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The doors to the Tri-Valley Community Foundation (TVCF) have been locked for more than a week now, and although the lights are on, most of the furniture is gone.
Calls to the foundation go directly to voicemail. Its recently hired public relations firm, Full Court Press, has not returned calls or emails, but the foundation did provide financial statements for 2009 and 2010 after a request from the Pleasanton Weekly.
An IRS declaration filed by the TVCF shows the charity “makes its governing documents and financial statements available to the public upon request.”
A certified public accountant who reviewed the financial statements on the condition of anonymity said it didn’t take long to uncover red flags in those documents that should have alerted board members to problems at the foundation long before this year, when it found itself $3 million in debt.
A May 24, 2011 audit noted that “the foundation has suffered significant deficiencies in net assets that raise substantial doubt about its ability to continue as a going concern.”
“The ‘going concern’ mentioned in the auditor’s report is a huge red flag that the entity may not be able to continue operating and may go out of business within the next 12 months,” the CPA said.
That audit, prepared by Robert Lee and Associates of San Jose, also says, “As of June 30, 2009, the foundation had a decrease in total in net assets of $550,963. As a result of these deficits, restricted funds from agency funds were used for working capital purposes with the donor’s consent. These factors create an uncertainty about the foundation’s ability to continue as a going concern.”
Operating costs during the 2009-10 fiscal year for the TVCF climbed from nearly $1.3 million the previous year to $1.9 million. That same time, salaries and benefits went from $340,946 to $417,592, leaving the foundation owing more than $172,000.
That debt should also have been a concern to board members, the CPA said.
“Clearly the negative net assets of $172,334 is very concerning. Liabilities jumped up $250,000 from the 2009 (audit) to 2010, indicating they are unable to pay certain obligations,” the CPA explained, adding that direct costs for programs climbed $430,000 from 2009 to 2010. “This is a huge amount that doesn’t really make sense if they are trying to cut costs and stay viable.”
The CPA also pointed to the trend of expenses exceeding revenues year after year as worrisome. Tax forms filed by the TVCF indicate that began in 2006.
“Having negative cash flow from operating activities is always a bad sign that the entity is unable to generate positive cash flow from their day-to-day operations,” the CPA said.
Despite requests, the foundation did not provide a copy of its most recent audit. That’s the one that Board President and CEO Ron Hyde said prompted what he called a “deep audit” into where the money went.
Hyde, who took over running the day-to-day operations at the TVCF after former President Dave Rice was fired in May, said earlier that the foundation is seeking criminal prosecution against Rice.
However, the TVCF’s most recent tax form, released last week at the request of the Pleasanton Weekly, indicates that Rice’s salary went from $98,51 in 2009-10 to $140,116 in 2010-11 — the same time the audit shows the foundation was falling deeper and deeper into a financial hole. Hyde has recommended that the TVCF declare Chapter 7 liquidation bankruptcy.
Interesting quote from the auditor, “”As of June 30, 2009, the foundation had a decrease in total in net assets of $550,963. As a result of these deficits, restricted funds from agency funds were used for working capital purposes with the donor’s consent.”
That means the Board, which included Ron Hyde at the time, knew about restricted funds being raided. I wonder if any board members checked with the donor’s to make sure they really gave their consent. Or did the board even read the auditor reports. David is right that most board members do not have the background at all, or training, to understand financials and audit reports. Not just boards of non-profits like this but I believe this is the case of our elected boards also (e.g., school boards). For the public boards, you can see on TV that the board members just gloss over the details, partially because the employees try to confuse everybody and overwhelm them with information. We see this for public meetings but the same things can go on at non-profit board meetings, as we have seen here. I doubt there were many accountants/CPAs on this foundation board. I feel it is important to have accountants on these boards and I will lump into that category engineers as they are curious by nature and want to understand the data and they have the training to break things down so that the data is understandable. Not saying the whole board needs to be filled with people of these positions but there should be some people on the board who can understand the financials and get into the details.
Whenever an employee of a public or private board, or a board member tells another board member that they are micromanaging and they should trust the employees, that should be a red flag. The boards are responsible and they should have an understanding of the details and ask the tough questions. They should not just trust, but rather verify.
Interesting if you watch the school board meetings, the one people who asks the most questions, Valerie Arkin, has an MBA. The others on the board and staff members try to silence her. The others would rather the board meetings be a meeting of cheerleading of the staff members instead of doing the real work and asking questions.
This never would have happened in the private sector. Just another reason to lower our taxes to keep regulators out of our life. The tide is rising.
You do not need to have a MBA or be a CPA to figure out that if liabilities exceed assets there are going to be problems!
Like I stated earlier in another post, all you need to do is reconcile the bank account with the financials statements. In non-profits it is also wise to use cash-based accounting rather than accrual accounting methods.
It seems that the board either never read the report or just listened to Dave Rice’s promises that everything was ok. Either way, it sounds pretty naive.
I agree with most of the comments above including Dave Walden’s comments. Boards of directors overseeing an operation should not operate without good training. However, sometimes board of directors act like employees of the administrator in charge of the organization, and the administrator turns the tables and then tries to make the board members work for him or her. The administrator, whenever a question is asked, often then goes into a “how dare you not trust me” mode. The next favorite tactic of administrators are “you are micromanaging my operation.”
To expand upon Mr. Walden’s comments, boards also need training on the common manipulative maneuvers that administrators do to silence board members, including the “how dare you not trust me,” the “micromanager tactic” as well as the “you aren’t part of the team/you aren’t being a team player” mumbo jumbo that administrators often resort to.
But I do disagree with Arnold in that though rare, this sometimes is seen in the private sector. Sarbanes Oxley demands an independent audit committee that reports directly to the board. In the extreme, like at HP, administrators start tracking board members’ every move like the HP pretexting scandal detailed here http://en.wikipedia.org/wiki/HP_spying_scandal .
Valerie Arkin, an MBA, was previously a board member of other organizations which may be one of the reasons why she excels at being able to ask the right questions.
A couple of thoughts emerge from this article. What was the board doing to have this happen to all of the small charities that TVCF was supposed to be helping? If everything that is in this article is true then the board may be grossly deficient in their job. Secondly, are we allowing boards of directors to operate without good training? I know that there are “schools” that can teach a board how to operate as a responsible group to oversee an organization. That being written, I have been on many boards and never been offered the opportunity to be taught what to look for as a board member. This kind of problem is happening far to frequently and maybe we need a regulatory organization to oversee the boards – this hurts my conservative nature but maybe it needs to be done. Another question is about the directors insurance. Does it apply if the director is negligent in their duties? And who decides what is negligent?
This whole thing is a mess and never should have happened. How many dreams of organizations that deposited their funds with TVCF have been wiped out because the board members were negligent in their duties or proper training was not implemented to catch wrongful acts? This has to stop and every board of directors of every non-profit needs to get training for their board.