The college admissions cheating scandal is all over the news, and rightfully so. This story involves the rich and famous, some of the most elite universities and colleges in the nation, and a nonprofit organization that allegedly engineered more than 800 bribes and other initiatives to benefit the children of its wealthy “donors.” The scandal involved everything from cheating on college admission tests to bribing athletic departments to giving students sports scholarships that they did not deserve.

Most of the articles in the media are focused on the ethical implications of what happened and how the Key Worldwide Foundation (KWF) orchestrated numerous cases of fraud and deception. Although these stories are interesting, there is another important aspect to the story—how did the safeguards put in place by the IRS to detect abuse by tax-exempt organizations fail?

The purpose of Form 990 is to provide the IRS and the public with detailed financial information about a nonprofit organization, as well as an overview of the organization’s activities and governance policies.

The IRS requires most tax-exempt organizations to file an informational tax return, which is commonly known as Form 990 (Return of Organization Exempt from Income Tax). A tax-exempt organization’s Form 990 is a public document that anyone can access and inspect. All one has to do is look at KWF’s Form 990 to see that something was wrong or at least worthy of an investigation. A review of the information presented on KWF’s 2016 Form 990 (the most recent one filed with the IRS) identified several issues:

  • KWF’s financial statements were not audited by a certified public accountant. KWF claimed to have raised more than $7 million since its founding and had more than $2 million in assets. Organizations of this size are typically audited.
  • Its Form 990 was reviewed by only one person—KWF’s president and CEO William “Rick” Singer. A board of directors and/or a finance committee should have had oversight of KWF’s finances and activities.
  • KWF did not make its governing documents, conflict of interest policy, or financial statements available to the public, which indicates a lack of transparency.
  • There is no whistleblower or document retention policy on file, as suggested by the IRS.
  • The functional expense allocation is not in alignment with what is typical for an organization of its size.
  • Donations were made to other organizations, with no records substantiating the organizations’ eligibility or the selection criteria. There was no monitoring of the use of the donated funds, leaving the door wide open for the reported misuse of these funds. Instead of helping low-income students, these donations allegedly served the wealthy.

Read the full article about red flags on Form 990 by Michelle S. Martin at GuideStar by Candid.