Charity Governance

THE SHAPE OF THINGS TO COME: LAWSUIT OVER CLOSURE OF ST. VINCENT’S HOSPITAL

DATELINE:  August 17, 2010, Chicago

Verena Dobnik reported in yesterday’s Washington Post that a group calling itself  The Coalition for a New Village Hospital has filed a lawsuit in New York State court. Former Staff File Suit Against Closed NY Hospital (August 16, 2010).  The suit was filed by Yetta Kurland, an attorney, on behalf of former hospital employees, one-time patients, and area residents.  The Coalition is seeking disclosure of documents under a freedom of information act.  It is demanding a probe and public hearing regarding St Vincent’s finances.  According to Dobnik’s reporting, the complaint questions the salaries of the hospital's top executives and amounts paid to consultants, among other questions it raises regarding the hospital's management.

The filing should be of interest to regulators, nonprofit hospitals, and communities throughout the country.  While we can’t predict how the recently enacted health care reform legislation will play out, it is a good bet, particularly given the already precarious condition of many nonprofit hospitals and other nonprofit health care providers, that this is not...

URGENT ALERT: THE FASB IS AT IT AGAIN--LOSS CONTINGENCIES

DATELINE: July 22, 2010, Brisbane, Australia

We have received word that the Financial Accounting Standards Board has released an exposure draft containing proposed modifications to FAS 5, the accounting pronouncement that defines when and how organizations must recognize contingent losses in their financial statements or the footnotes to financial statements.  This may sound like highly technical accounting mumbo jumbo, but it isn't.  Depending on what form the changes take, the modifications could make it more likely that nonprofit organizations would be required to disclose loss contingencies in their financial statements as liabilites appearing on the balance sheet.  If forced to estimate the size of a loss, a nonprofit may be providing valuable information to plaintiffs' lawyers that could be used at trial or in settlement negotiations to the disadvantage of the nonprofit.

Nonprofits that didn't like complying with Fin 48 (contingent tax liabilities) should be paying particular attention to what is in the exposure draft.  The exposure draft should be of particular interest to...

NEW JERSEY ATTORNEY GENERAL BRINGS LAWSUIT IN WHAT COULD TURN OUT TO BE THE NONPROFIT CASE OF THE YEAR--PART II

DATELINE: September 30, 2009, Chicago

Read Part I of New Jersey Attorney General Brings Lawsuit in What Could Turn Out To Be the Nonprofit Case of the Year

Train wrecks always make for great photographs, but train wrecks only serve a purpose if we learn from them.  If the allegations made by the New Jersey Attorney General against those running the Stevens Institute of Technology turn out to be true, Stevens will become one of the great train wrecks in nonprofit history.  Already the story offers...

NEW JERSEY ATTORNEY GENERAL BRINGS LAWSUIT IN WHAT COULD TURN OUT TO BE THE NONPROFIT CASE OF THE YEAR—PART I

DATELINE: September 29, 2009, Chicago

A little under two weeks ago, New Jersey Attorney General Anne Milgram filed sued against the trustees of the Stevens Institute of Technology, Harold J. Raveche, Lawrence Babbio, and unnamed John and Jane Does in what, if the allegations prove true, could prove to be the story of the year in the nonprofit world.  The 90-page complaint is sweeping in its allegations.  Raveche is the CEO and Babbio is the chairman of the board and a member of the executive committee.  While there have been incidents involving excess compensation, violations of the terms of restricted gifts, deception, failed investment management, and breach of the duty of care, we can't...

STOP WASTING MONEY: DEATH PANELS FOR NONPROFITS

DATELINE: August 20, 2009, Chicago

Larry Handfield, the interim chairman of the James E. Scott Community Association (known as JESCA) told the Miami Harold,   “This is the prudent thing to do…To stay in existence and not let 84 years be in vain.”  Matthew Haggman, Social Services Agency JESCA Files for Bankruptcy Protection (August 18, 2009).  Nonsense.  The Miami Herald’s story recounts a train wreck that appears to have been long in the making.  There is no reason to waste resources on this failed enterprise and doing so is not be prudent.  Liquidate it.

According to the Miami Herald, JESCA is one of South Florida’s oldest anti-poverty agencies.  That’s nice, but is it one of South Florida’s most effective agencies?  Sunk costs and time don't mean anything when it comes to making decisions about the future use of resources.  Longevity shouldn’t count for anything if a nonprofit isn’t doing the job.

The Miami Herald doesn’t talk about effectiveness, but given the financial stewardship, it is hard for us to believe that this was an agency that got results. JESCA filed bankruptcy on August 5, 2009, seeking to reorganize under Chapter 11.  We don’t think reorganization...

HOW DELICIOUS: A LAWSUIT AGAINST THE RONALD REAGAN PRESIDENTIAL FOUNDATION OVER DONOR INTENT

DATELINE: May 4, 2009, Chicago

We try not to side with conservatives or liberals in this blog.  We just call them as we see them.  We, however, have been annoyed by the conservative movement’s attempt to turn donor intent into a left-right issue.   We suspect that the conservatives have adopted that position because they believe most colleges and universities have a decidedly liberal bent.  The result has been repeated assertions that colleges and universities knowingly violate donor intent, with the implication being that they do so to pursue their liberal agendas.  At least that is the subtext of much of what we have read.

In our view, the issue has always been about the straightjacket that donors put nonprofits in when they try to tell them how to run the institution and then die.  As time passes, the institution is faced with legal restrictions that by any objective measure no longer make sense because circumstances have changed in ways that donors never foresaw.  We don’t have a solution to the problem, but we recognize it as an inevitable problem that cuts across the political and philosophical spectrum.  That is why we find the lawsuit filed by Richard Sills in the New York State lower court on November 25, 2008 both...

MEMO TO STATE CHARITY REGULATORS: WILL CHANGES IN CPA REVIEW STANDARDS HAVE A POSITIVE OR NEGATIVE EFFECT ON CPA REVIEWS OF NONPROFIT FINANCIAL STATEMENTS?

DATELINE:  May 12, 2009, Chicago

The AICPA’s Accounting and Review Services Committee (ARSC) has issued an exposure draft that would liberalize the independence standards applicable to CPAs performing review and compilation services for clients, including nonprofits.  AICPA president and CEO Barry Melancon calls the revision the biggest change in reviews and compilations standards since the standards were first issued in 1978.  Some state charitable solicitation statutes permit charities required to register with the state and file annual reports to file...

IT WAS FUN WHILE IT LASTED: UNIVERSITY INVESTMENT POLICIES ARE GOING TO CHANGE

DATELINE:  March 1, 2009, Chicago

 

The Pennsylvania Attorney General should open an immediate investigation into the investment practices of the University of Pittsburgh and Carnegie Mellon University.   The Pittsburgh Post Gazettereported last week that combined, the two institutions had invested a $114 million through Westridge Capital Management. Jonathan D. Silver, Pitt, CMU Money Managers Arrested in Fraud: FBI Says They Misappropriated $500 Million for Lavish Lifestyles.  The proprietors of that investment firm, Stephen Walsh and Peter Greenwood were charged in Manhattan federal court with securities fraud, wire fraud and conspiracy.  The two were sued in civil court by the SEC  and the Commodity Futures Trading Commission, on allegations that the two had misappropriated more than $535 million and fraudulently solicited $1.3 billion from investors since 1996.  The University of Pittsburgh and Carnegie Mellon have brought a civil suit against the Westridge, Walsh, and Greenwood.

 

So what was the alleged scheme?  Apparently it was another Ponzi scheme.  It seems the two just...

“OUR AUDIT CONFORMED TO ALL PROFESSIONAL STANDARDS”

DATELINE:  February 19, 2009, Chicago

Yesterday’s Wall Street Journal carries an article that was inevitable.  Penned by WSJ reporters Ianthe Jeanne Dugan and David Crawford, the article examines the lawsuits that have been filed against the auditors who were unfortunate enough to have some nexus with Bernie Madoff and his investors.  Accounting Firms That Missed Fraud at Madoff May Be Liable.  You might think the article focuses on Friehling & Horowitz, the three-person firm that supposedly audited Madoff....

MADOFF TOOK ADVANTAGE OF INVESTORS; MADOFF’S AUDITORS TOOK ADVANTAGE OF EXCEPTIONS

DATELINE: January 11, 2009, Chicago

Figuring out to how to regulate is always difficult.  The regulation needs to be targeted and specific, but the costs of complying with the resulting details should be weighed against the potential benefits before the regulations are put into effect.  A short blurb by Floyd Norris of the New York Times makes this point nicely.  Oversight for Auditor of Madoff (Jan. 8, 2008).

As is well known by now, Madoff’s securities brokerage firm was audited by Friehling & Horowitz, a largely unknown firm with three employees.  According to the verfieid complaint filed by New York University against J. Ezra Merkin and others, the firm was controlled by...