June 27, 2017; Washington Post
As many readers know, individual donor-advised funds (DAF) are not required to report out on their receipts or giving individually. Instead the IRS relies on the host organization, which in this case is a community foundation, to report on the entire body of funds that it holds. Thus, an individual fund is not generally held to account by federal and state regulators or the public, except in extraordinary circumstances. The DAF vehicle has drawn some rather intense scrutiny, as its increasing popularity with donors has not swayed those who believe they can be misused in the absence of cleansing sunlight.
The Washington Post reported in September that CharityWorks, one of 700 donor-advised funds at the Community Foundation of the National Capital Region (CFNCR), had failed to deliver grants to local nonprofits after it threw a fundraiser to benefit them. Now, Adrienne Brown, who worked as an accountant at the foundation for more than a decade, is suing that institution for being fired after, she says, she attempted to report wrongdoing in relationship to the CharityWorks fund which, in contrast to most such donor-advised funds, runs expensive fundraising galas to keep the fund going.
One CFNCR fund was CharityWorks, which attracted some of the city’s most generous philanthropists. Although it acted like a typical nonprofit organization—soliciting donations, hosting fundraisers, distributing money—it was actually a “donor-advised fund” within the foundation. The CFNCR paid all the bills for CharityWorks’ extravagant events, which cost close to $1 million annually, and wrote checks to CharityWorks’ designated charities.
The problem is that the information about fundraising cost vs. benefit is shielded in contrast to other free-standing nonprofits, so no one is really able to scrutinize that information.
The foundation is not required to publicly disclose the expenses or grants of individual funds, and apart from foundation staff, only the fund adviser—CharityWorks founder Leah Gansler—had access to its financial records. Gansler has previously acknowledged that she controlled all the finances for CharityWorks.
Gansler says that she has no concerns about the lack of transparency. That’s great for her, but the nonprofits that were promised grants from the proceeds of CharityWorks’ fundraising galas have been complaining for two years about the money that was never disbursed. Ms. Brown claims that no one at the foundation was tracking the fund and that there wasn’t enough money in the fund to pay those grants.
In a statement, Bruce McNamer, president of the foundation, said, “This lawsuit is an effort to create smoke where there’s no fire. Most of the issues described happened a long time ago and are mostly minor recordkeeping processes framed and conflated to make it look like something nefarious was going on when it wasn’t.”
The fund is no longer hosting galas, and McNamer says, “We’re working closely with the team at CharityWorks, which continues to raise funds to pay off their charitable commitments—all without big events.” He adds, “We’re continuing our investments in oversight and new technology to help our donors have an even greater impact with nonprofits in the Greater Washington region.” This is reassuring on its face, but only if you have a deep unshakable trust in McNamer and the CFNCR.—Ruth McCambridge