MANHATTAN (CN) – An accounting firm vowed to fight back Tuesday after New York authorities alleged that its work helped shore up a bogus breast cancer charity that raked in more than $18 million in donations over the years.
“Blaming the accountants when they were misled repeatedly by the fraudsters is not only grossly unfair to people of integrity who had no knowledge of the fraud, but it is also an egregious misreading of the New York charities laws,” said Tim Gilles, a spokesman for the accounting firm McEnerney, Brady & Co. “Moreover, the onerous standards demanded by this lawsuit, which have not been adopted by any state legislature, would impose catastrophic cost increases on auditors that would inevitably be passed on to their honest charitable clients.”
Filed Monday in Manhattan Supreme Court, the complaint against McEnerney Brady came nearly a full year after state authorities shut down Breast Cancer Survivors Foundation as part of Operation Bottomfeeder.
Accused of running a sham charity, the foundation settled with the state last June for $350,000.
But the new complaint says New Jersey-based McEnerney Brady and and its owner, Edmond Brady, must pay up as well for willfully perpetuating the scheme.
New York Attorney General Eric Schneiderman lobbed the lawsuit here mere hours before tendering his resignation on the heels of blockbuster abuse allegations.
Among other things, he says McEnerney Brady inflated the value of the foundation’s charitable services by more than 300 percent, hid internal control failures, and filed misleading audit reports.
Both Brady and his firm “were fully aware of every part of this scheme,” including that it was merely a shell company set up for the benefit of its principal, Mark Gelvan, the 32-page complaint continues.
Gelvan, who had been sanctioned by a number of state authorities for questionable fundraising practices, needed to show New York authorities unqualified audit opinions verifying the foundation’s financials.
The complaint says McEnerney Brady helped him to just that beginning in 2010.
For years Brady’s firm provided audit reports to state regulators that departed significantly from generally accepted accounting principles and overlooked fraudulent activity, including the fact that the foundation’s board never met and the foundation had no physical office, authorities said.
The firm glossed over hundreds of thousands of dollars worth of fictitious mammograms and never verified that the meetings and conferences for breast cancer survivors that the foundation claimed to have held ever occurred, the complaint says.
At one point, Schneiderman says, two members of Brady’s accounting team put together a five-point document detailing their concerns with the questionable audits, noting the foundation had no source of income other than “professional fundraising contributions.”
“Each year, Brady reviewed and signed off on BCSF’s work papers, despite [these] blatant red flags,” the complaint states.
State authorities contend that Brady and Gelvan worked together for years, with MBC providing accounting services to Gelvan and his family members, as well as at least nine other companies Gelvan controlled.
As Gelvan was forced to shutter other fake charities, he would then restart identical fundraising using new corporate entities, for which MBC provided accounting advice, the complaint states.
When BCSF began to file its financial statements, the foundation told McEnerney Brady to use Gelvan as the primary contact, using information he provided and allowing him to tweak the foundation’s financials, authorities stated.
Brady and his firm knew that relying solely on Gelvan, who acted as the charity’s primary outside fundraiser, violated accounting industry standards, and that they “should be communicating with individuals charged with governance” of the charity, the complaint states.
The complaint also quotes Brady as having testified under oath that Gelvan had “undue influence” and that it was “not good” that his firm relied on Gelvan.
Schneiderman says Gelvan and Brady expanded the fraud in 2011 by scheming to “double report” the foundation’s charitable activities, thus inflating the value of BCSF’s charitable program services by more than 300 percent and minimizing the amount spent on fundraising.
As quoted in the complaint, Gelvan emailed Brady in 2012: “were you able to adjust the numbers based on the discounted price on mammograms the organization received?”
Gelvan, who operates fundraising consulting company Outsource3000, has been permanently barred from directly fundraising or using third-party fundraisers in the state.
He gained notoriety from a number of now-closed charities, including Woman to Woman Breast Cancer Foundation, which shut down in 2012, and Community Support Inc, which was targeted by 32 state regulators in 2009.
Court papers say accounting firm PFK O’Connor Davies, which took over McEnerney Brady in 2015, has since “disengaged from all Gelvan-related clients and any charities that Gelvan referred to MBC.”
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