The AG Provides a “How Not to” Manual for Charities

August 15, 2012 Posted by The Law Firm for Non-Profits, P.C. in Board, Director Duties, News

As CNN reported last week, the CA Attorney General filed a claim against Help Hospitalized Veterans (HHV) accusing the board of, among other things, diverting and wasting charitable assets. The AG alleges that the board approved excessive compensations, failed to have an adequate policy on employee reimbursement, made imprudent loans, and donated money to another charity that wasn’t in furtherance of its tax-exempt purposes (and also was  without sufficient inquiry or an accounting).

One of the other AG allegations targeted a fundraising issue we recently posted about. Specifically, the AG alleges that HHV artificially inflated its program service expenses to minimize its fundraising costs so that it would attract more donors (who don’t like to see their dollars going to fundraising).

While nonprofit executive board members should read the complaint, professional advisors will surely want to take extra notice. This is because the AG brought specific charges against HHV’s accounting firm. These claims include aiding and abetting breaches of fiduciary duty, filing false and misleading informational returns, and providing approval of excessive compensation to HHV’s president. The AG noted that the accounting firm acted in “callous disregard” of the law in all of these areas and knew or should have known that things were afoul.

The AG is calling for the removal of the entire board and the overpaid officers’ repayment of all excess compensation to HHV.

Download the full complaint here. And print it out for all directors, officers, staff, and professional advisors to nonprofits.

You can also watch Anderson Cooper’s interview of AG Kamala Harris re the HHV complaint here.

NOTE: The information contained herein is not intended to be legal advice and the reader should know that no Attorney-Client relationship or privilege is formed by the posting or reading of this article which is also not intended to solicit business.

Casey Summar, Partner, The Law Firm for Non-Profits, 4705 Laurel Canyon Blvd, #306, Studio City, CA 91607

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