Poor Internal Controls Lead to Embezzlement

The Armed Forces Foundation, a non-profit organization based in Washington D.C. was formed in 2002 by a former Navy Sea-bee to protect and promote the physical, mental, and emotional wellness of military service members, veterans, and their families. Within a year, Patricia Driscoll took over leadership of the organization. Driscoll resigned in June 2016 after media reports emerged alleging mishandling of funds. In October of that year, the Foundation announced they were ceasing operations after an audit into Driscoll's financial management and her indictment on federal charges of stealing from the non-profit, defrauding donors and lying to the IRS and the public about her compensation.j

This week, Driscoll was found guilty by a Federal jury of those charges. On the organization's tax return, Driscoll failed to include the fact that she received commissions from fundraising, the amounts of commissions that she received from fundraising, and other benefits that she received. She categorized expenses in the Foundation's books as being for the benefit of veterans, troops, and their families, when in fact, they were for her own private benefit. She concealed from the Foundations's accountants the money she took form the charity, such as rent that was paid for the use of office space in a building that she co-owned. She also falsified the amount of donations received by inflating the amount and incorrectly listing the types of donations.

In total, the Government estimated that Driscoll misappropriated $900 thousand to personal expenses such as shopping trips, legal fees, and other bills for her private security company business (Frontline Defense Systems, LLC). Personal expenses included vacations to Paris and Morocco, personal credit card bills, legal fees relating to child-custody and domestic violence.

Driscoll's schemes might never had been uncovered had it not been for an investigative reporter who obtained foundations records that raised questions about Driscoll's handling of Foundation funds. See (Tax document shows AFF's ex-leader accused of pilfering funds for personal use).

The Foundation claimed that 95 percent of all contributions went directly to those it intended to help. A news article indicated that only a small fraction of that percentage actually went to help military service members, veterans, and their families.

The lesson in this for Government contractors is to ensure that internal controls are in place and operating effectively. Make sure that there is oversight and that the board of directors are more than perfunctory rubber-stamps.