May 3, 2011; Source: Voice of San Diego | It was announced yesterday that felony charges have been brought by the state attorney general against a former nonprofit executive, Carolyn Y. Smith, and her CFO, Dante Dayacap, for “42 overt criminal acts.” The charges revolve around a hidden bonus scheme inside the nonprofit, but the lessons in the situation are worth learning.
In 2008 the Southeastern Economic development Corporation, a quasi-governmental nonprofit in San Diego was audited to determine how the agency managed to pay out $1 million in staff bonuses over the past five years even while staying within budget. The audit found that the answer was in employing fewer staff than was called for in the annual budgets and repurposing the leftover money as bonuses to existing staff and disproportionately to leadership.
For instance in the fiscal year 2006 – 2007 the agency employed nine or ten full time employees while it had budgeted for 14. At the end of that year it paid out $312,885 in bonuses and extra compensation. In that same year, Smith received $95,000 more than what was planned. In fiscal year 2007-2008 it paid out $314,047 in bonuses.
On two occasions, Smith and Dayacap simultaneously wrote each other checks of $20,000 or more noting it as "incentive pay."
How could this have occurred? The audit found that Smith, the president of the agency, had, as a result of running an understaffed organization, accumulated too much power and control and that she had thus created a vulnerable organization. According to the Voice of San Diego article, “The auditors concluded that power and authority within SEDC has been almost entirely vested in Smith, who unilaterally runs nearly all aspects of the agency, including coordinating projects; negotiating with developers; managing all communications with the public, the board and city officials; and hiring consultants.”
The audit recommended that two key positions be hired immediately. SEDC hasn't had a vice president of operations since March 2006 and has not had a manager of projects and development since May 2000, even though the position has been in the agency's budget since fiscal year 2003-04.
Clearly the lack of staff depth in the agency had something to do with an outrageous lack of accountability but the board’s lack of oversight also plays in. The majority of the board has since left and been replaced.—Ruth McCambridge