College Admissions Scandal Reveals Why It's So Easy to Run a Shady Charity

Illustrations by Lars Leetaru

Operation Varsity Blues exposed not only a scam involving Felicity Huffman, Lori Loughlin and more but also how Rick Singer's scheme was abetted: "It's really hard to weed out bad actors."

From parenting to privilege, the college admissions cheating scandal has exposed a number of sensitive cultural flash points. One less-discussed issue that was revealed is the absence of accountability in the American nonprofit world.

The Department of Justice alleged in its indictment that scheme mastermind William "Rick" Singer — who pled guilty in March to, among other charges, racketeering and money laundering conspiracy — used a nonprofit entity associated with his for-profit firm as a way to funnel money from parents to SAT test proctors. (Most often, fraud involving charities is connected to self-dealing.)

According to philanthropic oversight experts, Singer's apparent purpose with his Key Worldwide Foundation was to offer clients an amenity: Their bribes were tax-deductible. "There was a charitable aura to it," says James Allen Smith, vice president of the Rockefeller Archive Center, which holds the papers of various philanthropic institutions. Adds Ray Madoff, co-founder and director of the Boston College Law School Forum on Philanthropy and the Public Good: "These 'gifts' are intimately tied into the discussion of wealth inequality."

The nonprofit sector is nominally self-policing. State attorney general offices and the IRS rely on whistleblowing tips and news reports to trigger investigations. "Neither of those bodies have a lot of resources to regulate," says James M. Ferris, director of the Center on Philanthropy and Public Policy at USC, explaining that the state and federal systems rely on public input rather than a proactive enforcement mechanism.

The lack of governmental guardrails may be why there's no precise data available on the scale and shape of malfeasance in the nonprofit world. But those who focus on the issue believe "there are lots and lots of instances of using charities for personal gain," says Aaron Dorfman, president and CEO of the National Committee for Responsive Philanthropy, a nonpartisan D.C. think tank, who adds: "It's really hard to catch and weed out the bad actors."

High visibility helps. One prime example that Dorfman points to is the Trump Foundation, which was shut down in 2018 under New York court supervision after a Washington Post investigation turned up ethical and legal violations. Donald Trump's presidential run two years earlier had sparked the probe.

In theory, accountability in the charity sector rests with each organization's board. Directors are supposed to be principled fiduciaries who will alert authorities to misdeeds. "It's important that they're the first line of defense," says Elizabeth Boris, director of the Center on Nonprofits and Philanthropy at the Urban Institute.

The most recent publicly available Form 990 tax return for Singer's foundation shows that there were only three board members, near the minimum requirement in California. None of them worked even a single hour a week on Key. These facts would've been red flags for watchdog agencies — if their mandate had been proactive vigilance.

This story first appeared in the July 10 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.