Minimum Of Disclosure To The IRS

The Minimum Of Disclosure
To The IRS - Shriners Part 11
By Cassandra 'Sandy' Frost
12-12-6

What would you think of a charity group whose director of accounting told their treasurers to "do the minimum of disclosure to the IRS"? Here is a quote from page 72 of the winter 2003 Shriners Treasurer's Association minutes (1):

"Going to the second page (of the IRS tax exempt return 990), there's too much work being done, I'm not being over critical, I'm just saying let's just do the minimum disclosure to the IRS" - Bob Phillips, Director of Temple Accounting

Clearly, there is a difference between "minimum disclosure" and "non disclosure." An analysis of the returns of filed by the Shriners Hospitals for Children, form 990, dating from 1998 to 2005 suggest the following "non disclosed" discrepancies. Due to lack of space, four of eight examples will be presented.

1. The 990 Part VI, question 80a asks: "Is the organization related through common membership, governing bodies, trustees, officers, etc to any other exempt or nonexempt organization:"

The Shriners Hospitals for Children answer "yes" on their 990s and indicate affiliation only with the Shriners fraternal, AKA the Imperial Council of the Ancient Arabic Order of the Nobles of the Mystic Shrine for North America. Analysis of the Shriner's Imperial Divan Officers 2006 2007 at http://www.shriners.com/Shrine/Divan/ indicates the Shrine officers are also members of:

The Boards of Directors for both Shriners of North America and Shriners Hospitals for Children Royal Order of Jesters and the Cabiri Royal Order of Scotland Red Cross of Constantine National Sojourners Order of Quetzalcoatl Order of DeMolay The Scottish Rite The York Rite Knights Templar in the York Rite International Order of Demolay

Documents recorded in Hillsborough County Clerk's office list both Shriners and Masons in real estate transactions together. These affiliations are not disclosed on the charity's tax returns for the years 1998 through 2005.

A quick note of explanation here. The first rank for any of these groups is that of a "Blue Lodge Mason." From there, the applicant must pass tests and be subjected to sometimes painful rituals as he moves up through three Degrees till he becomes a Master Mason. He can then pursue dues paying membership in the above mentioned organizations. "Grand Lodges" are organized on a state level and oversee that state's Masonic activities.

2. Schedule A, Part III "Statement about Activities" question 1 on the Shriners 2005 tax return reads:

"During the year has the organization attempted to influence national, state, or local legislation, include any attempt to influence public opinion on a legislative matter or referendum."

According to documents filed with the Clerk of the House of Representatives and Secretary of the Senate, lobbying reports were filed by former VA head Hershel Gober and state that he lobbied on behalf of the Shriners in 2005.

From an unanswered email sent to Shriners corporate on July 11, 2006:

"According to documents available through Congress' lobbying disclosure records, in 2004, the Shriners terminated their lobbying relationship with Campbell-Crane & Associates. Hershel Gober registered as a lobbyist on behalf of the Shriners with the Clerk of the House of Representatives and Secretary of the Senate on 2/9/05 and 7/22/05. Listed as specific lobbying issues on the 2/9/05 registration is "Sarbanes-Oxley Bill." (2) I called Mr. Gober about a week ago and asked him about lobbying against Sarbanes-Oxley on behalf of the Shriners and he said that "the Shriners were concerned that the bill might have an impact on people donating to Shriners" and that he "set up a few meetings."

Again, the 2005 lobbying question was marked "no."

3. Part VI, question 77 on the 2000 990 tax return reads "Were there any changes made in the organizing or governing documents but not reported to the IRS?" On October 17, 2000, a Resolution was filed with the Clerk of Polk County, Florida, which is due east of Hillsborough County, where both Shriners groups are head quartered. The paraphrased resolution reads: "Be it resolved that any one of the following officers; the Chairman of the Board of Directors; the President; the First Vice President; the Second Vice President; the Secretary; the Assistant Secretary or the Treasurer, is authorized, on behalf of the Shriners Hospitals for Children:

A) To accept annuities, gifts, bequests for the benefit of the Corporation and/or any individual Shrine Hospital.

B) To demand, recover and receive from any fiduciary or other persons any property of any nature for the benefit of the Corporation and/or any Shrine Hospital by any person or under any will, trust agreement, or other instrument.

C) To execute documents in suits and proceedings in which the Corporation has an interest and settle lawsuits, claims, debts or controversies of whatever nature affecting the Corporation.

D) To transfer, convert into other securities, endorse, sell, exchange, assign, and deliver any shares of stock, bonds, notes, options, and evidences of indebtedness or other securities owned by said Corporation and to execute and deliver all written instruments of transfer.

E) To endorse notes, checks, drafts, bills of exchange or other collection items which may require the endorsement of said Corporation for deposit as cash or collections.

F) To make and execute such agreements and documents as may be necessary concerning the tangible personal properties of the Corporation and to execute documents necessary to comply with any legal requirements of the Corporation with governmental authorities.

G) To transfer any property, real or personal, to any fiduciary with which the Corporation has a contract for investment management. H) To accept gifts and devises of real property, mineral estates and water rights, for the benefit of the Corporation and/or any individual Shrine Hospital."

The next section conveys broader powers of buying and selling to various combinations of two of the above mentioned officers and directors. The third section gives similar individual powers of buying and selling to the General Counsel, the Managing Attorney and the Second Vice President. This resolution offers no accounting, GAAP review or other oversight provisions.

The answer to the question 77 is marked "No." The Shriners did not report this change in governing documents or provide a copy of the resolution to the IRS.

4. Part III, question 2 on the 990 tax return reads: "During the year, has the organization, either directly or indirectly, engaged in any of the following acts with trustees, directors, officers, creators, key employees or members of their families or with any taxable organization for which any such person is affiliated as an officer, director, trustee?"

Part a. reads:

"Sale, exchange or leasing of property?"

For the years 1998 to 2005, this question is marked "no."

An August 3, 1986 Orlando Sentinel article "$1 Million in Charity Went to Shrine Staff for Home Loans" describes to the following transactions. Documents filed with the clerk of Hillsborough County, Florida, record the mortgages between the Shriners Hospitals for Children and the following :

Lewis Molnar, CEO, Shriners Hospitals for Children, 10/11/79.

Charles Cumpstone, Executive Vice President, Shriners fraternal, 7/25/79, 10/05/79, 2/16/84.

John Cawood, Comptroller, 6/3/80, 6/12/81. The first mortgage was satisfied on 1/26/01 but was not reported on the 990 tax return for that same year.

Mary Katherine Achorn, employee, 6/28/79.

Paul Barber, employee, 2/29/80. The mortgage was satisfied on 2/9/98 but was not reported on the 990 tax return for that same year.

Celia Fan, employee, 9/14/79. Satisfied 5/18/94.

Henry Gorman, employee, 8/27/80. Satisfied 2/19/93.

Paul Ibach, employee, 8/15/79. Satisfied 5/6/96.

Donald Peirce, employee, 7/3/79. The mortgage was satisfied on 9/23/03 but was not reported on the 990 tax return for that same year.

Ronald Ziska, employee, 4/3/79. . The mortgage was satisfied on 5/18/02 but was not reported on the 990 tax return for that same year.

When asked on Monday, July 31, 2006 about the undisclosed 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), Alicia Argiz-Lyons, the Shriners Corporate Director of Public Relations answered "One is dead and the two others are not here any more. And besides, they happened when the Shriners moved their headquarters."

Again, the real estate question was marked "no" on the 1998 2005 tax returns. Additionally, information regarding conflict of interest, compensation and expense accounts and excess benefit transactions was not disclosed on the Shriners' tax returns.

In conclusion, both groups enjoy the collective benefits of tax exempt status by not paying millions in federal, state and local taxes each year. Yet both groups seem to embrace secrecy rather than the highest standards of non profit disclosure, transparency and accountability. Additionally, both groups fail to voluntarily disclose their 990s, annual reports, audits and board minutes, among other things, on line and to date, a request for tax returns remains unanswered.

The question that must be asked is "Why?"

(1)The minutes are online at http://www.shrinetreasurers.org/minutes.htm

(2)According to wikipedia.com:

"The Sarbanes Oxley Act is also known as the Public Company Accounting Reform and Investor Protection Act of 2002. Passed on July 30, 2002, it is a United States federal law passed in response to a number of major corporate and accounting scandals including those affecting Enron, Tyco International, and WorldCom (recently MCI and currently now part of Verizon Businesses). The legislation is wide ranging and establishes new or enhanced standards for all U.S. public company boards, management, and public accounting firms."

Overall, the act demands greater transparency and accountability from American corporations. Two of the law's provisions pertain to non profits. First, the whistleblower provision states that an organization must not retaliate against those who report alleged crime. Second, a provision states that documents must not be destroyed, particularly in light of possible federal, state and/or local investigations.



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