In the public imagination, non-governmental organizations (NGOs) occupy moral high ground: feeding families after disasters, funding medical missions, protecting wildlife, and advocating for human rights.  That halo is real—and it’s also part of the problem.

And while many donors assume “someone” is watching the money, NGO oversight is often a patchwork of filings, state-level enforcement, and internal governance rather than a single, centralized regulator.  Emphasizing transparency can help NGO leaders and donors feel more confident in the organization’s integrity.

“Trust is an NGO’s greatest asset—and its most expensive vulnerability.”

 What is an NGO, exactly?

An NGO is a private, mission-driven organization that operates independently of government—even when it receives government grants or partners with public agencies.  In the U.S., many NGOs are structured as tax-exempt nonprofit organizations (often charities) that raise funds from individuals, foundations, and public programs, then deploy those resources toward a stated mission.

NGOs are “non-governmental” in governance—not necessarily in funding.

Why So Much Fraud Gets Attached to NGOs

Fraud is not unique to NGOs, but the sector’s operating model can be risk-focused.  Research by the Association of Certified Fraud Examiners (ACFE) has long shown nonprofits can experience significant losses per case; for example, ACFE’s nonprofit-focused reporting has cited a median loss of $75,000 in analyzed nonprofit cases in a global study.

Fraud is not rare in the broader economy: ACFE estimates that organizations lose approximately 5% of revenue to fraud each year, with cases often lasting about 12 months before detection. 

Why do NGOs so often appear in headlines?

1) A Trust-First Culture (and the “Halo Effect”)

Mission-driven organizations frequently attract staff and volunteers who want to help.  That culture is beautiful—but it can lower professional skepticism.  When everyone is presumed altruistic, basic questions (“Who approves this payment?” “Where are receipts?”) can feel impolite. 

Fraud doesn’t need a villainous organization, just a moment when good people stop asking boring questions.  [

2) Mission Over Controls

Boards and executives often face a real ethical tension: spend money on programs now or spend on compliance and controls to prevent misuse.  In a competitive fundraising environment, overhead can be treated as suspect—ironically encouraging the very underinvestment that makes diversion easier. 

3) Limited Administrative Capacity

Many NGOs cannot afford robust audit coverage, strong segregation of duties, and modern cybersecurity.  ACFE’s nonprofit reporting highlights common control weaknesses, such as a lack of internal controls, a lack of management review, and the override of existing controls—a familiar recipe for loss.

4) Volunteer Reliance and Turnover

Volunteers are indispensable, but frequent onboarding and uneven financial training can lead to inconsistent processes—especially in cash handling, procurement, and reimbursement.

5) Complex Operations: Multiple Grants, Multiple Rules

NGOs often manage restricted grants, cross-border vendors, and programs in high-risk environments.  That complexity creates “fog”: more transactions, more intermediaries, and more chances for documentation to break down. 

What NGO Fraud Usually Looks Like (It’s Often Boring)

Hollywood imagines offshore accounts and dramatic heists.  Real NGO fraud is frequently mundane—and that’s why it works.  ACFE’s nonprofit scheme data has included categories such as Corruption, billing, and expense reimbursements, as well as cash and check manipulation.

Common patterns include:

• Expense reimbursement padding (small amounts, frequent claims)
• Vendor billing games (fake vendors, inflated invoices, kickbacks)
• Procurement favoritism (conflicts of interest, “preferred” suppliers)
• Cash leakage in the field (weak receipts, limited reconciliation) [

And crucially, fraud is often detected not by audits but by whistleblowers.  ACFE notes that a large share of cases are detected through tips and emphasizes the value of anti-fraud controls in reducing losses and expediting detection.  Highlighting this can inspire NGO staff and donors to value and support internal reporting mechanisms. 

Who Regulates NGOs?  (Short Answer: No Single Referee)

If you’re looking for a single agency that “licenses” NGOs and continuously audits them, you’ll be disappointed.  In the U.S., NGO oversight is best understood as three layers:

Layer 1: The IRS (Tax Status + Transparency Through Filings)

For tax-exempt organizations, the Internal Revenue Service is central.  The IRS requires many exempt organizations to file annual information returns—typically Form 990 or Form 990-EZ—with deadlines tied to the end of the fiscal year, and extensions are available through Form 8868.  [

Why this matters: Form 990 is a public disclosure instrument that details governance, revenue sources, and spending patterns.  Donors, journalists, and watchdogs often rely on it to evaluate basic transparency.

Layer 2: State Attorneys General (The “Street-Level” Enforcers)

At the state level, attorneys general are widely regarded as the primary protectors and regulators of nonprofits, exercising legal authority over nonprofit corporations, charitable trusts, charitable solicitations, and registration.  [

They can investigate misuse of philanthropic assets, pursue directors for fiduciary violations, and take action against deceptive fundraising.  Their powers vary by state, but the theme is consistent: state AGs are often the most critical enforcement backstop for charity fraud.

Layer 3: Internal Governance (Boards, Policies, Controls)

Even potent regulators cannot prevent what boards refuse to oversee.  In practice, the board of directors and leadership controls the “fraud thermostat”: approvals, audits, whistleblower pathways, and financial review cadence.  State regulators may step in after damage occurs—but prevention is internal. 

“Who Watches the Watchdogs?” The Role of Private Accountability Signals

Beyond government, many donors consult independent evaluators and databases that aggregate nonprofit disclosures and assess transparency.  While these are not regulators, they can shape public confidence and fundraising success by amplifying accessible data and standards-based assessments.

Government oversight exists—but donor-driven transparency pressure is often what changes behavior fastest.

A Practical Anti-Fraud Checklist (For Donors and Boards)

If you’re a donor, you don’t need an accounting degree to reduce your odds of being misled.  If you’re a board Member, you don’t need perfection—just disciplined basics.

For Donors: 6 Fast Screens

•   Find the organization’s Form 990/990‑EZ footprint (or confirm whether it qualifies for a smaller filing category). 
•   Look for consistency: mission claims should match program spending patterns year to year. 
•   Be wary of pressure tactics (“act now,” “no questions,” “no time for paperwork”). 
•   Prefer traceable payment rails (credit card, reputable platforms) over cash or gift cards. 
•   Verify registration norms in the states where the NGO solicits if you’re giving at scale. 
•   Use independent data aggregators/watchdogs as a starting point, not a substitute for judgment. 

For Boards and Executives: 6 Controls That Punch Above Their Weight

•   Segregate duties (no single person should authorize, pay, and reconcile).
•   Require documentation discipline (receipts, vendor verification, written approvals). 
•   Do regular management review (monthly variance and trend review beats annual surprises). 
•   Implement a tip channel (anonymous reporting increases the likelihood of detection). 
•   Conduct periodic fraud risk assessments tailored to field operations and grant complexity. 
•   Treat transparency as a strategy—because reputational loss can exceed financial loss. 

“The goal isn’t to distrust your people—it’s to design a system where honesty doesn’t depend on personality.”

The Bottom Line

NGOs matter.  They solve problems governments can’t—or won’t—solve quickly.  However, a mission does not immunize an organization against incentives, opportunities, or human weakness.  ACFE’s research underscores that fraud is a pervasive reality in organizations and that basic controls and early-detection mechanisms significantly shape outcomes. 

As for regulation: in the United States, the IRS enforces the tax-exempt framework and disclosure expectations, while state attorneys general function as the primary on-the-ground charity regulators and enforcers, and boards carry the day-to-day fiduciary burden that determines whether fraud becomes a headline—or a prevented footnote.

If you want fewer scandals and more Impact, the formula is unglamorous but proven: transparency, internal controls, and a culture that treats accountability as part of the mission—not a distraction from it. 

Case Study: Women’s Cancer Fund — “A Penny on the Dollar” Charity Pitch

Editor’s note for placement: This case study works well as a boxed sidebar after the “Why NGOs Attract Fraud” section because it illustrates how emotional messaging, weak governance, and outsourced fundraising can combine to create a high-fraud-risk model.

The Organization and the Allegations (2017–2022)

In March 2024, the Federal Trade Commission (FTC) and a coalition of 10 states filed suit against Cancer Recovery Foundation International, Inc., doing business as Women’s Cancer Fund, and its operator, Gregory B. Anderson, alleging a multi-year deceptive fundraising scheme.

The complaint alleges that, between 2017 and 2022, the organization collected more than $18.25 million from donors by promising donations would “directly help” women with cancer and their families with basic needs such as rent, utilities, and food.

According to the FTC and the states, only about $194,809—roughly 1% (about a penny per dollar)—was spent on financial support for cancer patients.  At the same time, the remaining funds primarily flowed to for-profit fundraisers, overhead, and the operator’s compensation.

The complaint and related announcements further allege that Anderson was paid $775,139 (salary and benefits) during the period—nearly four times what the charity collectively provided to patients—while hired fundraisers received the overwhelming majority of the money raised.

How the Pitch Worked (and Why It Was So Effective)

The lawsuit alleges the charity relied heavily on telemarketing and other solicitation materials that framed donations as urgent, life-impacting assistance to struggling families.
The complaint describes scripts and direct mail that told donors their contributions could “help save lives.  It would go “directly” to patients facing immediate bills and family expenses, reinforcing a classic crisis narrative that prompts quick giving.

According to the complaint, telemarketers were instructed to answer legitimacy questions by asserting the organization was a registered 501(c)(3) and, in some versions of the scripts, to claim that a substantial portion of funds raised went to support women in treatment and recovery.

The complaint also alleges that pledge letters signed by the operator assured donors he would make “sure your gifts are getting to the cancer patients and families,” a reassurance tactic that can substitute for verifiable reporting when donors are emotionally primed.

Structural Vulnerability: Outsourced Fundraising + Weak Oversight

A key allegation is that the organization uses for-profit fundraising firms.  This model can be legal, but it can also become a red-flag zone when fundraising contracts siphon away most proceeds.

The complaint alleges that fundraising contracts authorized fundraisers to receive 85%–90% (or more) of donations raised, leaving little for program services, even before overhead and governance costs are deducted.

In addition, the complaint alleges the operator approved solicitation scripts, controlled the bank accounts, and directed financial decisions—while the board provided minimal review of contracts, scripts, or compensation, weakening the internal “brakes” that typically deter misuse.

This is a textbook example of how mission branding (supporting cancer patients) can coexist with operational reality (a fundraising-intensive structure) when governance fails to enforce transparent, outcome-linked controls.

The Regulatory Response: Multi-State + Federal Enforcement

The FTC press release states that the agency and the states filed the complaint in federal court, alleging deceptive conduct and seeking remedies to stop the challenged practices and address consumer harm.

The complaint identifies participating state authorities (including California and Texas) and frames the case as involving both consumer protection and charitable solicitation enforcement.

Several state attorneys separately announced their participation, emphasizing that deceptive charitable solicitations can divert donations away from legitimate charities and undermine public trust.

What Donors (and Boards) Should Learn from This Case

1) “Cause” is not a control system.  A compelling mission claim can serve as a fundraising accelerator even when actual program spending is limited, which is why donors should look for verifiable outputs and filings rather than slogans.

2) Watch the fundraising-to-program reality ratio.  The case highlights an alleged scenario in which an organization raised substantial funds while distributing a tiny portion to beneficiaries, a gap that donors can often detect by reviewing publicly available reports and reputable third-party summaries. 

3) Outsourced telemarketing deserves extra scrutiny.  BBB Wise Giving Alliance warns that cold-call telephone appeals can involve high fundraising costs and encourages donors to slow down, verify, and research—especially when pressured to give immediately.  [

4) Governance signals matter.  The complaint’s description of limited board oversight—no meaningful review of major contracts or solicitations—illustrates why a board’s active fiduciary posture is not merely “administrative overhead” but rather a matter of mission protection.

“In charity fraud, the sales pitch is often heartfelt—what’s missing is proof that the money follows the story.”

Case Study: Insider Embezzlement — East Oakland Boxing Association (EOBA)

Why this example matters: This is a classic “trusted insider” case—an executive with day-to-day control over finances who diverts restricted donations and operational funds, then compounds the damage through concealment and tax fraud.

The Organization

The East Oakland Boxing Association (EOBA) is a nonprofit organization that provides after-school and summer programming for children and families in East Oakland, including tutoring and literacy support, boxing lessons/coaching, and teen internships.  [i

The Insider and the Scheme (2017–2021)

From 2017 through 2021, EOBA’s executive director, Howard Solomon (also known as Solomon Howard), misappropriated at least $549,000 from the organization.
Authorities reported he diverted EOBA funds and donations to cover personal expenses, including a vacation rental and a Ford Explorer. 

A High-Visibility Donation Diverted

Among the misappropriated funds was a $50,000 donation that Solomon allegedly diverted into a personal account.
The IRS stated that this $50,000 donation was connected to a December 2019 segment on “Ellen’s Greatest Night of Giveaways,” in which EOBA received gifts, including the donation check.

Criminal Resolution and Penalties

Solomon pleaded guilty on 23 April 2025 to one count of mail fraud and one count of tax evasion (tax year 2018).
On 24 September 2025, a federal judge sentenced him to 27 months in prison, plus three years of supervised release.
He was ordered to pay $549,132.74 in restitution to EOBA and $287,185 in restitution to the IRS, reflecting the tax component of the misconduct described by investigators. 

How Fraud Was Hidden (and Why It’s So Common)

Investigators said Solomon also failed to report embezzled funds as income and misstated business expenses in tax filings for 2017–2021, illustrating how insider theft is often accompanied by paperwork manipulation and downstream tax violations.

The case was investigated by IRS Criminal Investigation (IRS‑CI), underscoring that nonprofit embezzlement frequently becomes a federal matter when it intersects with tax evasion and financial tracing. 

What Donors and Boards Should Learn

Title risk is real: When one executive controls donations, deposits, vendor payments, and reporting, the organization is exposed to “single‑point‑of‑failure” fraud.
Restricted gifts require additional controls: The alleged diversion of a marquee donation underscores the need for dual authorization, deposit controls, and board-level review.

Fraud often leaves a tax trail: The government’s emphasis on tax evasion and restitution to the IRS underscores that embezzlement frequently creates a second set of crimes—thereby increasing the likelihood of detection when financial records are examined closely.

“Insider fraud is rarely cinematic—it’s administrative: one trusted person, too much access, and nobody reconciling the story to the bank statement.”

Below is a U.S. federal tax explanation of how embezzlement is treated—for (1) the embezzler, (2) the victim organization, and (3) restitution/repayments.  (State tax rules can differ, so this is general federal guidance, not legal advice.)

1) Tax implications for the embezzler (the person who stole the funds)

A. Embezzled funds are taxable income in the year taken

Federal tax Law starts with a broad rule: all income from whatever source derived is taxable unless a specific exclusion applies.
The U.S. Supreme Court held that embezzled money is taxable income to the embezzler in the year of the embezzlement, even though the money must be repaid under criminal/civil Law.

The IRS treats stolen cash like “income” because the thief had control and economic benefit when it was taken.

B. How the embezzler is supposed to report it

IRS guidance (commonly cited from Publication 525 and related filing instructions) directs taxpayers to include illegal income on the return—typically as “other income” (Schedule 1) or on Schedule C if it resembles self-employment activity.

Media summaries quoting IRS guidance note:

• Income from illegal activities is reportable on Schedule 1 (Form 1040), line 8z, or on Schedule C if tied to self-employment.
• Stolen property is generally reported at fair market value as of the year it was stolen, unless it is returned in the same year. 

Important nuance: The filing obligation exists regardless of whether the victim/employer issues a W-2 or Form 1099 (embezzlement is typically discovered after the fact).  The legal duty to report remains on the taxpayer.

C. If the embezzler returns the money the same year

A commonly cited IRS rule (frequently quoted from IRS publications) is that if stolen property is returned in the same tax year, it generally does not remain taxable as stolen-property income for that year.

D. Penalty exposure

Failing to report embezzled income can trigger civil tax, interest, penalties, and (in severe cases) criminal tax prosecution layered on top of the underlying theft case—because tax evasion is its own offense conceptually separate from embezzlement.

2) Tax implications for repayment/restitution of the embezzler

A. Repayment is usually a reduction in the year repaid (not a retroactive fix)

If the embezzler repays the stolen funds later, the IRS treats the Repayment as a deductible expense in the year of Repayment under IRC § 165, provided the requirements are met.

A key IRS revenue ruling explains:

• Embezzled funds are grossly repaid.
• The Repayment may be deductible under § 165 in the year paid.
• But extraordinary “claim of right” relief generally does not apply to embezzlement repayments.

B. The “Claim of Right” credit (IRC §1341) usually does not help embezzlers

IRC §1341 provides a favorable recomputation mechanism when income was included in a prior year because it “appeared” the taxpayer had an unrestricted right, but it later turns out they didn’t.

However, the IRS has stated that embezzlement proceeds are not received under a “claim of right,” so §1341 generally does not apply to repayments of embezzled funds.  

Practical meaning: The embezzler usually:

•   reports the stolen amounts as income in the year(s) taken, and
•   claims a deduction only in the year restitution is actually paid.

C. If payments are made to the government as part of a case (fines vs. restitution)

Sometimes a fraud/embezzlement matter ends with payments “to, or at the direction of” a government entity.  In those situations, IRC §162(f) can disallow deductions for fines/penalties, with a limited exception when amounts are correctly identified and established as restitution/remediation or compliance-related.

Why it matters: Not every court-ordered payment is automatically deductible just because it’s labeled “restitution.” The document and the facts must satisfy the rule’s requirements for identification and establishment.

3) Tax implications for the victim (individual or organization that lost the money)

A. The victim may be able to claim a theft loss deduction (IRC §165)

IRC §165 allows a deduction for losses not compensated by insurance or otherwise, and it contains special timing for theft:

• Theft losses are treated as sustained in the year the taxpayer discovers the loss.

IRS guidance also recognizes that “theft” includes forms such as embezzlement and reinforces concepts of timing, including “discovery” and “no reasonable prospect of recovery.” 

Key timing rule (common audit issue): You generally can’t deduct the loss while there’s still a reasonable prospect of recovery (insurance, litigation, restitution).  The “right year” often turns on when recovery becomes unlikely.

B. Individuals: major limitation (2018–2025)

For individuals, personal-use theft losses are generally deductible only if attributable to a federally declared disaster (with some exceptions, such as theft tied to a “transaction entered into for profit”).

This is why many individual victims of ordinary theft/embezzlement cannot deduct the loss unless it falls into a permitted category during 2018–2025.

C. Businesses and organizations: deduction mechanics and measurement

IRS guidance explains the general mechanics of computing casualty/theft losses:

• Compute based on adjusted basis, FMV decrease rules, and
• Reduce by insurance or other reimbursement received or expected.

For theft losses specifically, IRS Topic 515 notes:

• A theft must be illegal under state Law and done with criminal intent, and
• The amount of theft loss is generally the adjusted basis (with FMV after theft often treated as zero).

D. If the victim later recovers money (insurance, restitution, settlement)

Recoveries can give rise to tax consequences depending on how the loss was initially handled.  For example, IRS guidance on casualties/thefts explains:

• If reimbursement exceeds the adjusted basis, a gain may occur and may be taxable or deferred, depending on the circumstances.
• If a taxpayer deducts inventory theft through COGS, reimbursements are generally included in gross income (to avoid double benefit).

In practice: If you claimed a theft loss deduction that reduced your tax, later recoveries can be taxable under “tax benefit” concepts (the goal is preventing a double tax benefit).

4) Special note for tax-exempt nonprofits/NGOs

A 501(c)(3) charity generally doesn’t pay regular federal income tax on mission-related receipts, but it still has major reporting and governance implications:

• Many exempt organizations must file annual information returns (Form 990 series) to maintain compliance and transparency.  [

Even where the theft loss doesn’t yield an “income tax deduction” (because there may be no taxable income), the incident can still affect:

• financial statement disclosures,
• internal controls,
• Form 990 reporting narratives, and
• potentially unrelated business income (if applicable).