For a January 24, 2005 update, click here.
The New York Times reported on Thursday, September 9, 2004 that the internal investigation continues at the James Beard Foundation. While the article doesn’t provide specifics, the article does….
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place new focus on the accounting irregularities, with some expenditures not being “properly substantiated or documented.” According to the Times, a spokesperson for the Foundation indicated that an investigation had uncovered no wrongdoing on the part of the paid staff or outside volunteers. The article than goes onto to state:
“James Haggerty, a spokesman for the foundation, said in a telephone interview that the review did not make the same conclusion about the board.”
We find this statement to very ambiguous.
In an effort to obtain more facts, we called the James Beard Foundation. We were placed on hold three times, and when we asked for information, the employee started laughing. Not a very impressive response given the circumstances. We were then given the telephone number of George P. Sape, a trustee, and according to a Foundation press release, the Foundation’s board chairman. Our phone call was not returned.
We then performed a Google search, uncovering the Gothamist. What is the Gothamist? According to its website, the
Gothamist is a website about New York City and everything that happens in it. That means news and events, restaurants and bars, happenings and goings-on. Gothamist has an avid and growing readership, and an even more avid and growing staff.
The Gothamist has a very revealing article discussing the Times coverage. The article refers to speculation that some of the uproar over the James Beard Foundation may be coming from people in the restaurant and food industry who have "silently" resented the influence of the Beard Foundation. The Gothamist writes:
Over at EGullet they're pounding the drums for the demise or radical restructuring of the Foundation, which seems to be silently resented in the restaurant industry as exercising a level of influence not befitting its limited contributions to the culinary world. If, as it seems, the Foundation has mismanaged and squandered James Beard's legacy, Gothamist would have to agree, even if it means an end to our vicarious delight at reading about Beard House events.
Naturally, we had to visit EGullett's website, and found a very lively discussion in progress on a message board. We encourage you take a look because the discussion shows how public perceptions can move in many directions when a scandal hits any non-profit.
Having taken a great deal of heat, but wanting to keep the kitchen open, the James Beard Foundation issued the following press release on September 8, 2004 (the day before the September 9, 2004 Times article appeared):
JAMES BEARD FOUNDATION RESTRUCTURES; GEORGE P. SAPE ELECTED CHAIRMAN, DIANE D. KERN AND ROBERT W. JONES ELECTED VICE CHAIRS
LONGTIME PRESIDENT LEONARD PICKELL RESIGNS BEFORE BOARD OF TRUSTEES MEETING; TRUSTEES RECEIVE DETAILS OF INTERNAL INVESTIGATION OF FINANCIAL AND OPERATIONAL ISSUES, PLEDGE MODERNIZATION AND ACCOUNTABILITY FOR ONE OF THE NATION’S BEST-KNOWN CULINARY ARTS ORGANIZATIONS
New York (9-09-2004) - NEW YORK, NY (September 8, 2004) – In a significant restructuring, the Board of Trustees of The James Beard Foundation met today and announced major governance changes. The changes come as Trustees were briefed on the results of an internal investigation of financial and administrative issues facing the organization.The new positions of Chairman and two (2) Vice Chairs of the Board of Trustees were created. Trustee George P. Sape, a New York attorney, was elected Chairman and will oversee financial and operational strategy. Longtime Trustee Diane D. Kern—who is also Chairman of the House Preservation Fund—was elected First Vice Chairman; Robert W. Jones, Vice Chairman—Investment Banking and Managing Director at Morgan Stanley, was elected Second Vice Chairman. Ms. Kern will also assume the role of acting Executive Director, responsible for the day-to-day management of the foundation. The Board expects to name a fulltime executive director in the coming months. Trustee Anne Byrd was elected Treasurer, and founding Trustee Kathleen Perry was elected Secretary.
The Board also accepted the resignation of President and Trustee Leonard Pickell, who notified the Board of his intention to resign on Tuesday afternoon of this week. Pickell had been President of the Foundation since 1996.
The Board also assigned to Mr. Jones the role of Chairman of the Finance Committee, and appointed Trustee Marcie McNelis as Chairman of the Governance Committee.
“These are first steps toward resolving the financial and operational issues facing the organization, but they are important steps,” said Mr. Sape, who is managing partner of Epstein, Becker & Green, a large New York law firm. “Separating the operational and oversight functions of The James Beard Foundation is critical to ensure that our accounting and financial structure is properly repaired, and will remain sound, transparent and effective as The Foundation continues to grow.”
“And let us be clear: The good work of the James Beard Foundation continues,” Mr. Sape said. “There is no organization in this country that has had a more positive impact in promoting the culinary arts. We intend to keep it that way.”
Trustees were briefed on the results of a three-month internal investigation conducted by outside counsel Michael Berger that showed that certain expenditures of The Foundation were not properly substantiated or documented. The investigation produced no findings of wrongdoing on the part of the paid staff of The Foundation, or the many outside volunteers who donate their time in support of The Foundation.
The Trustees took quick action to address the investigation’s findings by improving internal controls for foundation expenses and addressing management oversight of various of The Foundation’s programs.
The Trustees also retained new accountants, Goldstein, Golub and Kessler (GGK) to act as The Foundation’s outside accountants. The new auditing team has been charged with addressing The Foundation’s delinquent filing of financial documents at both the state and federal level. The Trustees and Mr. Berger also have been working with the office of the New York State Attorney General to resolve issues relating to The Foundation’s failure to file annual reports in 2003 and 2004.
Once the proper accounting and auditing of The Foundation’s finances are complete, the Board of Trustees will consider appropriate next steps.
Mr. Sape said: “We have a foundation whose administration and financial oversight functions did not keep pace with the rapid growth of the organization. That changes today.”
“The Trustees are committed to ensuring that The James Beard Foundation remains financially strong, culturally vibrant, and dedicated to preserving James Beard’s legacy and commitment to the culinary arts.”
What this Press Release has to say is fine as far as it goes. However, our question is a simple one: Why do non-profits that experience accounting scandals always improve their internal controls after the fact? In other words, what was the Foundation's board doing at board meetings? And what were the Foundation’s auditors or outside accountants telling the board in their management letter? If that letter suggests changes to the Foundation’s internal controls were advisable, why weren’t those changes made?
Once again, a word to the wise. If your non-profit finds itself the subject of negative press, take the time to develop a public response, and equip the frontline staff. The response we received was not an acceptable one. While we would have liked more information, the staff could have simply referred us to the press release.
We sense that there may be some long knives out to get the Foundation. A faster and more informative response to the questions posed in the first Times article might have cut those folks off. Time will tell how deep the problems go and whether the Foundation can eliminate adverse scrutiny by simply telling the public and regulators that it is making needed reforms. There still is the basic issue as to whether the Foundation should continue to qualify as a charity under Section 501(c)(3). We suspect we may receive an answer to that question, because like us, the people at the IRS read the newspapers.
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THE FOREGOING IS NOT AND SHOULD NOT BE TAKEN AS LEGAL ADVICE. IF LEGAL ADVICE IS REQUIRED, THE NON-PROFIT OR OTHER PARTY IN QUESTION SHOULD SEEK THE ADVICE OF QUALIFIED LEGAL COUNSEL.
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