Mortgage Madness? Shriners: Part 16
Sat Jun 16, 2007
news, irs, shriners, senate-finance-committee, sarbanes-oxley-act, dorchester-shrine-clubSandy FrostDisclaimer: Go to your local Starbucks and get a 20oz. quad shot Mocha. Or if you are lucky enough to live near a Dutch Brothers, get a 5 shot 911. This will help you stay awake during the part about exempt organization tax return reforms. You have been so warned!
Editor's note: This is the most recent installment in a series of investigative articles looking into financial irregularities associated with the Shriners. Two weeks ago, Newsvine.com and I received an award from the Society of Professional Journalists in the "Online Special Report/Enterprise (Original) category. If you go to the whole list you will see that I received first Honorable Mention and placed before such media giants as the Seattle P-I and MSNBC.com. Soon after, I was honored by Newsvine.com by being presented with the "Random Act of Vineness Award." These awards are to be shared with all those here at Newsvine.com and all of those who have supported my work. Thanks to Jeff Rense for running this series without hesitation or question. He was there for me before I discovered Newsvine.com. Prior to that, he ran my first few stories before I landed here. Visit his site and become part of the 10 million hits he gets each month. Thank you all for being here, Sandy
It seems that when Shriners get near mortgages, things start to go kind of crazy.
The Orlando Sentinel reported twenty years ago that Shrine leaders and employees used over a million dollars of charitable donations for personal mortgages that were not reported on any of the Shriners Hospitals for Children tax returns.
A recent analysis of the Hillsborough County, Florida Clerk's files revealed an unusual pattern involving personal mortgages being taken out on Shrine leaders' homes, then paying them back in unusually short periods of time.
For example, former comptroller, John Cawood, took out a mortgage for $150,000 on his home on March 4, 1987 and paid it off about 90 days later. More recently, Lewis Molnar, former CEO of the Shriners Hospitals for Children, took out a mortgage for $100,000 on July 8, 2002 and paid it off a year later.
The focus of this story, however, will be on how last year's Potentate of the Omar Shrine Temple in Mt. Pleasant, South Carolina, stormed into a meeting of the Dorchester Shrine Club (DSC) last August, with deputy Sherriff's in tow "to keep the peace if things got rough" and, without warning, removed the club's officers, suspended the club's bylaws and took control of the club's finances because:
- The club's leaders had been warned "over and over about the breeding ground of drugs, excessive drinking, fights and the language"
- The club's leaders had "totally disregarded Shrine Law"
- The club's officers had "totally disregarded the Potentates directives"
- The temple had "received letter after letter and phone call after phone call after phone call complaining of the immoral conduct" at the Dorchester Shrine Club
- The club's officers allegedly refinanced the mortgage numerous times without permission
- The club's officers were allegedly delinquent in their mortgage payments
As a result, the past Potentate who did all this, Jimmy James, and the current potentate, Jack Thompson, have made it a top priority to pay off the DSC mortgage this year, which is in direct conflict with their stated non profit purpose of holding "fundraising events for the support of the Shriners Hospitals for crippled and burned children." According to the Dorchester Shrine Club's financial report for 2006, only $276 was sent to the Shriners Hospitals for Children, yet over $40,000 of the club's assets went to pay down the mortgage from $70,500 down to $26,500.
HOW THE SHRINERS OPERATE
Before we get into this story, here is a quick explanation of how the Shriners operate.
The actual food chain of command, linear from the top down, goes like this:
- Imperial Potentate is the leader of the 501c10 non profit corporation, is the head of the Imperial Divan and is the ruler of all Shrinedom
- Temple Potentates, who rule the 191 fraternal mosques and are accountable to the "Most Worshipful Illustrious" Imperial Potentate
- Club and unit officers who are under the temple potentate's command
- Members of the temples, clubs and units, who must not question what they are told or else they are kicked out, suspended or sued.
The Shriners consist of two exempt organizations, more commonly known as non profit groups.
The Shriners Hospitals for Children is:
- The parent organization that runs 22 hospitals
- Classified by the IRS as a 501c3 charity
- Known for providing free medical care for crippled and burned children
- Worth about 10 billion dollars
The Shriners fraternal is:
- Formally known as The Imperial Council of the Ancient Arabic Order of the Nobles of the Mystic Shrine or the AAONMS
- Classified by the IRS as a 501c10 fraternity
- Made up of 191 mosques or temples that, in turn, control the 1,900+ clubs and units under them
- Known for raising money to help the burned and crippled children receive free medical care
The IRS grants conditional non profit status that is based on what the exempt organization reports on their tax returns. The past few years, the IRS and Congress have cracked down on non profit fraud and corruption. For example, after a Washington Post investigation and Congressional hearings, The Nature Conservancy has become a model of non profit transparency, accountability and disclosure. If you go to their site, you'll find their tax returns, annual reports, bylaws, articles of incorporation, financial reports, meeting minutes, governance documents and more.
You will find no such thing on the Shriners site.
CONGRESS AND IRS REFORM EXEMPT ORGANIZATION TAX RETURNS
In fact, the Senate Finance Committee and the IRS issued press releases yesterday, June 14, 2007, announcing, in the name of increased non profit transparency, the exempt organization tax return, more commonly known as the 990, will be revamped for the first time in 25 years.
According to the IRS's announcement:
"Most organizations should not experience a change in burden," said Lois G. Lerner, director of the IRS's Exempt Organizations division. "However, those with complicated compensation arrangements, related entity structures and activities that raise compliance concerns may have to spend more time providing meaningful information to the public."
In releasing this redesigned form, the IRS said it is soliciting comments, especially in connection with the goals of increased transparency of information and use as a compliance tool. The comment period lasts until Sept. 14, 2007.
The leaders of the Senate Finance Committee, Senators Max Baucus, committee chairman, and Chuck Grassley, ranking committee member, stated in a May 29, 2007 letter to the Secretary of the Department of Treasury, Henry Paulson:
"We are writing to you regarding the issue of charities and transparency…The discussion of transparency and openness naturally centers upon the Form 990 that charities file with the IRS. …In addition to the public benefits of improved openness and transparency, we believe that an updated and more thorough Form 990 will allow the IRS to better identify those entities that warrant additional review or further questions."
The new form is designed to make charities accountable by asking for more information in the areas of:
1. Executive compensation. "Some charities are as creative as for-profit entities in providing compensation – paying for housing, first-class travel, spousal travel, deferred compensation, inventive compensation and bonuses, fringe benefits, loans , dining and often entire life-styles."
2. Endowments. "The former Commissioner of the IRS spoke a few weeks ago, prior to his departure, that charities needed to provide charitable work commensurate with their resources…this is keeping with the commonsense view of the American taxpayer who subsidizes by billions of dollars a year the work of charities – that the point of giving is to help the community and those in need and not help a charity build an even bigger bankroll."
3. Related Organizations. "As discussed above, there needs to be a complete understanding of all related organizations – both for-profit and non profit – of a charity. It is important that the public be able to understand the big picture of what is going on a charity. It is for a similar reason that Congress enacted legislation to make the Form 990T publicly available."
4. Joint Ventures "To know the work of the charity it is critical to understand the joint ventures in which the organization is engaged."
5. Governance. "Time and time again, we have seen poor governance at the core of problems at charities. The IRS Commissioner in his March 2005 letter to the Finance committee made a similar finding. The Form 990 can serve a useful purpose of bringing a focus on governance issues both for the board and management of the charity as well as the public."
6. Dollars raised v Dollars for Charity. "There is probably no greater interest of the public then wanting to understand the answer to this question when they make a donation: How much of the money is actually going to the charitable activity?"
7. Hospitals. Many of the issues we've discussed above have significant applicability to hospitals.
DORCHESTER SHRINE CLUB MAKES HEADLINES
The public was first made aware of problems at the Dorchester Shrine Club last year after the Charleston Post and Courier published "Shriners Lament Takeover of Club: Members of Dorchester Group Say New Leaders Will Harm Mission" on Sunday, December 31, 2006.
"It felt like a raid," the article described what some called a "Gestapo-like takeover."It continued by describing how the potentate of the Omar Shrine Temple swept into a DSC meeting last August with police at his side, and announced he was taking over.
One Shriner of 20 years, Dick Pollard, "asked the potentate about the reasons for the changes in authority." Pollard is quoted as saying "His answer to me was 'Dick, I am the potentate. I can do it.'"
According to the article, the Dorchester Shrine Club raised $1,800 for Shrine hospitals in 2006, yet financial documents indicate that only $276.05 was actually sent to the charity. The same document shows that the club somehow came up with over $44,000 that went towards paying off their mortgage. A second article followed five days later and quoted potentate Jimmy James as saying he was forced to replace the officers because of complaints that they violated club bylaws and failed to obey his orders. The former officers were, according to James, "abusing their privileges and demonstrating conduct unbecoming of a Shriner."
There was no further follow-up by the Post Courier, so here we are, picking up where they left off.
On August 17, 2006, potentate Jimmy James issued a statement that explained that:"the bylaws of the DSC were suspended and the club "is now under his control. He then wrote that :
"ALL officers, Board of Directors, Board of Trustees and Appointees are removed from office and that all funds including check books, cash advances to the club and cash on hand will be turned over to the temple treasurer IMMEDIATEY and that the potentate shall appoint" all officers and committee chairmen."
"Nobles," James wrote, "We are distressed that the morals of some have caused these orders" and that "you have been forewarned over and over about the breeding grounds of drugs, excessive drinking, fights and the language" and that "the Club officers have totally disregarded Shrine Law."
"The temple has received letter after letter and phone call after phone call complaining about the immoral conduct that exists. THIS WILL STOP OR ELSE OTHER MEASURES WILL BE IMPLEMENTED. (Article 37, 337.3) – (1986 Proceedings) The Potentate having control over a Shrine Club may, during his term in office, terminate its existence, and he may authorize the formation of a new Shrine club. (Article 30, 330.1) 'A Noble is subject to discipline by the Temple of which he is a member, or by the temple within jurisdiction he resides, for conduct unbecoming a Noble of the Mystic Shrine or for violation of Shrine Law.'"
James apparently thought it convenient to rely on county sheriff's for his protection when he removed the DSC officers, yet embraced Shrine law, instead of the law of the land, by failing to prosecute these alleged crimes. In the matters of the drugs, drinking and fighting reported by James, the Dorchester County Sheriff's Department stated that "No one has made any written reports as to what Mr. James is claiming."
According to a statement from the past president who was thrown out, Gordon Brown:
"This was done abruptly, without even the human decency of a fair and reasonable notice and with the additional insult and attempted intimidation of an array of several law enforcement officers accompanying them."
"As reasoning for the removal," he continued "the Potentate cited that an alleged stack of 'complaints' against the President and club were piling up at a rate of about 16 a week. When we were removed from office we were given no chance to be informed of the nature and cause of the accusations. "
Then, there is the question of who Okayed the potential suspension of Dorchester Shrine Club whistleblower, Dick Pollard. He claims he was threatened with suspension at a meeting called by appointed club president, Bill Ackerman because "he talked too much." Pollard claims he was told that the threat of suspension came down from the potentate. According to current potentate Jack Thompson, he had no idea that Pollard was threatened with suspension and that "Bill Ackerman had acted on his own."
SARBANES OXLEY ACT PROHIBITS RETALIATION AGAINST WHISTLEBLOWERS
The removal off the officers and Pollard's threat of suspension may fit the definition of retaliation, which, according to the Sarbanes Oxley Act of 2002 is illegal. It was passed by Congress after the details of corporate fraud and white collar crime led to jail time for former executives of ENRON, WORLDCOM and TYCO International. It was discovered last year that the Shriners hired a consultant in 2005 to lobby Congress against the Sarbanes Oxley Act and failed to report this on their tax returns.
According to Independent Sector and BoardSource, two non profit policy groups:
"The Sarbanes Oxley Act provides protections for whistleblowers and imposes criminal penalties for actions taken in retaliation against those who report suspected illegal activities in an organization. It is illegal for any entity – for-profit and non profit alike – to punish the whistleblowers in any manner."
The act was designed to prevent corporate white collar crime and corruption but also, according to the article "Sarbanes Oxley and Social Clubs and Other Tax-Exempt Organizations" by James J. Reilly that was published March, 2005 in the CPA Journal Online, a publication of the New York State Society of CPAs:
"Because SOA is central to the management of publicly traded companies, it is reasonable for such officers and directors to consider its application to social clubs."
Reilly suggests that social clubs and other tax exempt organizations modify their corporate governance to include audit committees, internal controls designed to disclose material information to the groups officers, directors and key employees, conflict of interest policies, prohibition of loans, audit partner rotation, separate audit and consulting providers, whistleblower protection and record retention.
POTENTATES GONE WILD?
So, is all of this the doing of two potentates gone wild or did they, in 2006 and 2007, get permission from the food chain of command to remove the clubs' officers, suspend the club's bylaws, seize control of the club's assets, and then turn around and spend over $44,000, raised by the DSC, on the club's mortgage instead of sending the money to the hospitals?
According to the current potentate, Jack Thompson, the reason that the officers were removed and why the DSC mortgage needs to be paid off goes something like this.
Thompson claimed that the DSC mortgage had been refinanced 2 times without anyone's knowledge or permission and that the mortgage payments had always been paid late. Other club and temple officers reported that the mortgage had been refinanced up to 5 or 6 times but that the mortgage was always paid on time. Past officers have said that the mortgage had never been refinanced and that the payments were always made on time.
Additionally, there is no evidence that the mortgage was refinanced. According to officials at the Dorchester County Recorder's office, refinance documents are the same as mortgage documents and all mortgage documents must be filed and recorded with them. Only one set of mortgage documents is on file, dating back to May 31, 1994, and details a transaction for $250,000 between the Dorchester Shrine Club Holding Corp. and the First National Bank of South Carolina.
Current club members feel that they are being driven out, especially after a lake front camp ground was closed down at the same time the officers were thrown out. Now, with the potentate of the Omar Temple, Jack Thompson, calling the shots, the members claim that their voting rights have been suspended. Earlier this year, a motion was made, seconded and approved at a meeting of the Dorchester Shrine Club to give $1,000 to the Hospitals for Children. This action was overturned by Thompson who ignored the vote and said that the $1,000 would go to pay off the DSC mortgage.
SHRINER HQ REFUSES TO ANSWER QUESTIONS
Current potentate Jack Thompson and Omar Temple recorder, Verle Bohrn, claim that they have spoken with Shrine attorney Ted Corsones and the corporate legal department on numerous times, taking their directions from such higher-ups to "shut the club down."
Numerous phone messages and emails left for and sent to corporate director of public relations for Shriners Hospitals for Children and the Shriners of North America, Alicia Argiz-Lyons, and attorney Ted Corsones remain unanswered.
So why are the DSC members being treated like mushrooms by the past and current potentates?
Some advance the possible theory that this stems from a three year old vote by Dorchester Shrine Club against the Shrine Director's staff building a large garage-type structure on their property. Today, 25 of the Director's staff are joining the Dorchester Shrine Club and will soon control the majority vote, allowing them to approve the project. The Shrine director's staff currently works out of the 5 acre site that the Omar temple sits on.
Another possible theory is that, somehow, the attorney for both the temple and club, who is also a big time developer who has built residential communities around the Dorchester Shrine Club, is waiting in the wings for the chance to grab 35 of the club's 75 acres after their mortgage is paid off.
Others theorize that the Omar temple, who bought their 5 acre site for $2.5 million, may sell it for the appraised value of $11 million and, with the vote stacked in their favor, move the temple to the Dorchester Shrine Club without opposition. If the property is, indeed, sold and a profit of nearly $9 million is realized, the Omar Temple could then move to the Dorchester Shrine Club without paying for a new site. If the Omar temple was sold, would the potential $9 million profit go directly to the hospitals or would it go elsewhere?
WHERE DOES THE SHADOW OF DOUBT LIE?
It comes down, again, to tax returns. Apparently, if it's ok for headquarters to leave things off their tax returns, it's ok for everyone else to do the same.
If the leaders of the Omar temple are doing the right thing, will the current potentate report to the IRS the compensations he's receiving from the free advertisements for his truck business that run at the top of every page of the temple's newsletter, the Infomar ? And why do the temple's 2004 tax returns (most recent available at www.guidestar.com) fail to report things like:
- The potentate's travel allowance, reported by Jack Thompson to be $12,000 a year
- The recorder's salary, reported by temple recorder Verle Borhn to be $100 a month
- The financial reports from the clubs on their "group" return
- Related organizations
Related organizations? Remember, this is the third item on the list of reforms established by Congress for the revamped 990s. This is something that is not reported on either Shrine charitable and fraternal tax returns, from the top all the way down. Generally, the hospitals list that they are related to the fraternal side and vice versa. But that is it.
For example, to become a Shriner, one must be a master Mason. Question 80a on the current tax return asks:
"Is the organization related through common membership, governing bodies, trustees, officers, etc, to any other exempt or nonexempt organization?"
Clearly, one group that should be listed here is the Masons. Masons can become members of the Scottish Rite, Knights Templar, Shriners, etc. These groups and others are often listed in the online biographies of the Imperial Divan. Shrine leaders can join, by invitation only, another affiliated group that is not listed, the Jesters. This is an underground group where the leaders are rumored to party like rock stars, Motley Crue style.
For example, Charley Miller is listed as an appointed member of the Dorchester Shrine Club's advisory board and, according to the Royal Order of Jester's Court 113 tax returns , he keeps their books. The returns also describe the Jester's exempt purpose as "helping crippled children." Neither the Shriners' nor the Omar Temple's tax returns list the Jesters or any other related groups.
Are all the unreported groups, mortgages and compensations intentionally omitted from the Shriners' tax returns to keep them secret?
Do these omissions constitute:
Failure to file or supply information or pay tax?
Aiding or assisting false or fraudulent documents?
Fraud and false statements?
Removing or concealing with intent to defraud?
Providing fraudulent returns and statements?
Providing false, fictitious or fraudulent claims?
Conspiracy to commit offense or to defraud the U.S.?
Only investigators from the South Carolina Secretary of State's office, the IRS and other three letter agencies can know for sure.