Accounting scam bilks Malibu nonprofits

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Topanga Film Festival, Vital Zuman Organic Farm and three groups operated by environmental activist Marcia Hanscom are among at least eight Malibu-area nonprofit organizations left scrambling after their funds went missing in January.

By Jimy Tallal / Special to The Malibu Times

At least eight Malibu-area noprofit groups report losing funds with an umbrella organization after it abruptly closed its offices, took down its website and notified clients by mail it was closing last month. Pacific Palisades-based International Humanities Center (IHC) is under investigation for nearly $1 million in missing funds belonging to more than 200 nonprofit groups.

Local nonprofits who had money with IHC include the Topanga Film Festival, Vital Zuman Organic Farm, the Topanga Creek Watershed Committee and three groups operated by environmental activist Marcia Hanscom.

“It’s quite devastating. We have no hope of ever getting our money back,” said Urs Baur of the $20,000 his Topanga Film Festival nonprofit group had with IHC.

Like Baur’s group, many small or start-up non-profit groups who don’t want to deal with the bureaucracy of obtaining a 501©(3) tax exempt status from the IRS contract with a “fiscal sponsor.” The sponsor has 501©(3) status and serves as an umbrella organization for small groups that don’t have the staff to deposit charitable donations and grants in restricted accounts, disburse payments or take care of other administrative matters. In exchange for these services, the fiscal sponsor takes each group on as a separate “project,” charging five to ten percent of its donations as a fee.

One such fiscal sponsor was International Humanities Center (IHC) with offices in Pacific Palisades, headed by Executive Director Steve Sugarman of Topanga Canyon. Eight local groups had ties to IHC.

Most sponsored groups had no idea IHC was in financial trouble until they received two somewhat bizarre letters from Sugarman—-one in December 2011 and another in January 2012.

Ben Alanoff, Chairman of the Topanga Creek Watershed Committee, said the letter “immediately seemed fantastic, if not psychotic; informing us way after the fact that he’d been using our money. They had no right to dip into anybody’s fund. Now, in addition to the loss of money, we’ve lost our non-profit status until we sign up with another [fiscal sponsor].”

After receiving the first letter, Alanoff made a request to cash out, but IHC never responded.

Malibu’s Vital Zuman Farm fared better than most, because they didn’t actually process any donations through IHC. Allan Cunningham, manager of the organic farm, said that “three to four months ago, it looked like they were having problems, because I received an anonymous e-mail about it.”

Marcia Hanscom told the Los Angeles Times that she had known Sugarman for 20 years, and that “he was really committed to doing work for people and the planet.” Her three groups had about $2,000 in donations with IHC, which she assumed was gone.

The story of what really happened at IHC is slowly being pieced together by the authorities. Several sources have reported that the state Attorney General’s office has begun an investigation into what happened to the missing million dollars; and have begun contacting some of the 200 groups affected to gather information. The IRS and the FBI may also get involved. Sugarman has apparently not been found, IHC’s offices are closed, the company’s telephones are out of service and the website is gone.

Some groups were told by a consultant that IHC had spent their money on legal fees, back taxes and penalties, and $12,000 per month in office rent, according to the Times. However, IFC wasn’t legally allowed to touch any of its clients’ funds for any reason, and certainly not to pay its own questionable operating expenses. The Nonprofit Quarterly reported that the missing amount is almost certainly over $1 million, because of donations that came directly to the Center that the groups never saw or heard about.

In the meantime, 200 struggling non-profit organizations have been left at square one, with no funds to support the work they were trying to accomplish.

“It’s horrible,” Baur said. “We were in the process of setting set up our own 501©(3) under the name Topanga Film Institute; and had been trying to transfer money out of the Center from Topanga Film Festival, and had been getting the runaround [from IHC]. We had a very bad feeling about the organization over the last year. We don’t know how [the missing $20,000] will impact this year’s film festival. But we have tremendous community support; so maybe we can leverage that into some fundraising.”

Alanoff said he felt betrayed.

“Sugarman actually lives in Topanga,” Alanoff said. “He was part of the community.”

Malibu nonprofits that lost money in accounting scandal:

The Topanga Film Festival

The Malibu Realtors Charitable Fund

The Topanga Creek Watershed Committee

Vital Zuman Community Farm

Topanga Peace Alliance

The Ballona Institute

Coastal Law Enforcement Action Network (CLEAN)

The Wetlands Defense Fund