State Legislator Explains His Nonprofit Operations—Poorly

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August 17, 2011; Source: North Carolina News Network | Early in August, NC Policy Watch, a progressive watchdog group in the Tar Heel State, published the results of its investigation into nonprofits controlled by Republican State Rep. Stephen LaRoque. The Policy Watch report alleged the following:

  • LaRoque earns $195,000 per year running two public charities, the East Carolina Development Company and the Piedmont Development Company. Both economic-development organizations are federally funded, despite LaRoque’s public stance against government meddling in the free market.
  • The two companies made loans to LaRoque’s associates and political allies, including the businesses of at least two state legislators, plus businesses owned by board members. There was even one six-figure loan made to LaRoque’s wife.
  • Some board members were apparently unaware that LaRoque was even being paid a salary (although perhaps some should have known, since LaRoque allegedly “stacked” the boards with family members, including his wife and his brother).
  • The U.S. Department of Agriculture wrote a blistering analysis of LaRoque’s misuse of Intermediary Relending Program funds and called for the return of $4 million (clearly the USDA’s Rural Development office in North Carolina was less than industrious in its oversight of these funds over the years).

Rep. LaRoque was not particularly cooperative with the NC Policy Watch investigation—refusing to answer questions about his salary, for example—but he did publicly respond to the allegations earlier this week. Unfortunately, it doesn’t seem like he did much to set many of the allegations to rest:

  • He said his compensation is based on a percentage of the assets managed by the two nonprofits. But the assets consist entirely of USDA loan funds, and their profitability is based on his ability to get money from the government, not on some market-based definition.
  • He said that “a lot” of his reported compensation is used to pay his three employees, but he won’t reveal how much that is.
  • He said that he doesn’t have to reveal those compensation details, because the two nonprofits are managed by LaRoque Management, a for-profit company he owns and runs with his brother (and nonprofit board member) Walter. (When asked by reporters how much he was paid by his for-profit company, Rep. LaRoque answered, “None of your business.”)
  • He said it is O.K. to put family members on the boards because there are no Internal Revenue Service regulations prohibiting it (one of the two nonprofits has only three board members—LaRoque, his wife, and his brother).
  • He said it’s O.K. to lend money to political associates (including two legislators he called “very independent people”) and family members, asking, “If I loaned to a dry cleaner, would I be precluded from taking my clothes there?”

Somehow, LaRoque’s answers do not generate the impression that he is exactly on top of the latest thinking on good nonprofit management when it comes to conflicts of interest, self-dealing, transparency or financial accountability. One would also expect the USDA to get on the stick and start overseeing the $7.5 million it gave LaRoque through the Intermediary Relending Program and the $582,000 from the Rural Business Enterprise Grant program. And one would also expect the person responsible for charity oversight in the North Carolina Attorney General’s office to find out whether LaRoque’s serial self-dealing transactions and his conflicts of interest cross the line.—Rick Cohen