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State to launch Five Rivers probe

The S.C. Secretary of State's office said Thursday it will investigate possible financial wrongdoing at Five Rivers Community Development Corp.

Also on Thursday, the president of the nonprofit agency's board of directors promised a complete review of the CDC's salaries, expenses and operating procedures.

"We're going to examine the information and if there were things done that were unethical, it will be dealt with," said Sam Livingston, president of Five Rivers' board of directors.

The board will meet Tuesday to begin its review of the agency.

"We're going to look at everything," Livingston said.

Melissa Dunlap, chief of staff for the secretary of state's office, said her agency will review Georgetown-based Five Rivers' financial documents and federal tax returns in coming weeks.

The action is in response to an investigation by The Sun News that showed Five Rivers operates with little apparent board oversight while the salaries for its executive director and chief financial officer have nearly doubled since 2000.

Beulah White, the agency's executive director, directly supervises her daughter, Dayo Smith, who is the chief financial officer. The only other Five Rivers employee is a receptionist.

Dunlap said Five Rivers failed to disclose the mother-daughter relationship between White and Smith, as required by the secretary of state, which regulates charities and nonprofits.

Five Rivers has run afoul of the secretary of state's regulations in previous years, Dunlap said. The agency was fined $910 this year because it has failed to file its 2005 financial statements. Five Rivers also was fined $420 in 2004 and $160 in 2003 for late filing of its financial statements.

Five Rivers also regularly requests extensions beyond the April 15 deadline for filing its federal tax returns. The agency filed its 2004 tax return on Nov. 15, 2005, for example. It has not yet filed its 2005 tax return.

Dunlap said Five Rivers will have to restate some of the information shown on those tax returns, including Five Rivers' assertion that all of the salaries paid to White and Smith in 2004 were for program expenses rather than administrative costs.

Such a statement on the tax return indicates White and Smith did no administrative work during the year. Nonprofit experts say that is unrealistic and that Five Rivers possibly categorized the salaries as program expenses so it would appear as if the agency spent more money on the nonprofit's clients instead of its employees.

Dunlap said it is too early to say what other corrections Five Rivers will have to make or what action the secretary of state's office will take. The office can fine a nonprofit agency or file an injunction to stop it from operating, depending on the severity of the problems that are found.

Livingston said the Five Rivers board will begin studying the financial information, including salaries and benefits, of other community development corporations in the Carolinas to develop new standards for Five Rivers.

Livingston said the board also will start conducting job performance evaluations of White, who has never had such an evaluation since she helped found the agency in late 1995.

"We're going to compare salary levels, job duties, resources, what other CDCs have done to affect economic development, everything we can look at to determine whether we are on the mark," Livingston said. "We're not going to cover up for anybody. If they're wrong, they're wrong."

Board member Darren Holmes declined to comment on Five Rivers until he meets with other board members Tuesday.

"At that time I will speak with the executive director and the other board members and see what, if anything, we will do," Holmes said.

Board member David Hamilton said he did not want to comment on Five Rivers. Hamilton, a vice president with BB&T, moved to the bank's Hilton Head Island office this month. He would not say whether he will resign from the Five Rivers board.

Five Rivers' bylaws state that there must be at least seven board members, although the agency has been operating with just four board members in recent months. Hamilton's departure would leave the board with three members.

Board member Marjorie Hemingway could not be reached for comment Thursday.

A review of the agency's records by The Sun News shows White and Smith regularly write checks to each other from Five Rivers' bank account, with no apparent independent oversight. White and Smith also approve each other's expense reimbursements.

The Sun News' investigation also showed 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.

A spokeswoman for the Internal Revenue Service would not comment on Five Rivers.

The IRS has strict rules governing how much money officers can take in salaries and benefits from the nonprofits they run. The IRS can fine an agency or revoke its nonprofit status because of excessive compensation, and it holds board members accountable for a nonprofit's finances.

Nonprofit experts have said they doubt the IRS would bother investigating the agency because of its relatively small size. Five Rivers reported revenues of $411,508 on its 2004 tax return, the most recent one available.

"The IRS is just so overwhelmed right now with bigger issues," said Gary Snyder, who publishes a newsletter about nonprofit abuses and is author of the book "Nonprofits: On the Brink."

What's next

The Five Rivers Community Development Corp. board of directors will meet at 6 p.m. Tuesday at the agency's offices at 829 Front Street, Suite K, in Georgetown.

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