More Oversight Please! Minn. Audit on Nonprofit Should Spark Concern

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December 7, 2012; Source: Minnesota Public Radio

The Minnesota Legislative Auditor’s Office is expanding a probe of how the Minnesota Department of Health oversees its grant programs after a grantee was found to have misued grant funds over a two-year period. The Health Department became concerned about $328,993 of federal and state funds it had awarded in a 2010-2012 grant to a St. Paul, Minn. nonprofit, the Sierra Young Family Institute. At the Department’s request, the Minnesota Legislative Auditor’s Office conducted an investigation. The auditor’s report states that the executive director, Roberta Barnes, used more than $100,000 to pay relatives. In addition, the report charges that were unexplained payments to high-end retailers and checks personally made out to Barnes.

In its report on the matter, Minnesota Public Radio (MPR) fails to note that the Sierra Young Family Institute’s tax-exempt status was revoked by the IRS (for failure to file Form 990 reports for three consecutive years) on May 15, 2010 (before the grant period started). The IRS posted the revocation on its website on June 9, 2011. MPR reports that Barnes is also listed as executive director of another nonprofit which has received state grants, Agape House For Mothers, and MPR’s attempts to contact her at either nonprofit were reportedly unsuccessful.

Agape House For Mothers is still recognized as a nonprofit. Its last available Form 990 is for the 2008 tax year. That 990 lists only two directors for the organization: Roberta Barnes (as executive director) and Charles D. Barnes (as a board member). Ms. Barnes received about $6,700 in compensation, while Mr. Barnes received $6,000. The Minnesota Attorney General’s website includes a public page for searching for information on charities, but we didn’t find Sierra Young, nor Agape House, on that site.

It would be important to determine whether the Minnesota Department of Health verifies the state charitable registration and IRS tax-exempt recognition of nonprofit grantees prior to making awards, and whether follow-up checks are done when grantee monitoring is conducted. It’s curious that the December 6, 2012 auditor’s report refers to Sierra Young as a “private, nonprofit organization.” Given the IRS revocation noted above and the (as far as we can tell) absence of the organization from the Minnesota Attorney General’s website, do the IRS and the Minnesota AG agree with that tax status classification?

It’s easy to chalk such episodes up to bad people who steal money, and it’s especially easy to condemn people who steal taxpayer-provided money intended to help a nonprofit organization serve people in need. Such stories are all too common. We certainly do not excuse any alleged misuse of grant funds, but we applaud any efforts to address possible systemic failures in such cases. As the MPR report indicates, the good news is that that appears to be happening in this situation. Some additional due diligence using publicly available resources may aid in appropriate grantmaking without additional burden on nonprofits seeking assistance. –Michael Wyland