Calif. Nonprofits as Blinds for Public Funds? Not a “Good Look”

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January 25, 2013; Source: Los Angeles Times

The Los Angeles Times has discovered a nonprofit used by the state’s Department of Forestry and Fire Protection since 2005 to hold certain funds seemingly unbeknownst to the California legislature or the public. The agency, typically called Cal Fire, put $3.6 million derived from legal settlements with big companies held responsible for major fires into a generally unknown nonprofit managed by the California District Attorneys Association (CDAA). For seven years, Cal Fire reportedly used this account to supplement agency accounts for equipment purchases and training, a practice that ended only last year amidst questions of the legality of the fund, though questions about its legality had surfaced within Cal Fire as far back as 2008.

To be clear, there is no reported evidence that Cal Fire used the moneys for anything unrelated to the agency’s purpose and functions, but an attorney representing Cal Fire did express, via e-mail, a concern that the fund could be seen as a vehicle “to bypass state contracting, purchasing, and travel rules and guidelines.” The funds held by the nonprofit may be viewed particularly harshly in the eyes of California voters given the fact that the California legislature passed a law last year requiring every rural homeowner in the state to pay $150 a piece for fire prevention services because the state couldn’t afford to continue fire-protection services in fire-prone rural areas.

If the fund was really outside of the oversight of state legislators, not only might they not have known how the settlement funds were being used, but they might not have known the financial deal involved for the DAs association. The Los Angeles Times describes that deal as follows:

“The department established the fund with the district attorney’s association in 2005. The association charged a fee to hold the money. The amount of that fee changed over the years. When it began, the prosecutors received 3% of the money when it came in and 15% when Cal Fire pulled money out for training or equipment.”

The nonprofit fund in question is officially named the Wildland Fire Investigation Training and Equipment Fund, or WiFiter. The notion that this fund was only recently “discovered” doesn’t quite make sense. The Nonprofit Quarterly found that this “secret” fund was reported on the CDAA’s 2011 Form 990. The CDAA identifies itself as the “fiscal agent on a fee-for-service basis” for the fund. However, the 2011 Form 990 was the only one from the CDAA to acknowledge the existence of the fund. The CDAA is an organization of lawyers. NPQ isn’t, but the lack of information on this fund until the 2011 Form 990 suggests that CDAA was submitting a less than complete account of itself regarding its fiscal sponsorship of WiFiter in other years.

This amounts to a public agency having access to a private, nonprofit account that the LA Times reports was “entirely off the state books.” According to the Times, auditors indicate that there may be $200 million sitting around in government-affiliated off-budget accounts established by this and other state agencies. Take the CDAA case as more evidence of this lesson: the efforts of public agencies to shield funds from government oversight using nonprofits proves counterproductive for all concerned.—Rick Cohen

  • Jan Masaoka

    Thanks for this, Rick. Your non-California readers may be interested in knowing that in California, only nonprofits are legally allowed to sell fireworks. And CalFire has asked that the annual registration fee be raised from the current $50 to $125. These revelations about hiding money should embarrass them into withdrawing that proposal!

    Jan Masaoka
    California Association of Nonprofits (CalNonprofits)