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It must be tough to be a member of the board of directors for the Metropolitan Washington Airports Authority (MWAA) lately. There are numerous headlines blasting insider deals and lax travel policies. A former board member has gotten the boot after headlines ballyhooing how she obtained a full-time job with a salary of $180,000 a year to be an “advisor” with full benefits. The airports authority is adopting stricter travel policies and spending policies in the wake of such embarrassing details as a $9,000 plus ticket for one board member to travel to Prague. A stricter ethics policy is also being discussed by the board. Link to the NBC article: http://www.nbcwashington.com/blogs/first-read-dmv/Airport-Authority-Setting-New-Rules-168596246.html
The Federal Form 990 informational return filed by most nonprofit organizations, which is open to public inspection, covers every area mentioned above. Transactions with interested parties, conflict of interest polices, compensation of former board members are all revealed in the public return filed annually by nonprofit organizations. Good governance suggests the entire board should review a Form 990 before it is filed with the IRS, and during such a process issues such as these come to light for the first time for many board members. If the MWAA were a nonprofit organization required to file a Form 990, these shady deals and lax policies may have come to light for the board members much sooner, and possibly without all the headlines.
California officials are taking aggressive action against Help Hospitalized Veterans, a nonprofit whose stated mission is to bring arts and craft kits to patients in VA hospitals. The State Attorney General’s office filed a civil lawsuit Thursday that demands the removal of the president and entire board of directors and asks for more than $4 Mil in reparation due to alleged misrepresentations and misspending.
CNN reports that nearly two-thirds of the charity’s revenue went to overhead and excessive officer compensation with perks such as golf club memberships and D.C. area condos. The complaint also alleges that funds were unlawfully diverted to start another nonprofit with a mission unrelated to veteran support.
It isn’t the first time Help Hospitalized Veterans has been in the news. In 2008, the House Committee on Oversight and Investigations discovered the nonprofit’s former president, Roger Chapin, purchased a condo with donated funds and received $1.96 million in pension payments.
The new lawsuit alleges Chapin was paid out in excess of $2.3 Mil from 2002 to 2009 and that the current president, Michael Lynch, has been paid more than $900K, more than a third of which was just in 2010.
The charity received more than $31 Mil in donations in 2010. The value of the kits it distributed was reported as approximately $8 Mil.
Unfortunately, this is starting to be a recurring theme in veteran support related charities. In June, the Disabled Veteran’s National Foundation was being investigated by the Senate Finance Committee on similar allegations. It’s clear the American people want to contribute support, it’s also clear that certain groups will take advantage of that.
Thomas Nelson was, until recently, the Executive Director of a York County, Maine nonprofit that provides services to low-income residents. It was a position he held for 21 years. He’s now awaiting sentencing after copping a plea arrangement in federal court, agreeing to pay restitution of $1.2Mil to the nonprofit and $150,000 to the IRS for tax evasion. He stands to receive up to 10 years for embezzlement, 5 years for conspiracy, 5 years for tax evasion, and 3 years for signing false tax returns.
How’d he do it? He arranged over-payments to a consulting company that gave him kickbacks and he also diverted money to a defunct nonprofit where he had served as treasurer. He used the money to pay his mortgage and cover gambling debts. There was only one invoice from the consulting company over the time of the collusion but it was for $8,700, not the $413,000 they were paid.
He claimed he avoided diverting federal money because he knew government funds are subjected to greater scrutiny.
The board has been reviewing its financial oversight practices and is “very disappointed.”
Read more about it in the Portland Press Herald
An Op-ed piece by Michael Peregrine at the Chronicle of Philanthropy provides a good reminder about why it is so important to pay attention to CEO expense account spending. The head of the foundation of the University of Texas Southwestern Medical Center, Dr. Wildenthal, is stepping down after an internal investigation concluded inappropriate spending including mingled business and personal purchases.
Dr. Wildenthal led the foundation for 22 years before tips reporting lavish international travel, fine wines and other extravagances spurred an internal investigation. Peregrine states “the entirety of the report leaves an impression – fairly or unfairly – of a respected executive who developed a sense of ‘entitlement‘ based on a record of extraordinary accomplishment.” He notes this created an atmosphere of excessive deferential attitudes to Dr. Wildenthal’s judgment in spending.
There’s only so much an auditor can do if we take issue with the exact nature of spending, in terms of whether this is really best way to meet your program or fundraising objective. We can bring it to the board’s attention but if the board isn’t willing to question it themselves or has bought into an executive’s reasoning for spending, all we can really do is repeatedly point at it. An audit opinion speaks to whether the numbers are free from material misstatement. This does include whether program spending was actually spent on the program (as opposed to personal spa days), but we don’t and can’t actually opine on whether the spending was particularly wise or frugal.
The board bears fiduciary responsibility to monitor spending and make sure there is sound judgment involved. When it comes to nonprofit organizational structures, the board is the highest authority and should not defer to an executive when it comes to questionable expenditures.
Read more of Peregrine’s piece here.
Representative Charles Boustany Jr. (R – LA) has called a hearing of the House Ways and Means Committee scheduled for next week to discuss tax-exempt organizations and concern that the IRS has not been aggressive enough in monitoring charity abuses.
Up for discussion are items outlined in Boustany’s letter to the IRS sent October 6, 2011 as follows:
- How many tax-exempt organizations have been audited since 2008 and what issues were identified?
- How has the redesigned Form 990 increased transparency and accountability?
- Analysis of unrelated business income, revenues and the value of assets held by nonprofits for the years 2008 – 2010.
- What is the process for following up on allegations of excessive political campaign activity?
- Discussion of the level of charity care provided by all hospitals.
Per the Ways and Means Committee website, nonprofits are invited to submit their opinions on the topics by written statement. In order to submit your thoughts, go to the Committee homepage, http://waysandmeans.house.gov, select “Hearings.” Select the hearing for which you would like to submit, and click on the link entitled, “Click here to provide a submission for the record.” Once you have followed the online instructions, submit all requested information. ATTACH your submission as a Word document, in compliance with the formatting requirements listed below, by the close of business on Wednesday, May 30, 2012.The hearing will take place on Wednesday, May 16, 2012, in Room 1100 of the Longworth House Office Building, beginning at 10:00 A.M.
See specific formatting requirements for submissions and more details on the hearings here.
Additional Source: Chronicle of Philanthropy
There’s a lot of finger-pointing and passing the fiduciary buck going on at the Los Angeles Trade Technical College these days and heads are rolling. The executive director of the Trade Tech foundation, Rhea Chung, is being investigated on claims of lavish spending, excessive bonuses, and allegations of forged signatures on checks. The improper spending came to light during a state audit.
File this under Do Not Do This: Included in the questionable spending are items such as: $1,500 monthly car allowance, $22,000 performance bonus, $2,000 monthly pay for running the youth orchestra, tens of thousands of dollars on golf outings and daily restaurant meals averaging $150 a day.
Here goes the finger pointing: Ms. Chung claims all her expenses were approved by the President of Trade Tech, Chip Chapdelaine. Chapdelaine claims no knowledge. Faculty claim they brought the questionable spending to Chapdelaine’s attention and that he ignored it. Chapdelaine stated he never had fiduciary responsibility over Chung, that it was the chair of the board, Darryl Holter’s responsibility. Holter claims Chung reported to Chapdelaine, not to the board. Holter is also under fire for potential conflict of interest and claims personal vendettas are causing all these problems. Faculty of the college and the state education code agree that as President, Chapdelaine bore responsibility to ensure the foundation’s finances were appropriate.
Here goes the head-rolling: Chung is on administrative leave pending further investigation. Chapdelaine removed Holter as chair of the board and Holter, along with another board member resigned. The faculty governing body at the College issued a no-confidence vote yesterday, calling on Chapdelaine to resign. Chapdelaine is declining to comment.
What to learn from this: Don’t make assumptions someone else is responsible or looking. When it comes to public funding, everyone involved owes some fiduciary responsibility but absolutely no one at the top can shirk that responsibility. Review current financial reports regularly. Ask questions about odd spending and follow up – especially if someone else seems to be ignoring it. If you aren’t sure of the chain of command – it needs to be in the by-laws.
Source: L.A. Times
#LATradeTech #fraud #fiduciary #Chapdelaine
Determining whether or not to include some of the particulars and quirks of different medical plans as a component of wages can be tricky. This should help. For the full table click here.
|Coverage Type||Report on form W-2||Do Not Report on Form W-2||Optional
|Dental or vision plan not integrated into another medical or health plan||X|
|Dental or vision plan which gives the choice of declining or electing and paying an additional premium||X|
|Health Flexible Spending Arrangement (FSA) funded solely by salary-reduction amounts||X|
Accounting Today has a slide-show of the most unusual items submitted on employee expense reports. The cojones of people to actually submit some of these is impressive but it serves as a fantastic reminder of why you should actually bother to look at the itemization on your employee expense reports. Examples cited include:
- speeding ticket
- repair costs for wrecking into a toll booth
- movie tickets
- spa day (my personal favorite – it’s like they’ve been reading my email)
And many more entertaining entries. It’s all about the perception of detection people. If employees (or executives, for that matter) know you are looking closely at expense reimbursements, they won’t try to put stuff through like this. Expense reimbursement fraud is rampant in the workplace. Key tips to keep in mind:
- Make sure to get receipts (itemized ones and actually look at them)
- Don’t accept photo copies of receipts (if I photo copy one valid receipt 50 times – I can submit it 50 times)
- Make sure the expense actually makes sense for what that person was doing and that the timing of the expense actually lines up with the timing of their project or travel.
GuideStar, home of all of the public copies of Form 990s filed, has issued its 11th edition of the GuideStar Nonprofit Compensation Report, a large-scale analysis of nonprofit executive compensation based upon IRS data. The report compares 14 job categories and follows trends based on observations of over 87,000 Form 990s filed in 2009. It is available for sale at their website.
GuideStar also has a free document available titled “What You Need To Know about Nonprofit Executive Compensation” that does a good job of detailing what is allowed, what isn’t, and why it’s important. Noting that the nonprofit industry is ripe with examples of scandals involving excess compensation, the document helps explain why organizations need to be careful and how to make sure compensation is actually reasonable.
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