City Paper is not for tourists
A D.C.-based foundation that houses a network of 700 tax-exempt community funds and manages more than $326 million in charitable donations has misappropriated funds, cheated the IRS, and committed forgery, according to a D.C. Superior Court civil complaint.
The complaint also claims that the foundation covered up misuse of D.C. government funds intended for early childhood education.
Plaintiff Adrienne Brown, former director of accounting and administration of The Community Foundation for the National Capital Region, alleges that she was threatened, discriminated against, and fired for reporting misuse of “donor-advised” funds. Such funds provide an immediate tax benefit to charitable givers who then can make grant recommendations over time.
With annual grants of more than $90 million, the foundation is the largest funder of nonprofit organizations in the D.C. area. Brown was the director of its finance and accounting team from 2005 through March of this year, working under the chief financial officer and reporting to the president and board of trustees.
Over the years, the complaint states, Brown became concerned about improper activity and the lack of transparency and oversight. Specifically, she suspected violations of IRS guidelines that prohibit the use of grants to benefit donors, fund advisors, or their businesses.
Beginning in 2014, Brown began reporting to CEO Bruce McNamer, CFO Shannon Scott, and the board of trustees that there were major problems in the management of funds entrusted to the foundation, including:
- Investing $10 million in a bond portfolio without donor consent, then concealing a $2 million loss and misrepresenting the asset balance.
- Using Freddie Mac Foundation funds earmarked for the hiring of three staff members to instead hire one staffer and using the remaining money to close a budget deficit.
- Allowing a fund called Charity Works to pay fundraiser expenses and direct advisor reimbursements in violation of IRS guidelines; obscure the misappropriation of donor monies; and rack up hundreds of thousands of dollars in unpaid grant commitments to nonprofits. (A Washington Post exposé in September reported extensively on Charity Works’ unpaid commitments and opaque financial structure.)
- Using contributions from the Carl Freeman Foundation to pay for fund expenses and not the intended purpose of the grantmaking.
Brown also alleges misuse of taxpayer money. In August 2016, she went to McNamer and Scott with concerns about the Early Childhood Leadership Institute General Account Fund, which received $1 million in grants from the D.C. Office of the State Superintendent of Education (OSSE), from 2003 through 2016, the complaint states. The fund’s advisor, the former executive director of the institute, directed at least 30 percent of the money during the same time period to his firm, M. Russell & Associates, allegedly to pay his salary and operations, in violation of IRS guidelines.
Brown alleges that the foundation deposited OSSE funds directly to its own operating account and gave the advisor access to the deposits. The advisor, Maurice Sykes, then sent cashier’s checks on behalf of his firm to the foundation and requested gift acknowledgement for tax purposes, the complaint states. Brown advised her bosses to monitor the deposits and place a hold on outgoing checks, but they ignored her and sent the remaining grant monies to the UDC Early Childhood Lab School without telling OSSE about it.
OSSE says it had a direct subsidy agreement with UDC and that any other transfer of funds was done without its knowledge. Earlier this year, a spokesperson says, the foundation notified OSSE that it was closing the fund, but OSSE referred the call to UDC. A UDC representative says she has never heard of the foundation and that Sykes ended his employment last June.
Based on Brown’s concerns, the foundation hired an outside firm earlier this year to conduct an audit of the early childhood fund. In February, she says, she declined to sign a check to disburse grant money from the fund and told McNamer she believed the foundation was improperly disbursing money without proper documentation.
Brown’s fate was foreshadowed when she went to McNamer last November and confronted him with allegations that Scott had forged a signature on a grant check. After putting her concerns in writing, Brown says McNamer called her into his office, banged his fist on the table, and yelled, “You are to let this go; do you understand me!” She was terminated in March.
In response to questions, McNamer writes: “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.”
Says Brown, “You work somewhere for a long time, investing time and energy, and you try to do the right thing, and you get kicked in the butt for it.”