We came across the OIC-GM scandal over a year ago when we were checking the obituaries to see when a funeral for a friend’s father was scheduled. We then got into the habit of checking the Milwaukee Journal-Sentinel everyday as article after article described the collapse of OIC-GM. There were clearly a number of factors that brought OIC-GM down, but bad governance was clearly one of the reasons.
While continuing to check for OIC-GM stories we came across the more recent scandal involving the Milwaukee Public Museum. Once again, article after article appeared describing problem after problem. Today we checked, as we do every day, to see whether there were any new developments in the Museum story—there were. And guess what: The Journal-Sentinel's Internet headline story was:....
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Missing Money: Second Harvest Reaps Bumper Crop of Turmoil. Yes, just as everyone in the United States is looking to the charitable sector to provide aid to the victims of Hurricane Katrina, an organization that many might expect to be a major player in Milwaukee’s response is apparently now embroiled in scandal.
We began by reading today’s story about the Museum entitled Museum Board Approves Budget With Little Room for Error: Despite $9.5 Million Drop, Shortfall Expected. We have stopped reporting the Museum story because it largely has evolved into a story of financial recovery—will the Museum be able to pull itself out of the hole that it now finds itself in? There have been some amusing stories like the one about the $53,000 in legal fees that the Museum paid to its law firm with a credit card—we wonder whether the Museum received frequent flyer miles. One can only wonder whether law firm promotional brochures may soon be proclaiming,
We accept credit cards--at $500 an hour it will take you just 50 billable hours to earn a trip to exciting New York City.
There was also the hiring of the Museum’s new executive director—someone who struck us as an excellent choice given his apparent contacts with the wealthy living in Milwaukee’s western lake country. But again that turned into an amusing story—with some clamor that this gentleman was too highly paid despite what seemed to us to be favorable comparisons with the salaries paid to other comparable non-profit executives.
But in reality, not much has happened with the Museum. We keep hearing about the fundraising campaign, but we also keep hearing about deficits and depleted endowments. With staff layoffs already at 60 employees this year and admission fees increasing, the Museum is still looking at a $1.1million deficit for 2006. According to the Journal-Sentinel, It is projected to have a $430,000 negative net worth at the end of its 2006 fiscal year. In short, the Museum faces a deep hole; one that may be due in part to economics and demand, but that also is attributable to just plain poor governance.
So what’s up with Second Harvest? The Journal-Sentinel story is a bit cryptic, but that is how most of these stories start out, so we will be checking back to see how this one unfolds. Reporter Alan Borsuk's lead paragraph lays out the basics, stating:
A large amount of missing money, five resignations from the board of directors and a decision to dissolve a connected for-profit business have roiled America's Second Harvest of Wisconsin, even as the well-known organization is in the middle of the most massive food drive in its history after Hurricane Katrina.
Mr. Borsuk then reports that the Milwaukee District Attorney’s office is investigating a possible $100,000 theft from Second Harvest. We also learn that changes have been made in procedures for handling cash—fixing internal controls is always easy after the fact. Mr. Borsuk then goes onto to state that the
alleged theft appears to be unrelated to other issues within the organization that may be of greater long-term significance.
The article then reports that three of the four members of a special board committee examining various issues had resigned. Two of these members are apparently associated with major food donors. There is also a discussion of a for-profit social enterprise apparently operated by Second Harvest. Here we learn that some donors might have been confused, thinking that their donations were going to Second Harvest when they may have somehow been used to fund this social enterprise. While more facts are clearly needed, the fact that the Second Harvest funds were being used to fund this venture is probably not the issue. In our view, the issue surrounds apparent donor confusion regarding the use of funds. Naturally, we will be interested to learn whether these donors received the substantiation statements required to support donations exceeding specified limits.
Quite apart from donor confusion, according to the Journal-Sentinel, Second Harvest owned 65% of this for-profit venture while a private individual owned the other 35% of the venture. The Journal-Sentinel reports that this individual is a director of Second Harvest. We are curious how this apparent conflict of interest squares with Second Harvest's conflicts of interest policy, assuming it has one. In our view, this was an unacceptable conflict.
We will be watching, clicking onto the Journal-Sentinel website early tomorrow morning to see how the this story is unfolding.
TODAY’S LESSON. During the height of the Milwaukee Public Museum scandal this summer, we took some time to examine the role of the Wisconsin Attorney General in the supervision of Wisconsin charities. Much too our surprise, we discovered that unlike many other states, the Wisconsin Attorney General has minimal if any regulatory power over charities in Wisconsin. At the time, we recommended that Wisconsin policy makers might want to revisit the Wisconsin Attorney General’s role in regulating charitable organizations. As far as we can tell, charitable organizations are largely unregulated in Wisconsin. This appears to be a mistake in the face of growing evidence that unregulated Wisconsin charities are unable to govern or police themselves. The organizations in question are marquee organizations, with civic leaders and high-powered corporate lawyers in the background. One can only wonder what is happening with the charities that sit below this upper echelon of organizations.
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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 2005, Auto Didactix LLC. All Rights Reserved. You may not copy any portion of this post to a computer "clipboard" for re-posting 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. For additional information call 773-325-2124HE 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.
