November 11, 2011
PA to Investigate Sandusky's Charity
As the scandal in Pennsylvania continues to unfold, Governor Tom Corbett has called for an investigation into Second Mile, the charity founded by Jerry Sandusky, the retired coach now charged with multiple counts of child sexual abuse. The Governor is quoted as saying, "I need to know what [the charity's] board members knew." According to a story in the Wall Street Journal, Second Mile banned Sandusky from interacting with children in 2008 when he informed them that he was being investigated. Sandusky retired from the charity in 2010. In 2002 Penn State's athletic director told the chief executive of Second Mile about inappropriate behavior by Sandusky, but the chief executive says that he was told there was no finding of wrongdoing and Second Mile took no action at that time.
NY Reviewing Cause Marketing
In connnection with Breast Cancer Awareness Month, a number of companies promise to benefit breast cancer charities with the sale of their products and services. The NY Attorney General has directed the Charities Bureau to send questionnaires to companies and charities to ask about these cause marketing campaigns, to determine whether money was reaching the charities. The Attorney General seeks to protect both consumers and charities, both by shutting down sham fundraising campaigns and through education for consumers. In June, the AG sued to shut down the Coalition Against Breast Cancer, a sham charity, and in August, two defendants pleaded guilty to criminal charges for misusing more than $500,000 donated to the phony charity. The AG provides "tips" to consumers on its website, to guide consumers in making wise choices when buying products or services in response to cause marketing. For the AG's press release explaining the concern, go here.
November 10, 2011
Oregon SCT to Address Church Property Dispute
The Oregon Supreme Court will review a Court of Appeals decision, Hope Presbyterian Church of Rogue River v. Presbyterian Church (U.S.A.), 255 P3d 645 (2011), that reversed a trial court decision involving real property owned by a church. The Hope Presbyterian Church of Rogue River owns a church building and holds title to the real property in its name. The church was affiliated with the United Presbyterian Church of the United States of America (UPCUSA), and in 1983 UPCUSA merged with PCUSA - Presbyterian Church (USA) and as part of the merger, adopted the PCUSA Book of Order. The Book of Order declares that all property held by an individual church is held in trust for the denomination.
The current case arose because in 2007 Hope decided to disaffiliate with PCUSA. A dispute developed around the ownership of the land and Hope brought the suit to quiet title. The trial court resolved the case using the "neutral secular principles" doctrine, looking at the legal documents and disregarding purely church documents. The majority of states follow this approach. The Court of Appeals applied the "hierarchical deference" doctrine, followed by a minority of states, and held in favor of PCUSA. The Court of Appeals also said that under the neutral principles doctrine PCUSA would prevail.
The Supreme Court will decide which of these two doctrines should apply in Oregon and whether a trust was created over Hope's property. The Supreme Court will hear the case on March 5, 2012.
Thanks to Samantha Benton for bringing the case to my attention.
November 9, 2011
David Levinson Has a Suggestion for Kim Kardashian
In an op-ed in the Los Angeles Times, David Levinson, the founder and executive director of the charity Big Sunday, suggests that Kim Kardashian put her money-making talents to work for charity. He suggests that she film the divorce, and give the proceeds to his charity, then re-marry and register on Charity Navigator instead of asking for wedding gifts. He points out the challenges of fundraising these days. He's "been trying to raise $5,000 to fix up the crumbling house of a veteran who did two tours in Iraq" and suggests that Kardashian could raise that amount by "letting us watch you call your lawyer." The op-ed is humourous, of course, but it reminds us of the odd juxtaposition of the needs of so many people in our society with our celebrity culture - their wealth and our fascination with them. And he's right about the power of celebrity status - I googled "charity" on the LA Times website and couldn't resist reading an article that popped up with Kim Kardashian in the title. So after you read the amusing op-ed - and it is amusing - take a look at the Big Sunday website. It looks like a great organization: "building community through community service."
Sole Control of Finances Led to Alleged Theft
The Pennsylvania Attorney General has been busy in recent days. One news release deals with a lack of financial controls in a nonprofit and charges of theft for money allegedly stolen from the nonprofit. Frank Bongivengo and his wife managed the New Caste Youth Football Program and "had sole control of the organization's finances." The Attorney General investigated suspicions involving the finances and after reviewing records turned the case over to the State Police. Criminal charges have been filed against the Bongivengos. As noted in the University of Illinois post, oversight and checks and balances are important.
U of Illinois Reporting Problems Provide a Broader Message
The Paul Pless, the Dean of Admissions at the University of Illinois Law School manipulated data on academic credentials of entering classes and on acceptance rates for some of those classes. The consequences of the manipulation - higher ranking for the school in the U.S. News rankings and a significantly higher salary for Pless whose salary doubled over seven years. There are two messages in this mess, one for law schools and one more generally for nonprofits. An article in today's Chicago Tribune describes the "intense culture" in which Pless worked and the emphasis the school put on the U.S. News ranking. "The college's strategic plans and annual reports focused on that ranking. Pless' salary increases were tied to it. The law dean and other top officials exchanged emails about the benefits of different cominations of test scores and GPA medians to achieve it." Those of us in academia complain about the legitimacy of the rankings, but we know about the importance of the rankings to prospective students, alumni, and potential donors. Pless not only submitted false data, but he also developed a program to admit high-GPA undergrads early, without LSAT scores that might bring down the school's median for reporting purposes. At least one purpose for the program was a way to manipulate the numbers. (Law Dean Bruce Smith notes that a purpose of the plan was to encourage high-achieving Illinois students to stay at Illinois, and that he was disappointed to learn about the reasons behind Pless' development of the plan and about Pless' description of the plan.)
The lesson for nonprofits in general is the importance of checks and balances in connection with any kind of reporting. The importance of a system of checks and balances in connection with financial reporting is well understood, but the Pless case makes clear that having oversight in connection with other reporting is also important. A report, produced by two firms hired by the school, points out that the law school was at fault for "putting unchecked power with one individual and not having controls to prevent or detect abuses."
November 8, 2011
IRS Denies (c)(3) Status to Member Organization
A member organization argued that its members conducted volunteer activities and that the organization provided scholarships. The IRS determined that the activities included more than an insubstantial part of the activities consisted of social and professional events that benefitted the members. Even the scholarships were limited to members. Thus, the private benefit to the members was not incidental to the exempt purposes of the organization. PLR 201143020 provides an interesting (although not surprising) analysis of the findings that the organization conducted member activities that were more than an insubstantial part of the organization's activities.
Gerry Beyer's Trusts and Estates Blog provides a description and links to the PLR, so this posting is for those of you who don't already ready his terrific blog.
Oregon Takes On a Telemarketer
The Oregon Department of Justice has announced "an agreement that resolves accusations of misconduct against an Oregon-based veterans charity and its for-profit telemarketer." A suit was filed in 2010 against Veterans of Oregon & Members of the Community (VOMC) and Associated Community Services, Ind. (ACS), a telemarketer. The suit involved alleged violations of Oregon's no-call law and misleading statements about how contributions would be used.
Among other things, the DOJ suit alleged that VOMC, through their fundraiser, ACS, raised hundreds of thousands of dollars from Oregonians by soliciting donations over the phone "telling donors that contributions would be used to help homeless veterans or veterans with medical needs." Instead, 80% of the fundraising money went to ACS, and only a minimal amount of the remaining 20% went to veterans. The majority of the money VOMC received was used to pay travel expenses of the Director, John Neuman, and other members of VOMC as they traveled around Oregon awarding honorary medals to veterans.
Under the agreement the former director of VOMC cannot serve as a director for two years, and the board agrees to procedures that will insure that donations are spent for actual charitable purposes. The board must obtain proposals from at least three telemarketing firms before agreeing to a contract with a telemarketer. VOMC must not permit the telemarketer to use donor information for commercial purposes, and the board must review all scripts and written materials provided to donors. ACS paid $40,000 and agreed to refrain from soliciting donations in Oregon on behalf of any nonprofit client until December 31, 2013. If ACS acts as a fundraiser in Oregon after that date, it must register with the Attorney General and show that it will comply with the law. ACS must disclose its status as a professional fundraiser.
The announcement by the Attorney General states, "It is extremely important that charities be properly managed, that they do not deceive donors and that the telemarketers they hire follow the law."
Thanks to Samantha Benton who provided information about this action by the Attorney General as part of my Nonprofits Organizations class.
November 7, 2011
OWS' Fiscal Sponsor
The Alliance for Global Justice (AfGJ) announced on Oct. 19, 2011 that it is serving as the fiscal sponsor for Occupy Wall Street (OWS). As fiscal sponsor, AfGJ collects and manages contributions, reports OWS' activities and financial information on the AfGJ 990, and reviews OWS activities to make sure the activities are consistent with those of an exempt organization. AfGJ takes a fee of 7% of all money raised and says that much of the fee is used to cover administrative expenses.