DATELINE: March 10, 2009, Chicago
We had seen some earlier references to Angel Food Ministries and an FBI raid, but for some reason the story didn’t resonate with us. Yesterday, we noticed that the Chronicle of Philanthropy’s Elsewhere Online column referenced a settlement of a lawsuit brought by two directors against the nonprofit. We have not seen the pleadings, but the directors apparently alleged that the Wingo family was...
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financially abusing the charity. Pastors Joe and Linda Wingo founded the charity in 1994, according to the its Web site. Angel Food has denied the allegations in a press release. In that press release, it indicates one of the directors behind the suit is the newly appointed chief operating officer.
The charity claims to feed 500,000 families a month through its food program. As we understand the program, Angel Food is able to buy food in bulk from national suppliers. It then assembles boxes of food that sell for $30. The box's retail value is somewhere between $60 and $65, according the various reports. Participating churches take orders for the food from members of their communities and Angel Food fulfills the orders. The ordering churches either pick up the food boxes or Angel Food arranges to have the boxes shipped to churches in more distant communities. The participating churches apparently receive at least $1 per box of food for their efforts. Angel Food accepts food stamps, but the ability to order a food box is not means tested. Anyone can participate, which raises the basic question: Why is this a charity? Angel Food is acting much like for-profit grocery store, but without a retail storefront. Is this a fundraising activity, an unrelated trade or business, or just a business?
We took a look at Angel Food's 2007 Form 990. Virtually all of Angel Food's income is attributable to gross sales of inventory—presumably the food. After cost of goods sold, it nets $26.7 million in profit and a little over $1 million in other revenue. It makes no grants with that revenue--at least that is what the statement of functional expenese reports. Instead, it pays $26.8 million in operating expenses. We saw reference to food donations to rehabilitation programs later in the tax return, but we are unable to assess whether those donations are material. The return values the donations at $360,000. The return also reports that for every 50 boxes of food it sells to a church, it gives one to the church for free. This donation appears to be includes as part of the cost of goods sold. Is this any different than the $1 per box payment? If these are really donations, why aren't they shown as grants in the functional expenses portion of the return?
Earlier articles report that Angel Food acknowledged a grand jury investigation into “alleged financial irregularities.” Associated Press, FBI Raid on Food Charity Raises Questions (Mar. 7, 2009). According to the AP, the ministry paid members of the Wingo family in excess of $2.1 million in 2006. That number dropped to $501,472 in 2007.
The lawsuit by the two board members appears to have made the sort of allegations we have come to expect in these situations. Numerous press accounts refer to large housing allowances, credit card abuses, and some sort of arrangement involving a jet. See, for example, Bobbi Mlynar, Angel Food Ministries Corporate Office is Searched by FBI and IRS, Emporia Gazette (Mar. 3, 2009).
So you’ve got the FBI and IRS involved in a raid. It is unclear why this a charity. Two directors who apparently are unrelated to the Wingos bring a suit that appears to raise questions of private inurement and benefit. So what happened last Friday (Mar. 6, 2009)?
Judge John M. Ott of the Walton County Georgia Superior Court approves a settlement under which the two complaining directors agree to resign from the board. The company credit cards held by the Wingos will be canceled and a forensic audit will be undertaken. Joe Wingo will transfer stock in a company that owns a corporate jet to Angel Foods. Apparently that company made a $10,000 monthly profit by renting the jet to Angel Foods. Despite the continuing issues, the settlement permits Joe Wingo and his son to remain with Angel Foods in their existing roles.
This does not strike us as an appropriate settlement, particularly because it removes two watchdogs who were willing to blow the whistle while leaving Joe Wingo and his son in place. Judge Ott most likely didn’t want to upset the operations, but we have to wonder whether the other employees could have continued operating the entity. We certainly would like to see more court control in the interim, but there is no evidence of any terms that limit actions by Wingo and his son.
We'd also like to know why no article we have read has mentioned any involvement on the part of the Georgia Attorney General. We would think this is a case that cries out for AG intervention.
We think there is a need to review the use of the word "ministry" in the tax-exemption process. We have seen little evidence of religious activity on the part of Angel Food. It apparently includes an eight-page monthly newsletter in each box of food, but there doesn't appear to be much more ministry here, as we understand the term. Just because the food is distributed through churches doesn't mean the wholesaler (Angel Ministries) is a church or religious organization. It looks to us like Angel Foods is conflating its mission with the mission of the churches who distribute the food. The question for the IRS: Is Angel Food using religion as a fig-leaf while biting from the for-profit apple.
A lot depends on just what that forensic investigation uncovers. Fortunately, the two directors who brought the suit retained standing to bring further action based on the results of the forensic audit should that be warranted by the investigation's findings.
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