Rathke-ACORN ripoff misunderestimated

Related story: "ACORN's Wade Rathke: Disgraced organizer"
Related ACORN stories: hereWade Rathke stories: here

A never-ending embezzlement cover-up

Further reporting from the New York Times today about wrongdoing at ACORN, the community activist group with deep Little Rock ties.

In June, it was discovered that founder Wade Rathke had failed to disclose to the group's board that his brother, Dale, had embezzled $1 million from ACORN in 2000. He instead arranged for his family to repay the group and listed the stolen money in the books as a legitimate expenditure.

Now two members of ACORN's 51-person board are suing their own organization an attempt to obtain its financial documentation. The plaintiffs say that, contrary to a prior agreement, Wade Rathke continues to run ACORN. More startling, the suit claims that the theft may have been a million dollars more than previously reported.


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THought you might want to read this?

ACORN Headlines and News: ACORN's former CPA Speaks Out!!! Says-The embezzlement could have started long before 2001!

From Comment page of Rick Cohen Non Profit Quarterly:

Dear Rick: I was the only CPA for ACORN from inception until 1995. Since reading your report and comments I have become confident of your good intentions. Therefore I have decided to open up with regard to any questions that you or your subscribers may have.
Yes, it is quite possible that the “misappropriations” go back before my retirement. So I have great sympathy for Wade’s torment. Even before 2001. Wade knew before I left that Dale had total domination of accounting and banking functions of all the 50-75 separate corporate entities. Each corporation had a bank account at Whitney. Dale got a consolidated daily bank statement that gave him the debit or credit balance of each account and net total. Dale was a check signer on every account. Wade was not. That’s about all anyone knew after their only competent bookkeeper resigned about 1988. Accounting decended into chaos and I was in a constant helpless depression after that until 1995. Hearsay from a former insider informed me in 2001 that Dale got caught making $1 million improper payments to American Express but they would recover from his inheritance some day and my successor auditors were all over it. I thought, thank God, not on my watch. I perked up but held my tongue.
After thinking it over, I think I agree with the cover up strategy in 2001. I guess I participated in it by remaining silent. I believe that it’s the only way ultmate restitution was probable at the time. But I remain curious. Why shouldn’t restitution be made for the $38,000 per annum paid Dale since 2001? Surely the firing would have taken place in 2001 except for the cover up.
I should confine my comments to the situation as I knew it prior to 1995. I defer all other questions as to subsequent events and transactions to my successors who were emminently qualified and informed of all problems that needed attention after my departure. I believe that they know every thing that is significant about this matter. I wish they would get permission to publish a case study on this matter. I have had no communications with them since 1995.
Somebody said “Absolute power corrupts absolutely”.

Dear Rick (of your comment of 8/19 at (9:08 pm): Answers to two questions: (1) After 1988, with the resignation of the very competent Sue B., the accounting system quickly disintegrated. There were no computers. It had all been done by hand. Sue had trained a payroll clerk and bank reconciler, JoAnn B., who had learned to make payroll tax deposits, quarterly payroll tax reports, individual earnings records and annual W-2 forms and reports. But all cash and general journals and ledgers fell behind and contained thousands of uncorrected errors due to inability or failure to hire enough accountants with the capacity to cope with the challenges. Forget the usual forms of internal control. There were virtually none possible. Dale trusted no one but himself. Or trusted completly in those incompetant for the task. Forget transparency and disclosure on a timely basis. It was not possible. Don’t ask me, I still live in Little Rock where the whole thing started. Sue B. started in Little Rock under Wade and moved all the financial records to New Orleans when Wade moved. Dale started later in New Orleans, with quickly increasing financial authority, after graduating from Yale (Phd.English), but before Sue B. left. Sue B. and Dale finally had issues which could not be reconciled. She told me, “I hate my job and I hate my life” and always had a headache, but could do or find anything I needed . After Sue B.’s departure in 1988 the bank statements and cancelled checks and check book stubs and bank reconciliations were the only reliable records. When it came time to prepare annual federal and state forms 990 and 1120 it was up to me. If financial statements had to be reconstructed from the bank statements and cancelled checks I did the minimum necessary one entity at a time. I had about 50 file boxes with working papers that I carted back and forth between Little Rock and New Orleans until finally Dale provided some used filing cabinets for me in New Orleans. Extensions were filed when necessary but the task of filing often fell 2-3 years behind. By the time I got finished the reports and returns were ancient history. The IRS never examined. No taxes were ever due so there were no penalties or interest. If anybody was dissatisfied they never contacted me. My name and signature were on all reports and returns. There were very serious deficiencies which I could not correct. They had to do with obvious comingling of funds between the separate corporations, much of which was impossible to correct retroactively if not discovered immediately. Some probably innocent errors. Some probably deliberate and unauthorized cash transfers. I had nobody to tell but Dale. I wanted to resign or be fired. My commuting time and expenses were unbearable. Dale was up to a year past due in paying my monthly invoices. My capital was way inadequate for this. I was financing my life with credit cards. They needed to get a New Orleans CPA firm to take over. But with this mess who would accept it? About 1990 Dale agreed to meet with Arthur Andersen consulting experts I talked into coming down from Chicago to tell us what to do. Hey, that was cool, they even had a New Orleans office who could take over all the audit and tax work when new systens got things under control. Andersen spent one day in New Orleans talking to Dale and me and knew exactly what to do. A few days later Dale called and said Andersen had submitted a detailed proposal with a fee estimate of $100,000 for installing a computer system. He said no, too expensive. I should have resigned immediately, but I could not resign without getting paid. Everybody knows what later happened to Andersen for not resigning from Enron when they had conflicts regarding material differences of opinion and judgement affecting the audit reports, disclosures and transparency. Next thing I knew, Dale allowed a Great Plains computer accounting system to be installed. How they got it up and running I’ll never know. What I was interested in was the output. I quickly learned the saying, “Garbage in, garbage out”. The first thing that had to be created was a chart of accounts and account numbers. I think Dale did it all by himself. With abont 75 corporations and who knows how many restricted and unrestricted funds it must have been a daunting task. The chart was about the size of the N. O. phone book and growing daily. If the first coding of an entry was incorrect, too bad, it could not be deleted and reentered correctly. Instead a new entry had to be made transferring the transaction from the incorrect account to the correct account. And if that correction was not done correctly yet another correcting entry had to be made. I just could not enjoy this. I hated my job and hated my life. Yup, depressed. After a couple of years like this, I discovered the very fine old N. O. CPA firm of Duplantier et al. They had some expertise with the Great Plains system and were willing to come in and survey the situation. Dale agreed. Right away I gave them complete access to all my files and even gave them all the tax returns to prepare. Whatever they wanted to do. They did a lot of tax work in a few months while I finished up a couple of audits. I asked them if they were getting paid for what they had done so far. They said yes and they had the ability to go do something else if not. I told them that my unpaid bills were substantial but that I wanted out. One day in Decenber, 1994, I was in Dale’s office briefly and at a glance I saw a whole pile of Engagement Letters on his desk. I knew immediately they were from Duplantier and a separate letter for each corporation. Hallaluia, I had been delivered. In January, 1995, Dale ordered me out of his office and we haven’t spoken since. Neither have I heard from Wade. In 1996 I sued to collect the balances due on my accounts. The defense had no defense and I was awarded a judgement of $200,000. The next step, to collect the judgement, was disappointing. I was persuaded to settle for $140,000. This enabled me to pay off all my secured creditors, but I wrote off $60,000 and was done with it. Easy come, easy go.
(2) I think I approve of the “cover up strategy” because I knew that the Duplantier firm was on the job and had seen the evidence and chose to join in. My source said that Wade had seen a report that caused him to question why the payments to American Express were so high? So they searched for the American Express statements and found that Dale had them all in his possession. He still must have had the power to pay without restrictions by anybody. He agreed to restitution that was probable someday. His motive may never be known. If Dale were fired in 2001, Wade probably would have been forced to resign at the same time. I don’t know when Acorn International was formed. At least there has been 8 years to prepare for both departures at once. I think that the life of the associated organizations bearing the ACORN brand is more likely to survive after these preparations than if both departures were sudden and without warning in 2001. There are about 500,000 members that probably want them to survive too.

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