Groups Behaving Badly, #4: The ‘Truth’ Initiative

You’ve probably seen anti-smoking ads on TV from the overly-obnoxious Truth Initiative, which was at one time called The American Legacy Foundation. They don’t hesitate to exaggerate and downright lie about the supposed risks of smoking (which is probably why they call themselves ‘The Truth.’) Their ads are also highly focused on “de-normalization,” the practice of convincing laypeople that smokers are “abnormal.” The organization is funded, in a roundabout way, by smokers via the Tobacco Master Settlement Agreement.

This means that, unlike for most non-profits, TI donations are mandatory, not voluntary, for a certain percentage of the population. TI may also be the only non-profit whose stated goal is to “de-normalize” the people it pretends to serve.

The organization wasn’t as vocal as usual when asked on a federal disclosure form whether it had experienced an embezzlement or other “diversions” of assets in 2013.

From the Washington Post:

Legacy officials typed “yes” on Page 6 of their 2011 form and provided a six-line explanation 32 pages later, disclosing that they “became aware” of a diversion “in excess of $250,000 committed by a former employee.” They wrote that the diversion was due to fraud and now say they believe they fulfilled their disclosure requirement.

Records and interviews reveal the full story: an estimated $3.4 million loss, linked to purchases from a business described sometimes as a computer supply firm and at others as a barbershop, and to an assistant vice president who now runs a video game emporium in Ni­ger­ia.

Also not included in the disclosure report: details about how Legacy officials waited nearly three years after an initial warning before they called in investigators.

“We’re not innocent in this,” said Legacy chief executive Cheryl Healton.

The findings are striking because organizations are required to report only diversions of more than $250,000 or those identified as having exceeded 5 percent of an organization’s annual gross receipts or total assets. Of those, filing instructions direct nonprofits to disclose “any unauthorized conversion or use of the organization’s assets other than for the organization’s authorized purposes, including but not limited to embezzlement or theft.”

From the beginning, departments within the TI operated without adequate financial controls. Operators in charge of ordering electronic equipment were also tasked with logging it as having been received.

In October 1999, Truth Initiative’s IT department began spending freely on computers, monitors and software, much of it purchased from a single company in suburban Maryland.

Because of the TMSA, the organization overflowed with cash, citing a revenue exceeding $320 million. According to a forensic audit conducted years later, the first questionable purchase came in December 1999.

In that first transaction, the foundation paid more than $18,000 for a computer processor and related equipment that auditors concluded should have retailed for less than $7,000.

Data, documents and a summary of findings provided to The Post show that questionable purchases of printers, software and servers steadily increased in size and frequency, peaking with 49 charges in 2006. In some instances, TI appeared to have paid many times an item’s worth, auditors said. In others, auditors said TI paid an inflated price for ‘phantom purchases’ of equipment that apparently never arrived.

(Source for the above section)

All of this implies that from the beginning, the Truth Initiative has operated almost as a money laundering front. Because non-profits only need to report suspicious losses of over $250,000, it’s likely TI has… shall we say… diverted away huge sums over time that we don’t even know about. Much of what remains lines employees’ pockets legally; non-profits are allowed to pay their “volunteers.”

The amount of cash perpetually pumped into the Truth Initiative, if used wisely, could likely result in a cure for cancer within a few years. Instead “The Truth” uses it to lie and exaggerate about smoking – using funds smokers are forced to give them – and it seems likely much of those funds are used for less-than-legal purposes.

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