Is this fraud or theft?

Looking for some free or cheap legal advice...

A friend was the executive director of a non-profit. He resigned and THOUGHT that he had passed control over to someone else. Unbeknownst to him this person did nothing to transfer control, didn't elect a new board, didn't file the required paperwork with the IRS, etc. He did, however spend approximately $3000 that was in the non-profit's bank account.

Now that my friend has had the organization plopped back on his lap and this other person is claiming that they have no authority to dissolve it. Best of all, this other person has sicced a lawyer on my friend telling him to not try to contact this stupid fucker that he had entrusted with an organization that had a very solid reputation and is now a hollow shell.

My thought is to call the police and report a theft of funds from the organization. If this person has no authority over the organization how the hell did they manage to spend the money in the bank account? At minimum I would think that they committed a fraud upon the bank by asserting control over an account that they didnt actually have..

C'mon readers ... thoughts?