Poorly Filed Form 990 Leads to Alabama Daycare Media Scrutiny

March 30, 2017; AL.com

When the Wall Street Journal reported about the 2,700 nonprofit executives who received more than $1 million in compensation in 2014, the list included an Alabama daycare provider with a total budget under $2 million, most of it provided through federal child nutrition and state child care subsidy programs.

Jesse Thomas, the director of United Family Services Outreach (UFSO), received almost $1.3 million in “other reportable compensation,” but no base compensation or fringe benefits, according to the organization’s 2015 Form 990. But this is just the beginning of the questions: “Two attorneys who represent nonprofits who said United Family Services Outreach’s financial forms filed with the IRS, or Form 990s, were poorly filled out with several important pieces of information missing.”

Among the information provided is a classification of the nonprofit’s payment to Thomas not as income but as a payment to “Jesse Thomas Sunnyside Childcare” for contract services. In addition, UFSO’s 990 reported that several Thomas family members received contract service payments ranging from $1,500 to $15,000 in 2014. Notably, all of the organization’s five board members are related to Jesse Thomas.

United Family Services Outreach was founded as a nonprofit in 2010 and received its federal tax exemption in 2014 (though it filed a 2013 Form 990 in advance of receiving its federal exemption). Prior to that, Jesse Thomas owned a for-profit childcare business that was cited in a 2010 incident involving a child left in a van for more than two hours in the summer. The child’s guardian sued and the lawsuit was settled. The state also suspended one of Thomas’s daycare licenses. Thomas did not challenge the suspension; he dissolved the for-profit childcare business in 2013.

When Thomas founded United Family Services Outreach, he identified it to the state of Alabama as a religious daycare, meaning that it would be exempt from most state regulations applying to the state’s daycare providers, including for-profit day care companies like the one Thomas dissolved. However, UFSO never claimed exemption as a religious congregation from applying for federal tax exemption or filing annual IRS Form 990. The IRS Form 990 returns for UFSO make no mention of religious affiliation or a faith-based component to their mission or services.

NPQ recently hosted a webinar called “Making the Most of Your 990: A Red Flag Guide for Nonprofits,” discussing the benefits to nonprofits (in addition to legal compliance) of filing complete and accurate Form 990s. Jesse Thomas, UFSO, and AL.com provide a vivid illustration of what a nonprofit’s Form 990 says about it and its leaders. The Form 990 is a public document, available online for free to donors, media, and anyone else wishing to review it. The story the 990 tells should match the truth of the nonprofit it represents; it should answer questions and not raise them. The single answer to the nonprofit executive compensation question opened a wider inquiry into, and scrutiny of, the practices of a nonprofit day care provider and its founder.—Michael Wyland