Leaders of California charity negotiate $3.5M settlement with A.G.

I’m just getting to some news from back in early September. A veterans charity settled a lawsuit from the California Attorney General. The AG asserted excess compensation and diversion of funds to personal use.

My summary is based on these articles:

The settlement contains several terms:

The estate of the late president will repay the charity $2 million for excess compensation paid to him over several years.

The insurance company providing D&O coverage will pay the charity $450K on behalf of the directors.

The current president and four board members agreed to resign from the board.

Those 5 individuals agreed to a lifetime ban. The president

… and four board members … all have agreed to be banned from ever serving a charity again in an executive capacity.

The Lake County News provides definition of what the ban looks like.  Those individuals

will be permanently barred from acting as an officer, director, fiduciary or trustee of any California charity.

Also, the California AG will approve the replacement board members.

Settlement as exoneration

Came across another article which asserts the settlement is an exoneration for the charity:  Help Hospitalized Veterans Cleared of Allegations.

The article has several comments which I will quote in context to make sure I get them right.

The second paragraph:

Under the terms of the agreement with the California attorney general’s office, HHV was exonerated of all charges.

From the third paragraph, quoting the organization’s attorney:

“The attorney general’s complaint and the subsequent litigation damaged HHV’s ability to help veterans,” he said. “To say the least, I’m very happy that the attorney general agreed that HHV and its board of directors had done nothing wrong and that HHV should continue its work.”

The press release summarizes the settlement as follows:

The agreement with the attorney general does not include any admission of guilt or finding of any wrongdoing, fault, violation of law, or liability by HHV. HHV has agreed to replace its board of directors with a new board whose members will be pre-approved by the attorney general. In addition, HHV’s current chief executive officer will retire.

Where did this article come from?

The top of the article has a logo announcing it is from the PR Newswire. That is a subscription service to send out press releases from companies and organizations.

The byline in the lede says:

WINCHESTER, Calif., Sept. 6, 2013 /PRNewswire-USNewswire/ — 

The closing paragraph of the article is:

SOURCE Help Hospitalized Veterans

Thus, the article is a press release from the charity.

Details in the settlement agreement

A press release from the AG can be found here.  In that press release, there is a link to the settlement agreement signed by all the parties, which can be found at the following link:

Also available here:

Another million in the settlement

I actually read through the settlement agreement. Lots of detail can be found in those kind of documents.

The three articles above and the press release left out two details.

First, in addition to the $2.0M restitution to the charity, the late, former president and his estate agreed to reimburse the state another $1.0M, which the settlement says is for investigative costs.

That brings the total settlement to $3.5M, if I’m reading the document correctly.

Second item not previously mentioned is …

The auditor participates in the settlement

Add up the amounts I’ve already mentioned and you get to $3.45M. Where’s the other $0.05M coming from?

Fine print in paragraph 3.11 says the auditor will pay $50K restitution to the charity. Camico is mentioned in the agreement as the party who will provide a check to the AG’s office which will in turn be returned to the charity as restitution.  Under California law, that triggers a requirement for mandatory reporting of the settlement by the CPA to the California Board of Accountancy. Hopefully the out-of-state auditor is aware of that requirement.

For some context, the 990 for FYE 7-31-10 on page 10, lines 11b and 11c show $85K for legal and $175K for accounting. The 990 for FYE 7-3-11 on page 10, lines 11b and 11c shows $85K for legal and $116K for accounting. As we all know, the 990 doesn’t give a breakout of how much of those accounting fees are for the audit, 990 preparation, and outsourced accounting/bookkeeping services. Those fees aren’t large enough to be listed in the top 5 independent contractors on page 8.

Putting all that together means the charity will receive $2.5M restitution and an additional $1.0M will be paid to the state.

As an aside for enterprising reporters who aren’t already following these issues, every piece of information I mentioned above is publicly available. It’s just a few mouse clicks away.

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