IV. The Baptist Foundation of Arizona – A Case of Proper Fund Accounting Ignored and Manipulated
Another major accounting scandal, and prelude to Andersen Accounting's participation in Enron's anomalous deals, was the illegal securities trading committed by the Baptist Foundation of Arizona (BFA).
BFA was the endowment managing arm of the Arizona Southern Baptist Convention (ASBC). It was a movement started in 1948 by a Baptist minister under tumultuous conditions, but it was continued under a renewed leadership by Bill Crotts, the Baptist minister’s son, in 1982.
Instead of relying on solicited endowments, Crotts cooked-up a scheme where the not-for-profit BFA could easily generate the funds it needed in order to build Baptist churches and carry on with philanthropic church's works for Arizona’s poor sector. Initially, Crotts borrowed substantial funds from the ASBC, and later he convinced an estimated 11,000 elderly church members to invest their life’s savings and retirement funds. BFA's annual financial statements presented fairly good track records of its past achievements.
Unknown to those investors, BFA’s fraudulent scheme involved bogus for-profit companies created by Crotts and his cohorts. These fake companies received the investments and used the funds in assuming the roles of buyers in BFA's real estate buying and selling deals.The shady deals made possible the transfer of the church members' investments into the coffers of BFA as legitimate cash inflow.
In truth, BFA was heavily indebted up to $100 million by the year 1999, and its actual losses reached $585 million because there were no actual profitable real estate deals--only fake transactions. In addition, BFA’s real purpose, which was building churches and helping poor members of church congregations, was forsaken for self-serving purposes.
Please proceed to the next page for the continuation of the BFA accounting fraud overview.