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Nonprofit pay rises under little oversight

GEORGETOWN - Five Rivers Community Development Corp., a nonprofit agency in Georgetown County, has operated with little apparent board oversight while the executive director's salary nearly doubled in four years, according to a review of the agency's records by The Sun News.

Beulah White, who helped found Five Rivers and has served as its only executive director, received a 91 percent salary increase - to $83,039 from $43,500 - between 2000 and 2004, the most recent year for which data is available.

The increases include a $17,203 pay raise, or 29.5 percent, in 2003. White also had raises of 18.2 percent in 2001, 13.3 percent in 2002 and 10 percent in 2004.

White is the 10th-highest paid director of 110 similar nonprofits in S.C., although her agency's annual budget was less than $500,000 in 2004 and the directors who make more money than she does manage more than $1 million a year, according to Guidestar, a nonprofit group that collects tax returns and financial data for 1.2 million nonprofit agencies nationwide.

Five Rivers ranked No. 14 in the state in 2004 with revenues of $411,508, according to Guidestar.

The average salary for executive directors of nonprofits in South Carolina that are of similar size to Five Rivers is $54,614 per year, according to Guidestar.

Five Rivers employs three people - White, a receptionist and Dayo Smith, who is White's daughter and serves as chief financial officer of the agency.

White's salary for 2005 and 2006 is not available because Five Rivers has not filed tax returns for those years and White would not tell The Sun New how much money she makes.

Smith's salary has increased 87.5 percent since she joined the agency - to $48,755 this year from $26,000 in 2000. Smith's salary for 2006 was included on a financial document she provided to The Sun News.

Smith is directly supervised by her mother. Her salary increases included a $10,619 boost, or 40.8 percent, in 2001. She also received raises of 7.5 percent in 2002, 9.6 percent in 2003 and less than 1 percent in 2004.

A review of Five Rivers' travel records shows White and Smith regularly write checks from the agency's bank account to each other, with no apparent independent oversight.

In some cases, White approves her own expense reports and authorizes payments to herself.

White prepares Five Rivers' annual budget, including setting salary levels. White presents that budget to Five Rivers' board of directors each year for approval.

The board, chosen by White, asks few questions about the agency's expenses, according to board discussions included in minutes of meetings and interviews of board members by The Sun News.

"The overall operation is done by the executive director, but we oversee what is happening," said board member Darren Holmes.

White told The Sun News she has never had a job performance evaluation and board members, with the exception of Holmes, say they have never approved raises for her or discussed her salary and benefits.

Paid by taxpayers

Five Rivers gets about two-thirds of its money from state and federal grants, which are funded by taxpayers. The rest of its money comes from foundations, contributions and other private sources.

Nearly half of the agency's expenses since 1996 - more than $1.5 million - have been for salaries, fringe benefits, travel, health and automobile insurance for staff members and other costs that benefit White, Smith and other Five Rivers employees.

White, Smith and other Five Rivers employees have spent $102,496 on travel since 1996. A review of the agency's travel-related documents shows staff members have turned in receipts for reimbursement of purchases, including artwork and $100 worth of tickets for a raffle, with the grand prize being a trip to Ireland or the Caribbean.

In many cases, there is no documentation among the travel receipts to show how the trips are related to the agency's stated purpose of providing affordable housing and enhancing economic growth for Georgetown County's low- to moderate-income residents.

The nonprofit gives White a 2003 Volvo and pays for the automobile's insurance.

Five Rivers also pays for health insurance for White and Smith. The agency's insurance costs totaled $39,069 in 2004.

About 9.5 percent of the agency's expenses between 1996 and 2004 were for financial assistance to Five Rivers' clients.

Five percent of the agency's expenses went toward consultants and technical assistance and training, some of which benefited Five Rivers' clients.

The rest of the agency's money has gone toward rent, office supplies and other operating costs, according to Five Rivers' federal tax returns and financial statements.

Federal concerns

Five Rivers' finances and the salaries paid to White and Smith are important because the Internal Revenue Service has strict rules about how much money and benefits nonprofit executives can take from the agencies they run.

The IRS ultimately holds a nonprofit's board of directors responsible for making sure money is wisely spent.

The IRS says the salaries of nonprofit directors must be in line with the pay at other nonprofits or businesses with a similar size and scope and in the same geographic location.

If a director's salary is deemed excessive, the IRS can fine an agency or revoke its nonprofit status.

"We are concerned that some charities and private foundations are abusing their tax-exempt status by paying exorbitant compensation to their officers and others," IRS Commissioner Mark Everson said in a news release.

The IRS, which announced a crackdown on excessive nonprofit pay in 2004, would not discuss specifics about Five Rivers.

The IRS can require nonprofit boards to provide proof - including a salary survey with at least three comparables - that a director's salary is reasonable.

Two of Five Rivers' board members, including the president and treasurer, say they have never conducted a salary survey and have never discussed or approved White's salary during board meetings.

Those board members said they do not know how much money White is paid.

"I'm not sure how the salary was arrived at," said Sam Livingston, the board's president and a member of the board since 2004.

Board members say they review general financial statements at their bimonthly meetings and approve a budget each year that has an aggregated salary figure that does not break down pay for individuals.

"Since I've been on the board, we have not discussed her salary," Livingston said. "It has never come up."

Little oversight

David Hamilton, the board's treasurer and a member of the board since 2004, said he has never reviewed White's salary.

A third board member, Marjorie Hemingway, said she has only been with the agency for a couple of months.

Holmes is the only board member who says the board regularly reviews and approves White's salary.

"We look at what other organizations within the nonprofit sector are getting paid and what she [White] has done over the past 10 years to get Five Rivers to where it is today," Holmes said.

White said she has never had a job performance evaluation by the board.

Holmes said the board has "a very active involvement" in Five Rivers' finances.

"Nothing transpires without the permission of the board," Holmes said.

White said the board "is not a hands-on board," but sets general policy while letting her run the day-to-day operations.

Daniel Borochoff, president of the nonprofit watchdog group American Institute of Philanthropy, said the Five Rivers board should vote on White's salary annually in a board meeting where White is not present.

Even if the board approves White's salary each year, Borochoff said, it still should independently verify that White's salary is reasonable.

"They need to be able to explain to the IRS why they need to pay that salary," Borochoff said. "They need to show that they could not hire anyone with equivalent abilities for less money."

Above her peers

White's annual salary of $83,039 is the highest among directors of the 28 state-certified community development corporations in South Carolina, according to a review of those nonprofit agencies' federal tax records.

White's salary also ranks No. 10 among the 110 nonprofits in S.C. that focus on community development projects, such as affordable housing and business programs for low-income residents. Those 110 nonprofits include a wide range of groups including CDCs, urban leagues and community action commissions that provide some of the same programs as Five Rivers.

The nine directors who make more money than White oversee annual budgets of at least three times Five Rivers' revenue of $411,508. All but one of those directors oversee multimillion-dollar agencies with operations more akin to a small- to medium-sized business than a nonprofit group.

Most directors of state CDCs with financial resources similar to Five Rivers - that is, annual revenues of between $100,000 and $1 million - work without any compensation, according to a review of documents filed with Guidestar.

White's salary has nearly doubled since 2000, although Five Rivers' budget has decreased in recent years, its staff has decreased from five full-time workers to three and the amount of time White says she spends working for the agency has not increased, according to tax records.

"Hopefully, the board is doing its due diligence to make sure the compensation is on the same playing field as similar nonprofits," said Mason Hardy, director of the S.C. Association of Nonprofits. "They are ultimately responsible."

White, a retired public school teacher, said she deserves the salary increases because she has taken on teaching and grant-writing work that used to be shared with other staff members who have left.

"We [White and Smith] don't have any assistance, so we are absorbing all the work," White said.

Fringe benefits

In addition to her salary, White has full-time use of the agency's 2003 Volvo automobile, health insurance paid by the nonprofit and a five-figure annual travel budget.

Borochoff said it is unusual for a small nonprofit to let its director use an automobile for personal reasons, and that personal use must be documented as a benefit that White receives. Five Rivers' tax records do not differentiate between personal and business use of the automobile.

"There needs to be a reason for having the car, and the board needs to account for that reason," Borochoff said.

Livingston and Hamilton said the board has never discussed letting White have the use of an automobile.

"I have never been in a board meeting or in any conversation where the car was a topic of discussion," Hamilton said.

Tax records show Five Rivers spends about $15,000 per year on payments for the Volvo and a 2000 Ford Econoline van the agency uses to transport clients.

A family business

Smith, the chief financial officer, is paid a salary that ranks higher than most top directors of state CDCs.

Smith, who had been studying chemical engineering in college, left school to join Five Rivers in 2000.

"She volunteered for about eight months and I told the board, 'Daughter or no daughter, we need to pay her,'" White said.

"We found some funding to underwrite her position and now she's the CFO and primary grant writer."

Hardy said most nonprofits, including the association he oversees, have rules against nepotism.

"I can't say that it's normal," Hardy said, referring to White supervising her daughter.

Gary Snyder, who publishes a newsletter about nonprofit abuses and is author of the book "Nonprofits: On the Brink," said there probably are not enough checks and balances in an agency where the top two employees are related and the only other employee is a receptionist.

"If you have friends on the board and relatives on the staff, that doesn't forbode good things," Snyder said. "The decision making process has got to be an arm's-length process. Even if nothing wrong is happening, you have the appearance of some potentially serious problems."

High board turnover

Five Rivers' board of directors has had 33 different members since 1998, the earliest year for which tax records are available to verify the information.

The board is scheduled to meet every other month, but has met just twice in regular session this year, according to records provided by White. The board also met in special session in June to sign a grant document.

The board is supposed to have no fewer than seven members, according to the agency's bylaws. The board currently has four members because some people have left the agency and replacements have not been found.

The current board is made up of: Livingston, manager of state-owned utility Santee Cooper's Garden City Beach office; Hamilton, vice president of a BB&T bank in Murrells Inlet; Hemingway, owner of a trucking business called Hemingway Logistics; and Holmes, director of educational talent search for Horry-Georgetown Technical College.

Many board members through the years, including Hemingway, have been students in the home buying, credit counseling or business programs Five Rivers conducts.

White said the agency's bylaws state that at least one-third of its board members must come from the income group and geographic region that Five Rivers serves. White said she often recruits those board members from the classes she and her daughter teach.

White nominates those people for the board, and board members then approve her nominations.

White and Hamilton said it helps to have former program participants on the board because they are more in touch with the community Five Rivers wants to serve.

"It gives us a better insight into the things we might need to change or improve," Hamilton said. "We encourage individuals who have benefited from the CDC to give back to the CDC by serving on the board."

Snyder said board members who have benefited from Five Rivers' programs might not be as objective as those people who have no prior experience with the agency.

Snyder said those people might be hesitant to question White's decisions.

"If they are not thoroughly embroiled in the policy making, roles can become confused and the board becomes lax in making decisions," Snyder said.

No specifics in statements

Five Rivers' spending is documented in financial statements and annual audits that are presented to board members.

Those documents present a general overview of revenues and expenses. Specific expenditures - for example, White's salary or where travel money is spent - are not broken down, board members said.

Minutes of board meetings show members ask few questions about salaries, travel and other Five Rivers expenditures.

The monthly financial statements and audits are prepared by Stephen Evans, a Murrells Inlet CPA who is hired by Five Rivers to do the agency's accounting work. Evans also prepares the agency's annual tax return.

Evans said his firm is allowed to prepare financial statements and audit those statements because Five Rivers makes all of the decisions about what accounts income and expenses, such as salaries and travel, should be placed.

"Therefore, we are not auditing our own work," Evans said.

The audits are conducted to make sure the dollar amounts included in expense and revenue categories are accurate.

Regardless of how Five Rivers accounts for its spending, nonprofit experts say they doubt the IRS would bother investigating the agency.

"The IRS is just so overwhelmed right now with bigger issues," Snyder said.

Borochoff said he agrees Five Rivers' relatively small size makes it an unlikely target.

"There is very little regulation of nonprofits by the IRS," Borochoff said. "They just go after the most outrageous abuses."

That means financial responsibility ultimately lies with Five Rivers' board of directors, Snyder said.

"The question is, who is overseeing the board," Snyder said. "Who is holding them accountable?"

Who's in charge

Members of the Five Rivers Community Development Corp.'s board of directors:

- Sam Livingston, board president, is manager of the Garden City office of state-owned utility Santee Cooper

- David Hamilton, board treasurer, is vice president of the BB&T bank in Murrells Inlet

- Darren Holmes is director of educational talent search for Horry-Georgetown Technical College

- Marjorie Hemingway is owner of trucking business Hemingway Logistics