Woodruff Arts Center officials allege a former employee they say bilked the nonprofit of $1.48 million set up a fake company that the center paid money to over five years.
The Woodruff has not identified the man and he has not been charged with a crime, but as an administrator for the $100 million-a-year nonprofit he could request payments for services rendered by the company.
The loss was revealed by the Woodruff’s chief officers Tuesday. More details were given Wednesday.
The president and CEO of the city’s largest cultural organization, Virginia Hepner, alleged Wednesday that the former worker created a company and assigned it a vendor number. When the company submitted invoices, she said, there was no reason to question them.
Hepner did not know how many invoices were paid to the shell company over the five years, but she said it was among the 13 vendors most regularly paid. She said the amounts billed and paid to the company increased over time but remained under limits that might have drawn attention.
“We are quite hopeful we will recover a substantial portion of the funds, and are aggressively pursuing all options for recovery, including insurance,” Hepner said.
The Woodruff, whose board is packed with some of Atlanta’s most high-profile attorneys and business leaders, conducted an internal investigation after the man left in October and employees noticed some discrepancies.
Officials with the arts center say the ex-employee acknowledged his guilt when confronted with evidence uncovered by the Woodruff’s investigators. At a Tuesday news briefing, Hepner declined to comment on whether the accused explained himself or apologized.
“It’s inappropriate to discuss since it’s being turned over to the U.S. Attorney’s Office,” she said.
A spokeswoman for the U.S. Attorney’s Office declined to comment on when or whether charges would be filed.
U.S. Attorney’s Offices are often requested to prosecute complex economic crimes, particularly when the theft exceeds $500,000 to $1 million, said Brian F. McEvoy, a former federal prosecutor, now in private practice.
Federal prosecutors may also get involved if the theft involves forged checks, fraudulent bank instruments, computerized transactions or other elements of a more sophisticated scheme, he said.
Maximum sentences in federal fraud cases range from 20 to 30 years in prison, McEvoy said, but most convictions carry a shorter sentence depending upon the financial loss. According to federal sentencing guidelines, embezzlements in the range of $1 million typically carry sentences closer to five years.
In the event of a conviction, the willingness and the ability of the defendant to pay the money back can serve as a mitigating factor and can help reduce jail time, he said.
“Unfortunately, this type of embezzlement is not all that uncommon,” McEvoy said, “particularly in a distressed economy.”
Gary Snyder, the managing director of Nonprofit Imperative, a West Bloomfield, Mich.-based watchdog group, said nonprofits are more vulnerable to fraud because of the trusting environment.
Also, Snyder said, it’s typical that the audits at the Woodruff Arts Center didn’t catch the loss. “In the nonprofit world, most of the misappropriations are found not by audits but by somebody squealing,” he said.
Ferdinand Levy, a former dean of Georgia Tech’s College of Management and subscriber of the Atlanta Symphony Orchestra, was critical of the Woodruff.
“There is no excuse for an organization the size of WAC not to have first-class internal controls to prevent fraud,” Levy said. “This negligence showing a lack of oversight will certainly affect fundraising, especially with national foundations.”
The Woodruff and its divisions — the orchestra, the Alliance Theatre, the High Museum of Art and Young Audiences — operates with a $100 million budget and concluded fiscal 2012 with a $2.165 million deficit. It has more than 650 employees. The center, which raised $38.7 million in fiscal 2012, recently launched a $9.2 million corporate fundraising campaign, its largest ever.