Goodwill Looting: California Scam Yields Lessons for Charity Managers

Big-time embezzlement and fraud at a well-known charity. Millions of dollars in cash stashed in office drawers, closets, and secret accounts. Family ties forged in poverty, tempered by crime, and sundered by revelations made during a bitter divorce. Money laundering. Suicide.

It sounds like a made-for-television drama, but it is a real-life scandal that has been unfolding over the past few months at Goodwill Industries of Santa Clara County, Cal. The organization, based in San Jose, is one of 187 autonomous local Goodwills in the United States and Canada.

At the center of the scheme was the systematic looting of millions of dollars from the local charity’s retail operations. The Goodwill’s 10 stores last year generated $11.5-million to pay for employment training, vocational rehabilitation, and job placement for the poor and disabled.

Six of seven people — five of them siblings and all related by blood or marriage — have pleaded guilty or no contest in the scheme, which prosecutors say involved the theft of at least $15-million. The director of store operations for the Goodwill, described by prosecutors as the scheme’s initiator and organizer, killed herself last October as authorities began closing in. And late last month, as the charity continued to implement a series of new financial and security controls, a high-level executive of the local Goodwill, Robert Sasson, was asked to resign amid questions about his professional conduct.

“The overall reaction is shock,” says Fred Grandy, chief executive officer of Goodwill Industries International in Bethesda, Md., a $1.2-billion organization founded 86 years ago by a Methodist minister. “We can’t find another incident in our history where there has been this cunning a scam.”

And cunning it was. According to interviews with the Santa Clara County’s District Attorney’s office, Linda Faye Marcil, 43, helped manage a theft ring that included her three sisters, Bonnie Marcil, 41, Ellen Salas, 40, and Dale Rice, 33; a brother, Clifford Miller, 32; and Michael Mitchell, Bonnie Marcil’s 19-year-old son. All six have pleaded guilty or no contest.

Linda Faye Marcil, born poor in rural Virginia, came to San Jose years ago and later brought her sisters to California, getting them jobs at Goodwill, where, embezzlement aside, they helped to turn around the charity’s ailing finances.

The elaborate swindle came to light when Jeffrey Marcil, Bonnie’s husband and the seventh person charged in the scheme, divulged it to authorities last fall during a bitter divorce and custody battle.

Prosecutors say the scheme began small in the mid-1970s and kept growing, reaching its last, most extensive stage three or four years ago. It operated on several fronts. Authorities say the culprits skimmed money from cash registers and also sold donated items by the barrelful to private dealers who pulled their semitrailers to the rear of Goodwill’s stores. The Goodwill embezzlers kept the proceeds, and the dealers sold the goods in Mexico, authorities say.

Much of the stolen money was laundered through a pair of dummy companies, prosecutors say.

The culprits even paid $30,000 a week in small bills to an underground work force of perhaps 100 people to help carry off the scheme, according to prosecutors.

Investigators are still totaling up the losses. They found more than $400,000 in cash in Linda Faye Marcil’s home and office and more than $1-million in accounts held by Carol Marrs, the Goodwill official who committed suicide. It remains unclear how much of that money belongs to Goodwill. Altogether, the Santa Clara County District Attorney has seized $2.1-million in houses, personal property, cash, and investment accounts. The local Goodwill has sued to recover its losses.

“What happened here,” says Mr. Grandy, a former Republican congressman from Iowa and one-time star of the television series The Love Boat, “is that a sophisticated group of criminals preyed on the public trust.” The operation went undetected, Mr. Grandy adds, “because they were so good at setting up what amounted to a phantom Goodwill.”

While few would doubt Mr. Grandy’s characterizations of the scandal as extraordinary and complex, the episode also demonstrates what can happen when a charity has few management and financial control systems in place.

To say there were no clues to the scandal is “ridiculous,” says Stephen Lowney, deputy district attorney in Santa Clara County. “You’re talking about huge semis being backed up to stores every day for eight hours a day, loading barrels onto trucks, and a work force out in back sorting barrels for 10 hours a day for years.

“If you’re familiar with the retail operation at all, you’d have known something was wrong,” he says. “Anyone with day-to-day visits to stores would be aware of it. There’s no way around it.”

Hugh D. Barnett, chief executive of the Santa Clara County Goodwill, has not been a target of investigators. “We have seen absolutely no information to date to suggest Hugh Barnett had knowledge of the conspiracy,” Mr. Lowney says, adding that Mr. Barnett’s broad management role would rarely take him to the stores.

But Mr. Sasson, who has not been charged in the case, may be another matter. The scandal is marked by startling tales of manipulation of Mr. Sasson, who as vice-president of retail operations was in charge of the stores.

Years ago, for example, Mr. Sasson was instructed by then-chief executive Andrew L. Liersch, who served from 1976 to 1994, not to visit the outlets, Mr. Barnett says. “He was told never to set foot in the stores, talk to the managers, or to Carol Marrs.”

Mr. Lowney says he intends to interview Mr. Liersch. The Chronicle could not reach Mr. Sasson for comment.

Mr. Barnett says that upon taking over as chief executive, he told Mr. Sasson to exercise his management powers and subsequently assumed that he was doing just that. But, Mr. Barnett now says that Mr. Sasson was the sort of manager who “didn’t want to admit he wasn’t always on top” of things.

Not only that, prosecutors say that Mr. Sasson signed an agreement declaring that he and Ms. Marrs knew that goods were being sold to dealers at stores and that Linda Faye Marcil was taking money home from the stores. When investigators found a huge sum of cash in Ms. Marcil’s home, she told them her bosses knew she was keeping Goodwill money at her house, prosecutors say. Mr. Sasson said he signed the paper because Ms. Marcil had threatened to resign and take her sisters and other staff with her at the busy Halloween season, according to Mr. Barnett.

“He signed it and said it was under duress,” he says of Mr. Sasson, “but nevertheless he shouldn’t have.”

Mr. Barnett says there was no reason to think anything was amiss before the scandal came to light. The Santa Clara Goodwill was financially successful, he says.

“This Goodwill was a magnet for other Goodwills to come and learn how to retail,” Mr. Barnett says. “Sales per square foot were among the highest for Goodwills in the country.”

In addition, Mr. Barnett says, annual financial audits by a major accounting firm turned up no sign of trouble. Alan Richter, chairman of the charity’s board and a member of its finance committee, agrees. “There were no indications that anything was going wrong,” says Mr. Richter, a San Jose utility-company engineer.

Yet, Mr. Barnett acknowledges, a 1989 audit report by the accounting firm of Arthur Young expressed concern about “cash-register procedures.”

That instance points up the delicate role that non-profit boards play as overseers of charity management. A board’s chief responsibility is usually to guide the broad direction of a charity and to monitor its outside financial audits. Members rarely get involved in such day-to-day management issues as employment policies and cash-management strategies. Yet it is precisely in those arenas that clues to a nascent scandal often reside.

“I don’t think attention was being paid, and I guess the board didn’t ask whether top management was paying attention” to Goodwill’s business practices, says James Bausch, president of the National Charities Information Bureau.

Judith O’Connor, president of the National Center for Nonprofit Boards, says board members should always ask “the tough questions” of management if they have the slightest sensation of confusion or discomfort about the charity’s operations.

“One of the toughest issues boards face is the relationship to the chief executive and its responsibility to understand what’s going on in an organization,” she says.

If a charity’s board of directors is one main line of defense against fraud, regulatory oversight is another. But in the case of the Goodwill scam, the California attorney general or other watchdog groups seemingly had little or no reason to suspect wrongdoing. “Regulators are terribly understaffed and overworked, and to do that kind of oversight would require a regulatory force that would make the old Soviet Union come to mind,” says Mr. Bausch.

What might have stopped the scam cold was a strong set of business and financial controls. But Mr. Barnett says it was not until the scandal at the California Goodwill became known that a series of safeguards were implemented — ones that are common to commercial retailing operations that do millions of dollars in business each year.

The Goodwill now has hired a “shopping service” that provides undercover security against thievery in the stores; assigned to the retail division a full-time internal auditor who will crosscheck sales transactions and make unannounced visits to stores; recast its nepotism policy so that no close relatives can work in the same division (such as retailing); installed an “ethics” or “fraud” phone line, run by an outside service, on which employees and patrons can report misdeeds; and spent $50,000 on a new cash-register system, linked to a central computer, that Mr. Barnett says “makes it virtually impossible to alter any register tapes at any location.”

The Goodwill also is studying ways to improve its system of charting inventories of donated goods, especially items valued at about $100 or more.

In addition, the Goodwill hired the Los Angeles fraud office of Arthur Andersen to study the charity’s business controls. The accounting firm came up with 25 recommendations, Mr. Barnett says. “We’ve implemented them all or are in the process,” he says.

If there is a major lesson in the Goodwill scandal — one that rises above even financial controls and sound personnel policies — it is the importance of managers’ being in touch with the ground level of the organization: knowing the lunchroom gossip, mingling with the rank and file, seeing firsthand how the organization operates day by day.

“There is no excuse for not getting out frequently — or as frequently as possible — and observing what’s going on,” says Mr. Barnett. “What I’ve learned is that I’m going to look more with an eye to what somebody might be doing rather than just visiting and looking and complimenting people when they’re doing something well.”

In the wake of the scandal, the Goodwill has experienced an outpouring of support from the San Jose community. Donations — and revenue — have been rising. “In the last two weeks we’ve turned away people” from collection stations, Mr. Barnett says.

Still, Mr. Barnett says he remains haunted by the fact that the scandal almost didn’t get uncovered.

“What I look back on now is that this came to light because of a disgruntled husband in a divorce situation with one of the sisters,” he says. “I hesitate to think, Gee, if he hadn’t done that, how long might this have gone on?”