February 14, 2013; Source:CBS

How easy is it to steal millions of dollars from charities? That question must arise with the recent news that former San Diego Mayor Maureen O’Connor has acknowledged that she “misappropriated” $2 million from a foundation established by her late husband. Her husband was Robert O. Peterson, the founder of the Jack-In-The-Box restaurant chain. The R-P Foundation had a governing board of three: O’Connor, her sister, and one John McClosky.

According to prosecutors, O’Connor won more than $1 billion through gambling between 2000 and 2009, but lost more than that. Presumably, that means that her net income was in the red after her visits to casinos in Las Vegas, Atlantic City, and her hometown of San Diego. Prosecutors say she “misappropriated” $2,101,900 from her husband’s foundation between September of 2008 and March of 2009 to help fuel her gambling. According to her defense attorney, O’Connor obtained additional resources leaving her with a debt of $13 million. Prosecutors say that she is in poor health and destitute. Her defense attorney says that O’Connor had a brain tumor that led to brain swelling that affected her judgment and possibly contributing to her gambling addiction.

As part of her deal with the government, O’Connor will be seeking psychiatric treatment for her addiction as she also tries to find money to pay back her debts over the next two years, or at least the $2 million to her husband’s foundation—though that’s a little odd, since the foundation is, according to press reports, bankrupt and shuttered as of 2009.

From a philanthropic accountability viewpoint, the story here suggests a number of warning flags that could have been spotted by state or federal officials or perhaps by R-P Foundation’s philanthropic peers. One warning sign should have been the tiny board dominated by family members. Do we need more examples of how family foundations ought to be governed much more like stewards of the public trust and much less like personal family fiefdoms?

The 990s show some oddities for sure, including $117,293 in investment income in one year attributed to Maureen O’Connor personally, and it would be hard to imagine that her companions on the foundation board could have been unaware about the financial misappropriations. This should be a wake-up call to the IRS and state regulators that tiny foundation boards comprised mostly of the director’s family members sometimes are not the height of best practice.—Rick Cohen