathke.
   The brother, Dale Rathke, embezzled nearly $1 million from Acorn and affiliated charitable organizations in 1999 and 2000, Acorn officials said, but a small group of executives decided to keep the information from almost all of the group's board members and not to alert law enforcement.
   Dale Rathke remained on Acorn's payroll until a month ago, when disclosure of his theft by foundations and other donors forced the organization to dismiss him.
   "We thought it best at the time to protect the organization, as well as to get the funds back into the organization, to deal with it in-house," said Maude Hurd, president of Acorn. "It was a judgment call at the time, and looking back, people can agree or disagree with it, but we did what we thought was right."
   The amount Dale Rathke embezzled, $948,607.50, was carried as a loan on the books of Citizens Consulting Inc., which provides bookkeeping, accounting and other financial management services to Acorn and many of its affiliated entities.
   Wade Rathke said the organization had signed a restitution agreement with his brother in which his family agreed to repay the amount embezzled in exchange for confidentiality.
   Wade Rathke stepped down as Acorn's chief organizer on June 2, the same day his brother left, but he remains chief organizer for Acorn International L.L.C.
   He said the decision to keep the matter secret was not made to protect his brother but because word of the embezzlement would have put a "weapon" into the hands of enemies of Acorn, a liberal group that is a frequent target of conservatives who object to its often strident advocacy on behalf of low- and moderate-income families and workers.
   Wade Rathke said he learned of the problem when an employee of Citizens Consulting alerted him about suspicious credit card transactions. An internal investigation uncovered inappropriate charges on the cards that led back to his brother.
   "Clearly, this was an uncomfortable, conflicting and humiliating situation as far as my family and I were concerned," he said, "and so the real decisions on how to handle it had to be made by others."
   The executive director of New York Acorn, Bertha Lewis, who has been named director of an interim management committee set up to run the national group's day-to-day operations, said Dale Rathke was paid about $38,000 a year but that none of that money was used to pay back Acorn.
   Instead, she said, the Rathke family has paid Acorn $30,000 a year in restitution since 2001, or a total of $210,000.
   A donor has offered to give Acorn the rest of what the Rathkes owe, and an agreement to that effect should be finalized in coming days, Ms. Lewis said.
   "Now that this is under our watch, we are putting financial auditors in place, legal counsel in place, a strong management team in place to make sure this organization moves forward for another 38 years," she said. "I will not allow and the board will not allow something like this to happen again."
   But the fact that most of the handful of people who did not disclose the fraud when they learned of it eight years ago still work for Acorn or its affiliates concerns many of the group's financial supporters.