Former D.C. councilman Harry Thomas Jr. makes a statement to the media following his guilty plea. (Jahi Chikwendiu/WASHINGTON POST)

The embezzlement scheme engineered by Harry Thomas Jr. has resulted in a three-year prison term for the former D.C. Council member and guilty pleas from others who helped him. But the fallout also extends to the city-funded nonprofit organization that played a key role in the fraud.

Thomas used the Children and Youth Investment Trust Corp. to divert more than $350,000 he had earmarked for youth baseball programs; with the funds, he purchased items that included a luxury sport-utility vehicle and a flashy Victory motorcycle. Now, more than a year after Thomas pleaded guilty to theft and tax charges, the trust is fighting to rehabilitate and reinvent itself amid suggestions that it should be shuttered.

Created in 1999 as a mechanism to leverage public funds to raise private dollars for youth services, the trust has been unable to generate significant private investment in the past three years. Coupled with the questions raised by the Thomas investigation, which contributed to a perception that the trust served as a slush fund for D.C. politicians, its reliance on government funding has one prominent council member suggesting the trust’s function might be better handled inside the D.C. government.

“I think it might be time for us to say, ‘This is what you are: You talk like a duck, you walk like a duck, you fly like a duck — you’re a duck,’ ” Jim Graham (D-Ward 1) said at a Monday council hearing.

But its new board chairman, Robert C. Bobb, and executive director, Ed Davies, said that the trust can succeed at its original mission and that they are renewing attempts to win investment from philanthropic and corporate funders while moving to make the group about more than grantmaking.

“We don’t want to just be a pass-through anymore,” Davies said in a recent interview. Children and Youth Investment, he said, has focused on providing staff training for nonprofit groups and government agencies and improving its process for evaluating whether the programs it funds are effective.

To win new private funding, trust leaders are making the case that the organization has put the Thomas affair and days of lax oversight behind it. The move has the potential to quell critics who question the trust’s existence because of governance issues and its difficulty in raising private funds.

On Monday, the trust released the results of an audit of its fiscal 2010 finances, long delayed because of the Thomas investigation. Independent auditors found “certain deficiencies in internal control over financial reporting,” including poor oversight of corporation accounts, missing grant documentation and lax monitoring of trust grantees.

Audits for 2011 and 2012 remain incomplete.

But Davies said that reforms are in place. For instance, if an organization receiving funds from the trust can’t document how it plans to spend the money, it doesn’t get the funds, he said.

“The bottom line is we can’t stop someone from stealing money in a sense if that’s what they want to do,” said Davies, who was named executive director in November. “What we can do is police it and do a better job of catching it.”

Still, the debate continues over whether the reforms should extend to changing the organization’s governance structure. Its board, backed by Mayor Vincent C. Gray (D) and many of the nonprofit groups running youth programs in the city, say more distance should be put between the trust and elected officials. Graham, on the other hand, points to the trust’s reliance on government funds as a reason for closer oversight. He even briefly sought to have himself appointed to a nonvoting board seat in January.

Earlier in its history, the trust successfully received private investment, including an $8 million, three-year grant from the Wallace Foundation in 2006.

“We were reaching for the stars here, and we were doing it,” said Diane Bernstein, the trust’s founding vice chairman. “Only when the policy people stepped in did things start to go downhill.”

When Adrian M. Fenty (D) took office as mayor in 2007, Bernstein and then-Chairman John W. Hill Jr. were replaced by several Fenty administration officials. What was originally intended to be an independent grantmaking organization evolved into a means for political appointees to funnel money to pet projects, Bernstein said.

As the trust became increasingly politicized, outside funding dwindled. “That’s when the decay started to happen,” Bernstein said. She said it needs to be “public and private, or it’s not going to work.”

Graham has requested that a panel of nongovernment experts devise a new governing structure for the trust. No movement has been made on that front, although Bobb, who is a former city administrator, endorsed the idea for the first time Monday.

“Right now, we have a government agency . . . masquerading as a nonprofit,” Graham said. “To have every board member appointed by elected officials is not a nonprofit, at least not the kind of nonprofit I’m familiar with.”

The trust finds itself in a Catch-22: An independent board protected from potential government influence would ease private fundraising. But to Graham, earning that autonomy depends on the trust proving its ability to find private funders. “I don’t know how long we go on saying you’re going to raise millions of dollars from the private sector without it happening,” he told Bobb and Davies at the hearing Monday.

And as long as the trust remains a political football that will be difficult, said Maggie Riden, executive director at the D.C. Alliance of Youth Advocates, an independent youth-advocacy organization.

“Until there’s a change in the leadership structure so there’s a clear division between public and private,” she said, “we’re not going to see private funders come back to the table.”