Shriners Behaving Badly Pt. 7

(*Once again we see the good old boys doin what they do best in this saga of corruption and greed. Sandy has done a remarkable job connecting all the dots! Darren)

Unanswered Questions -
Shriners: Part 7
By Cassandra 'Sandy' Frost
8-15-6


This story began unfolding four months ago, after Vernon Hill, a
Shriners whistleblower, tried to find an investigative journalist willing to
look into his allegations that the top echelon of the Shriners
Hospitals for Children, a 501c3 non profit charitable group, was corrupt. To
date, six investigative articles have been written. Here is Part 7.

What Does "Non-Profit" Mean?

Imagine if you will, a box labeled "Fraternal, 501c10, Shriners
Temples" and another box labeled "Charitable 501c3, Shriners Hospitals for
Children." The first group oversees the individual temples of which
Shriners are members and, according to their articles of incorporation,
oversees and controls the second group, the Shriners Hospitals for Children.
Both have very distinct non profit classifications per the IRS. As
such, each group is supposed to function separate from the other, though in
this case, it appears that the fraternal controls the charitable.

Non profit status confers the following benefits on both groups:

(1) exemption from federal and state income tax (2) ability of certain
non-profits to make purchases without paying state sales tax (3)
ability for certain non-profits to receive tax-deductible contributions

Non profit groups have strict disclosure guidelines, especially when it
comes to their taxes. Certain questions on the IRS non profit 990 tax
return forms provide important indications of how a group is doing. Or
tell who the group is affiliated with. Or answer if they lobbied or if
they had real estate transactions between the corporation and directors,
officers or employees. Or if they amended their governing documents.

Article Highlights

Here are the highlights of the previous six articles. A comparison of
similar questions asked by this writer, the General Accounting Office
(GAO) and Senator Chuck Grassley, chairman of the Senate Committee on
Finance, follows.

1) A series of investigative articles published by the Orlando Sentinel
in 1986 reported that in 1985 the Shriners kept 71 percent of the $21.7
million raised to pay for clubhouse expenses, including the upkeep of
private bars, restaurants, golf courses, conventions, travel,
entertainment and fund raising. Less than 2 percent, or $346,251, went to the
medical care of the children.

2) Shriners whistleblower, Vernon Hill, has worked with a former IRS
agent and accountant, Paul Dolnier, for the past year and a half. They
ordered and analyzed thousands of pages of Shriners tax returns which led
to Dolnier presenting evidence of alleged charity fraud to the chief
investigator, auditor and counsel for Pennsylvania's Charitable Special
Investigation unit during a six hour meeting in spring of 2006.

3) Non profit watchdogs like Give.org (non profit arm of the Better
Business Bureau) and American Institute of Philanthropy are howling about
how the Shriners Hospitals for Children seem to be "hoarding" money
that could be used on the medical needs of more sick children. The
Shriners control over $9.5 billion dollars, which is eleven times their
current operating budget.

4) After corporate corruption cases like Enron and Worldcom, business
experts emphasize the importance of conflict of interest policies for a
corporation's board of directors, officers and trustees. In the case of
the Shriners, there have been years of 100% overlap between those on
both the Shriners' 501c10 fraternal board also sitting on the Shriners'
501c3 charitable board. There have also been years when hospital
officers sat on both boards.

5) The lack of disclosure on the Shriners' tax returns of real estate
transactions involving Lewis Molnar, recently retired CEO of Shriners
Hospitals for Children, Charles Cumpstone, recently retired executive
vice president and Donald W. Peirce, a recently deceased employee. The
last real estate transaction took place in 2003 and was not reported to
the IRS.

6) On October 17, 2000, a Resolution was filed with the Polk County
Clerk, Florida, that grants the Shriners' top echelon unlimited power to
execute all types of financial transactions without accountability to or
oversight by internal governance committees. This change in governing
documents was not reported to the IRS.

7) In 1998, the Shriners had a beginning cash balance of $354 million.
By the end of the year, they lost over $351 million or 99.1% of what
they started with. In 2001, they lost $614 million in investments. And in
2002, the Shriners lost nearly 16% of their investments, down by $1+
billion dollars or $1,045,760,830.

8) Fraternal Articles of Incorporation state that "The objects and
purposes of this corporation and business to be transacted by it areto
maintain, control, conduct and superintend any and all charities,
benevolences and hospitals now established, maintained and controlled by the
Imperial council and to create and maintain a charitable and educational
fundfor the purchase, erection, operation and maintenance of Shriners
Hospitals for Children." This does not match what the fraternal
organization states as their purpose on their tax returns.

9) Over the past three years, Hill and others have asked Shriners
leaders questions like "Where does all the money go?" Instead of receiving
any answers, these Shriners have been ignored, kicked out, removed from
committees and in the case of Hill, sent a "cease and desist" email
from Shriners corporate attorney. Is there further punishment for such
actions? According to Shriners ritual, the punishment is "In willful
violation whereof may I incur the fearful penalty of having my eyeballs
pierced to the centre with a three-edged blade, my feet flayed, and I be
forced to walk the hot sands upon the sterile shores of the Red Sea until
the flaming sun shall strike me with livid plague, and may Allah, the
god of Arab, Moslem and Mohammedan, the god of our fathers, support me
to the entire fulfillment of the same. Amen. Amen. Amen." (1)

10) It appears that the "Cease and desist" email sent by the Shriners
corporate attorney to Hill violated the "Whistle blower Protection"
provided by the Sarbanes-Oxley Act. In July, 2003, the Sarbanes-Oxley Act
was signed into law after corporations like Enron were caught illegally
pursuing annual profits rather than maintaining sound business
practices. The law calls for new standards for governance, financial
transactions and audit procedures. It calls for the establishment of an
independent audit committee, policies that address insider trading and conflicts
of interest, spells out the responsibilities of auditors, requires
certified financial statements, mandates the disclosure of tax returns in
an "easily accessible way," provides whistle blower protection and
addresses document destruction so as to prevent criminal obstruction.


Unanswered Questions

Two sets of questions have been emailed to the Shriners Director of
Public Relations; the first sent on 7/11/06, over a month ago and the
second sent on 7/28/06, nearly three weeks ago. To date, both remain
unanswered.

The first email asked about the Shriners hiring a lobbyist named
Hershel Gober, former Director of Veterans Affairs for the Clinton
administration. These questions included "Why was this relationship reported to
the U.S. Senate but not disclosed on the 2005 tax returns?" and "Why
would Gober, as confirmed by Gober himself, lobby against the
Sarbanes-Oxley act on behalf of the Shriners Hospitals for Children?" Other
questions include:

1) Specifically, what are the points of Sarbanes-Oxley that the
Shriners lobbied against? 2) What did the Shriners hope to accomplish by
lobbying against Sarbanes-Oxley? 3) Who was involved with the meetings set
up by Mr. Gober? 4) Who is currently lobbying on behalf of the Shriners?
5) Are the Shriners still lobbying against Sarbanes-Oxley?

Are these issues that address non profit transparency and
accountability important? The General Accounting Office and Senator Chuck Grassley,
Chairman of the Senate Committee on Finance, seem to think so. The
second email sent to the Shriners asked questions similar to those asked by
a July 28, 2006 General Accounting Office (GAO) survey and by Senator
Grassley.

According to the GAO survey cover letter:

"As a part of Congress's continuing efforts to oversee the activities
of the nonprofit sector, you asked us to review executive compensation
issues at selected private, nonprofit hospital systems to gain an
understanding of the policies and practices related to the salaries,
benefits, travel, gifts, and entertainment expenses paid by these hospital
systems. Our study's key questions were as follows:

· What corporate governance structure do selected hospital systems
report as having in place over executive compensation?

· What is the basis for the compensation and benefits earned by,
awarded to, or paid to the executives as reported by selected hospital
systems?

· What internal controls do selected hospital systems report as having
in place over the approval, payment, and monitoring of executive travel
and entertainment expenses, gifts, and other perquisites?"

Senator Grassley had this to say about the study:

"We need to insure that charitable assets benefit those who need them
most rather than those who need them leastIn my experience reviewing
charities that have failed their mission, poor board governance unites
them all. When the board members fail to understand the gravity of the
task before them, charities sufferIn 17 percent of the cases, the CEO or
other top paid executives were voting members of the executive
compensation body. In essence, they were voting to give themselves their
salaries and benefits. Critical audits of personal entertainment expenses,
spousal travel, automobile expenses, and social club dues are not being
performed on a regular basis"

On May 25, 2005, Senator Grassley sent out his own set of questions,
asking non profit hospitals to account for activities related to their
non profit status. "The Congress is considering the issues of tax-exempt
organizations and particularly the duties and requirements of public
charities in relation to the billions of dollars in tax benefits that
tax-exempt organizations receive at the federal, state and local level,"
he wrote.

Here are some of the unanswered questions emailed to Shriners Hospitals
for Children. Those in common with the GAO and/or Senator Grassley are
marked as such.

1) Is there a conflict of interest policy or other disclosure mechanism
for Board Members, Officers, Trustees and others in high level
positions for both the fraternal and charitable organizations to disclose any
investments or others interests in companies or organizations who have
patent licenses/agreements/contracts with Shriners Hospitals or that are
the result of research done at any of the Shriners Hospitals or on
behalf of Shriners Hospitals or by anyone associated with Shriners
Hospitals? (Q7, Grassley)

2) None of the tax returns list expenses or expense accounts for any of
the Officers, Directors, Trustees or Key Employees for either the
charitable or fraternal organizations. Please provide the last three years
of expense reports or other accounting information for these
individuals. (Q21, Grassley. Q36, Q37, GAO)

3) Are there annual performance audits of the Board members, Trustees
and Officers of both the charitable and fraternal organizations? (Q18,
GAO)

4) When the officers, Directors and trustees serve on both the
charitable and fraternal boards, are their expenses paid for in both
capacities? (Q36, GAO)

5) Will you please provide a list of the board meetings for the past
three years for both the fraternal and charitable organizations, to
include date, location, who attended as well as expense reports or
accounting for each of those who attended as well as for costs paid for by both
organizations? (Q36, Q41, GAO)

Here are some of the unanswered questions raised in previous articles
that were also asked by the GAO.

1) Does your hospital system make loans to its CEO or any of the other
top four executives? (Q30, GAO)

2) Since January 1, 2004, has your hospital system made loans to its
CEO or any of the other top four executives for the following purposes,
specifically real estate? (Q 31, GAO)

On Monday, July 31, a call was placed to Shriners Headquarters to
determine if Alicia Argiz-Lyons, the Shriners Corporate Director of Public
Relations had received the emailed questions. She answered the phone and
confirmed that the emailed questions had been received.

When asked about the conflicts of interest of real estate transactions
between Shriners Hospitals for Children and Lewis Molnar (recently
retired hospital CEO), Donald Peirce (IT employee who recently died) and
Charles Cumpstone (recently retired executive vice president),
Argiz-Lyons answered "One is dead and the two others are not here any more. And
besides, they happened when the Shriners moved their headquarters."

I then suggested that Argiz-Lyons answer did not negate the fact that
these transactions happened and I suggested that she search the public
records to locate the real estate records in question. I told her that
the real estate transactions had not been reported to the IRS.
Argiz-Lyons said that the IRS had "been down there for 18 months and found
nothing wrong."

She then asked me if I'd been to a Shriners Hospital for Children? I
said no, I had not and certainly, the good that was being done on behalf
of the sick and crippled children was commendable.

She then said "If you really want to help the children, you'll stop
spending all your time asking questions."

As a professional courtesy and as the "fact checking" process I've used
for the past five years, an email was sent to Argiz-Lyons on Friday,
August 4, to provide her the opportunity to confirm or deny what had been
said during our July, 31 conversation. To date, this, and the previous
two emails, remains unanswered.

These unanswered emails seem to follow the Shriners Hospitals for
Children pattern of stonewalling questions about their finances. The
questions that need to be asked now are "Why do they refuse to answer the
questions?" and "What might they be hiding?"

(1) The Encyclopedia of Fraternities, by Albert Stevens

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