Colorado’s AG wants charities oversight unit

Growth in charities in Colorado has the state’s top prosecutor seeking more funds to create a new unit to ferret out nonprofit fundraising fraud.

Colorado Attorney General Cynthia Coffman wants to spend about $350,000 annually on a new charities oversight unit. The money would finance two full-time attorneys, an investigator, office equipment and operating costs. The work currently is done by attorneys in the consumer fraud unit of her office, who must juggle other responsibilities.

“Most of us donate to a charity thinking that our money goes to a cancer victim or a child’s baseball team,” Coffman said during a recent presentation to the Joint Budget Committee, which sets funding priorities the full legislature votes on. “We don’t backtrack to find out if the money was spent

in the way we designated it or if it was squandered by the charity or if it went to the operators. We are trusting in that regard.”

She said the new unit is needed because there are more than three times as many charities registered in Colorado as there were in 2006 — 13,663 to 4,168 — according to the Colorado Secretary of State’s office. Part of the increase is due to an initiative in 2008 by the Secretary of State’s office to reach out to charities that weren’t registered, which resulted in a 33 percent surge in registrations that year, according to statistics.

“We have been limping along in this area in the last couple of years,” Coffman told the legislators. “But the workload now exceeds our existing resources, and it requires a more conscientious response from the department.”

The unit also would oversee conversions for nonprofits to for-profit entities in the health care sector, Coffman said.

She is proposing to finance the new unit with $231,000 in general fund dollars and $118,000 in funds her office oversees. Attorneys general in 13 other states have established charity oversight units.

The proposal generated skepticism from at least one member of the Joint Budget Committee. Sen. Kevin Lundberg, a Republican from Berthoud and assistant majority leader, said he feared creation of the proposed unit would put too “much firepower in place.”

“I’m extremely concerned that we will set up this full-time unit with police powers,” Lundberg said during the recent committee hearing. “With thousands of charitable organizations out there, I think we’re making more trouble than good.”

He said charities already are required to meet state regulations to seek donations in Colorado. They must register and file financial reports with the Secretary of State’s office. That office also has three investigators who handle complaints about charities, notaries, and bingo and raffle operations, but they have no criminal enforcement powers. If investigators find suspected criminal violations, they refer them to law enforcement.

“A permanent unit, I fear, will find themselves looking for issues to solve and cases to fix,” Lundberg said of Coffman’s push.

The proposal isn’t generating any push-back from the nonprofit sector.

“The Colorado Nonprofit Association supports enforcement of charity regulations that protect the nonprofit community and charitable donations,” said Renny Fagan, president of the Colorado Nonprofit Association. “While the attorney general is seeking to create this unit, it’s really to catch up to the workload they have rather than to respond to more frequent cases of fraud.”

Coffman, a Republican, said she would monitor the new unit if it’s established and would phase it out if it’s not needed. She noted that her office plans to reallocate some of the resources dedicated to fighting mortgage fraud to consumer fraud because the number of mortgage fraud complaints to her office has dwindled from a high of 1,185 in 2012 to 277 this year as the housing market has recovered. She said her office receives about four complaints about charities each month.

“We’re not interested in pursuing a community charitable organization that makes mistakes in how it accounts for proceeds,” Coffman said. “We’re interested in educating folks like that. We are targeting those who go out to defraud donors and take money from unsuspecting folks.”

Coffman pointed to her office’s 2013 lawsuit against the fake nonprofit Boobies Rock! as the type of fraud that can proliferate without proper oversight of charities by her office. The founder, Adam Shyrock, sold T-shirts, hats and other goods with the promise that the money would go to charitable organizations fighting breast cancer.

“In fact, the vast majority of that went to support the business owner’s lavish lifestyle, including his dating service and his bar tab,” Coffman said.

In January 2014, Shyrock was ordered to spend six months in jail for violating a 2013 court order barring him from selling merchandise for any charitable cause. Shyrock also pleaded guilty in May to another bogus charity scam after prosecutors in Adams County accused him of pocketing $1 million. He told donors that mattresses he obtained under a warranty program were being distributed to refugees.

“To me, this is some of the worst fraud that people can commit because the resources they are stealing and converting to personal use are resources that aren’t going to the people who need that money,” Coffman said.