The ABA has revealed that a staff member had diverted about $1.3M from the organization over a period of eight years. The theft was made public via the company’s annual tax form, a form 990.
Tax-exempt organizations are required to file an informational return each year with the IRS, no matter the size of the entity. Small tax-exempt organizations with average annual receipts of $50,000 or less have the option of filing a form 990-N, or e-Postcard.
Tax-exempt organizations with annual gross receipts of less than $200,000 and total assets of less than $500,000, file a form 990-EZ or a form 990-EZ, while tax-exempt organizations with annual gross receipts of $200,000 or more or total assets of $500,000 or more, file a form 990 (pdf).
Organizations classed as private foundations must file a form 990-PF (pdf) regardless of assets or receipts.
The ABA, with headquarters in Chicago, is a voluntary professional organization for lawyers, law students and other interested in the legal profession and is a 501(c)(6) organization.
Founded in 1878, the organization boasts over 400,000 members and describes its mission as "committed to supporting the legal profession with practical resources for legal professionals while improving the administration of justice, accrediting law schools, establishing model ethical codes, and more."
According to the most recent disclosures on form 990, the ABA has 835 employees and 8,500 volunteers.
The ABA has stated that they became aware of the theft last September. According to a statement on the organization’s tax form, when the theft was discovered, the employee responsible was “immediately placed on administrative leave” and terminated the following day. The incident in being investigated internally, and the organization has been “in touch” with law enforcement.
The theft was not immediately made public, but was included on the most recent form 990 in response to this question: Did the organization become aware during the year of a significant diversion of the organization's assets?
The ABA checked yes and further explained on the form: In 2017, the ABA became aware of an unauthorized diversion of assets totaling approximately $1.3 million over a period of multiple years, committed by a non-management staff member. The employee was immediately placed on administrative leave when the unauthorized diversion of assets was detected and was terminated the following day. The ABA commenced an investigation and notified both the Executive Committee of its board of directors and law enforcement, with whom the ABA has cooperated fully in the ongoing investigation. Furthermore, forensic experts from the accounting firm of Grant Thornton were engaged to participate in the investigation along with the ABA Internal Audit, Financial Services staff and the General Counsels Office. The ABA reviewed and revised procedures including more stringent controls and monitoring and increased financial oversight. The ABA is in the process of seeking recovery of the funds from its insurance carrier.
You can view the ABA’s form 990 here (downloads as a pdf).
According to a report from the ABA Journal, the organization expects to recover most of the stolen money.
While the amount in question tops $1M, the ABA notes that in that same timeframe as the theft, their expenses were over $1.7B; to put that into perspective on an annual basis, expenses for the last fiscal year were $154M.
The theft wasn't immediately discovered because the employee falsified documents to hide the trail.
The theft became more noticeable as the employee attempted to steal more money.
The ABA has declined comment.
So why the notice now?
And why via a form 990?
A tax-exempt organization doesn’t generally have shareholders, so it reports its financial health directly to the public.
Those revelations - from income received to grants made - allow taxpayers and potential donors to make decisions about whether to become members or otherwise support a particular organization.
If you see a note about a problematic transaction or employee on a tax exempt organization’s form 990, or other disclosure, that isn’t necessarily a bad thing
. It could be a good thing - it means that someone is watching and reporting, and hopefully, as here, changes are being made to financial controls to make sure that it doesn’t happen again.
However, repeated incidents may be cause for concern.
Always do your homework and check out any tax exempt organization before making a contribution or becoming a volunteer.
Some organizations post their forms 990 on their website; you can also request the opportunity to inspect those financials in person.
Some organizations have copies of forms 990 and other information available through the IRS with a new online tool, the Tax Exempt Organization Search (TEOS); you can read more about the TEOS here.
