The Disabled American Veterans is an 84-year old national organization with 52 semi-autonomous state offices, and approximately 2,000 local chapters. The DAV provides a number of services to disabled veterans, including driving them to medical appointments. Just imagine 2,000 chapters, each collecting and disbursing money. That’s a lot of accountants and staff making sure that the money is properly used, or so we would hope. Collectively, these organizations raised over $140 million in 2002.
According to an article in the October 24, 2004 edition of the New York Times (Veterans’ Charity Chapters are Investigated, byline Kirk Semple), the New York Attorney General is investigating...
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the New York state office and three local chapters. The following allegations have been made:
• A group of dissident members have raised questions about the relationship between the New York state group and a housing complex for the elderly. The concern is that the New York state group owns and operates the housing complex through a separate entity, but has never included the corporation in its financial statements.• A former treasurer of one chapter is alleged to have misappropriated somewhere around $160,000 in donations.
• An employee at a local chapter is alleged to have stolen more than $26,000 from several chapters. This employee apparently handled donation checks.
• A former commander of another chapter is alleged to have used a “tax-exempt charge card in the charity’s name to buy personal items and of failing to file financial reports on behalf of the chapter for nine years.”
We examined the national umbrella organization’s website, finding a recommended constitution, by-laws, and articles of incorporation. The recommended articles of incorporation were only to be used when a local chapter incorporated, which was optional from the standpoint of the national organization.
While we did not read every word of the recommended constitution or the by-laws, we did not see any reference to a board of directors in these documents. This is puzzling because the recommended articles make provision for a board of directors. After looking at just the recommended constitution and the by-laws, we suspect that the oversight power in many chapters resides with the executive officers. Final oversight appears to reside with chapter members, who elect the executive officers under the recommended governing documents. We are not surprised that there is apparently a weak board structure given the large number of chapters. However, we believe there needs to be greater accountability to a representative group of members. That is the function of a board of directors.
Now to Guidestar. We found the 2001 Form 990 for the Valley Stream, New York chapter. This is the chapter that has allegedly suffered a $160,000 misappropriation of assets. The total revenue shown on this return is just over $39,000 and net assets are $940. If the financial picture has remained relatively unchanged since 2001, a $160,000 misappropriation is material. Part IV of the 990 lists officers, but no directors.
The Times article mentions an employee in the Syracuse office as having been charged with stealing more than $26,000 from several chapters. When we reviewed Guidestar, we discovered that the Syracuse office has apparently not made documents available to Guidestar. We looked through the list of New York chapters on Guidestar for chapters in Jefferson, Onondaga, Oswego, and St. Lawrence counties, but could not find them. It could be that these chapters are referenced by a city name in those counties.
Finally, we examined the Lynbrook organization. Guidestar lists a Lynbrook chapter, but does not have any information with respect to this chapter. We are unclear as to whether this is a local chapter or the state umbrella chapter.
So far we can only read between the lines. But once again we see an organizational structure with too many chapters. Even if there is no fraud, administering all these chapters has to be incredibly expensive. If the allegations are true, then there are clearly internal control issues. Large organizations like the chapter structure because it adds fundraising capacity. But with that added capacity comes demand for local control. That isn’t necessarily a problem if the charitable funds can be adequately protected. But the Times article once again raises the issue of whether small local chapters have the necessary number of bodies to protect assets. Based on our current knowledge, we would urge the New York State Attorney General to use the allegations to push for some consolidation of chapters. We would also urge the national organization to clarify its recommended governing documents. Finally, we would urge the national organization to mandate boards of directors at the chapter level and to also push for consolidation of chapters.
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. If you liked this post, please visit http://www.charitygovernance.com for a description of our Guide/Tutorial for non-profit directors and officers entitled “Avoiding Trouble While Doing Good: A Guide for the Non-Profit Director and Officer.” Copyright 2004, Auto Didactix LLC. All Rights Reserved. You may not copy any portion of this post to a computer "clipboard" for reposting anywhere or e-mailing, or otherwise reproduce this post. If you want others to review this post, you may provide them with a link to this web blog. Any use of the material or ideas in this post by reporters or other publishers shall make reference to Jack Siegel, author of "Avoiding Trouble While Doing Good, A Guide for the Non-Profit Director and Officer" and this web blog. |
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