October 30, 2017; Haaretz
A recent investigation by Haaretz and the Pulitzer Center for Crisis Reporting reveals a disturbing trend they tracked through four years of 990s from the 138 members of the Jewish Federations of North America. They report found that for the years 2012 to 2015, at least $20 million in inside or related transactions were reflected on those forms. (An inside transaction is one derived from a business relationship between the federations and their board members, employees, or family members, or with businesses related to any of the above.)
The series looked at salary levels of executives, loans to executives, and business relationships with insiders. Neither of the last two are necessarily illegal, but they’re ill-advised, especially without full-on transparency. In the case of the Phoenix affiliate, for instance, board members sold furniture and insurance to the organization of which they were trustees. That federation’s marketing director, Laura Touissant-Newkirk, responded that conflict of interest forms were duly filled out—but is that sufficient?
In response to Haaretz’s request for the conflict-of-interest agreements in Phoenix, Touissant-Newkirk refused to hand over documents, writing, “It is my pleasure to help. In this case, the documents are confidential.”
Another example of insider practices: Over a three-year period, the Jewish Federation of Cleveland bought $1.8 million in insurance products from Oswald Companies, which is chaired by a federation trustee. Dahlia Fisher, the Cleveland federation’s director of marketing and communications, explained to Haaretz, “With a board of our size, in a community our size, business relationships among board members should not be considered unusual.”
Fisher later wrote in an email to Haaretz:
Consistent adherence to our conflict of interest policy protects us from the possible negative consequences of any relationship between and amongst trustees and staff. That policy applies to every committee involved with business decisions, and ensures no volunteer or staff in any decision-making capacity participates in deliberations about business transactions which could in any way involve a private benefit. None of the business relationships noted result in any payments by the Federation to any of the volunteers or staff listed.
Again, Haaretz attempted to obtain the conflict-of-interest agreements in question, but most provided only blank copies of the form used. Only the federations of Baltimore and Peoria complied with the request. In fact, as compared to the frequency of the practice, there appears to be relatively little transparency.
So What? None of Your Business
From air conditioning to banking services, legal and accounting services and program consulting, the federations appear to regularly do businesses with insiders. That extends to offering loans to their own execs—another practice that it’s best to avoid.
Jeffrey Y. Levin, chief development officer in Miami’s Federation, was happy to talk during the last General Assembly summit in Washington, D.C. but seemed surprised to be asked the purpose of a $450,000 loan his federation granted him. He paused, and eventually said, “So what?”
Haaretz writes, “Executives in alliances across the U.S. have received loans from their employers, in states where the practice is legal. But no federations would share the terms of loans with Haaretz.”
Marcus Owens, a D.C.-based lawyer specializing in nonprofit tax law, comments, “Many states frown on the practice, even if it’s not illegal. You know, the charities are not created to loan money to their officers and directors, they’re created to use their money for charitable purposes. At the federal level, there’s no prohibition on loans, except that the terms and conditions are closely scrutinized, because of that sense that it does suggest sort of a related party transaction.”
In 2012, at the Jewish Community Federation of Baltimore, President Marc Terrill was lent $125,000 “for housing considerations.” Asked for a copy of the agreement, Terrill said it “cannot be shared due to a confidentiality provision.”
Related party transactions expose organizations to considerable reputation risk. Without compelling information about why a nonprofit is acting as a bank for a well-paid executive, or why a nonprofit is doing business with board members, the public may perceive that the organization is too ethically slippery to give through.
The bottom line: it is not worth the risk. Related-party transactions are, in short, an unwise step to take inside any organization, unless there is no other way to do business. Moreover, particularly with the ease of access to data that contemporary online financial reporting provides, you can be sure that whatever you try to keep secret, enterprising reporters will find, as the Haaretz staff did in this case.—Ruth McCambridge