CAMDEN, Maine - The theft of nearly $4 million from a Mid-coast charity, according to some outside observers, raises troubling questions about the organization's governance procedures and the conduct of its volunteer board of directors.
Former President Rusty Brace stands accused of embezzling the money throughout most of his 17-year tenure running United Mid-Coast Charities. UMCC's new leader says there's little that the board could have done, in hindsight, to stop Brace. But some question that assumption.
Over the summer, Rusty Brace appeared on Love Maine Radio, an Internet podcast produced by Maine Magazine. In the interview, days before a big fundraising gala for non-profits on the Mid-coast, Brace talked about how United Mid-Coast Charities operated.
"We're an all-volunteer organization. And our modest expenses are paid by a separate endowment," Brace said. "So we have kind of a formula there that really works. And it's really attractive to many of our donors."
In philanthropic circles, a seat on the charity's board was an honor, a sign of status. And Brace, UMCC's former president, spent years cultivating a large network of wealthy, well-connected people who gave to the organization and volunteered to serve on its board. "We have 45 directors. There's a management challenge for you," Brace said.
Here's how UMCC handled that challenge: Brace met a few times a year with the board's executive committee. The full board, meantime, got together during the summer to make recommendations on where UMCC's annual grants should go. Brace raised all the money. Steve Crane is UMCC's current president.
"The day-to-day management of this organization - most directors weren't involved with it," Crane said. "They didn't have the time and they weren't signed up to do that."
That's standard practice at non-profits, large and small. At UMCC, those duties, Crane says, were left to Rusty Brace, the charity's sole employee. "So you have a certain amount of faith and trust in your president. When the mail would arrive in the office, he would take the mail and open it."
And many days, the mail would include donations. Crane says Brace, and Brace alone, was in charge of depositing those checks. "That's where he separated out checks, rather large checks, and kept them for himself," Crane says.
In late September, Brace admitted embezzling nearly $4 millon over a 13-year period, after Crane and another board member uncovered donations that had never made it into the charity's books. Liens have been placed on Brace's bank accounts and real estate holdings. UMCC has filed a civil lawsuit, seeking recovery of the stolen funds. The FBI is investigating.
Meantime, the case has raised serious questions about UMCC's governance procedures and the conduct of its board of directors.
"Let me be clear. There can always be a theft," says Maine Assistant Attorney General Linda Conti. And Conti says sometimes all the laws and regulations in the world can't stop a determined thief. Conti oversees the Consumer Protection Division of the Maine AG's office.
"Having said that, I think it's a classic example of board failure," Conti says. "The board is responsible for the executive director. The executive director is the employee of the board. It's not the other way around."
On its website, the consumer protection division offers detailed guidance to board members of charitiable organizations in Maine. The tips are broken down into categories. One, entitled "Safeguard Charitable Assets," suggests that boards require and review monthly financial reports from those running organizations like UMCC.
"We had internal, quarterly financial reports done by our treasurer. You'd see if there was something that didn't make sense," Steve Crane says. He says any checks written by the charity to another organization needed two signatures, another step recommended by the state.
"And we had an outside auditor, outside CPA, that reviewed the books. Any of these charities, that's probably about standard what they do," Crane says. "We weren't doing anything less or anything more than the average. Maybe a little bit more, actually."
But a closer examination reveals red flags. The state recommends that charities have conflict-of-interest policies. UMCC didn't, and allowed Kax Office Center, owned by Rusty Brace's wife, to handle all of the charity's bookkeeping. The organization didn't have directors and officers liability insurance for its board. There were no term limits for directors or for the president.
And Crane says Brace, despite being trusted implicitly by the board and the wider Camden community, did display some worrisome character traits. "He was controlling," Crane says. "He didn't like to release a lot of information to the board. In hindsight, we should have been asking more questions, probably."
"One of the issues that I see, with boards, is that board members stop asking questions pretty early," says Marc Pitman. Pitman's company, Nonprofit Academy, trains executives worldwide in fundraising and non-profit management.
Too often, says Pitman, board members just assume that information that's been presented to them is accurate. The UMCC case, he says, is a real head-scratcher. Some checks and balances existed. Others were missing. Board's aren't supposed to micro-manage CEOs. But what if the CEO is the organization's only employee?
"I've never run across something like this," Pitman says. "What's scary about it is that it seems all too plausible."
UMCC, meanwhile, has hired a consultant to overhaul and strengthen its governance policies.
CORRECTION: This story originally stated that UMCC is the United Way of Mid-Coast Maine. UMCC is not affiliated with United Way.