The New York Attorney General’s office has filed a complaint against an accounting firm and its founder for fraudulently providing unqualified financial statements for a charity closed down by the state.  The complaint says that McEnerney, Brady & Co. and its founder Edmond Brady “facilitated a multi-year scheme of fraudulent not-for-profit conduct by falsifying [the charity’s] financial statements.”

The complaint claims that the accountants helped perpetuate the existence of “a sham charity,” the Breast Cancer Survivors Foundation.  It claims that the accountants inflated the value of the charity’s charitable services, failed to report significant internal control failures, and gave an unqualified opinion based on significant departures from standard accounting principles.

The charity was shut down in 2017 after it was shown that more than 90% of the funds it raised went to fundraising organizations run by Mark Gelvan and that only about 4% of the total solicited gifts actually were used for charitable purposes.  The accountants gave “clean” opinions from 2010 through 2014, which the Attorney General said were based on “wholly inadequate audits.”  The AG said that an unqualified audit is required for charities registering to solicit contributions within the state.

The complaint alleges that the accountants “willfully overlooked indicators of fraudulent activity and failures of internal controls that any auditor should have flagged and reported to its client’s board of directors.”  Among the red flags, the complaint says, were the failure of the board of directors to meet, the fact that Gelvan, “the primary vendor,” claimed to be speaking on behalf of the president of the organization but gave no documentation of that authority, the fact that the charity had no physical office or medical facility but reported hundreds of thousands of dollars worth of donated mammograms, and that there was no evidence of conferences that the charity claimed were held for cancer survivors.

In addition, the complaint claimed, two members of the audit team asked to be removed from the engagement because they were uncomfortable with Gelvan’s role and the lack of meaningful charitable activity. 

The AG charged the defendants with persistent fraud or illegality, a scheme to defraud, and false filing.  (People v. McEnerney, Brady, & Co., Supreme Ct., New York County, NY, filed 5/7/18.)

YOU NEED TO KNOW

Suits against accountants for violation of the charitable solicitation laws of the states are relatively rare.  The claims, when made, are usually made against the charity itself for false filing, but this case has been filed against the accountants whose reports were necessary to allow the charity to register to solicit in New York.