Up The Stairs' books are off
Non-profit declines audit despite discrepancies
By Dan Stockman The Journal Gazette
A local non-profit group cannot account for more than one dollar of every 20 it has received in the last seven years, including nearly $17,000 in one year.
A Journal Gazette analysis of income tax returns filed by the Up The Stairs Community Center found the group had money missing year after year - including one year when nearly a quarter of the group's budget vanished. The year before, thousands of dollars suddenly appeared in the group's coffers - also without explanation.
Donors who looked at the group's federal tax returns, which are required by law to be open to anyone who asks, would have found forms riddled with errors, major omissions and reports of missing money.
The tax return for a non-profit group is often the only way for donors to ensure their money is going to a cause that will spend it wisely.
But board members for Up The Stairs never ordered an independent audit or informed authorities that money was missing. Up The Stairs officials say there was no malfeasance, only unrevealed accounting problems.
The group's treasurer, Greg Kroemer, said no money was stolen, it just couldn't be accounted for.
“I never looked at it as money missing,” Kroemer said.
The group reported to the Internal Revenue Service that it had no idea where the money went.
“In-depth review of all financial reports does not indicate reason for variance,” the tax return said in 2004. “Unknown variance not found after in-depth review of all reports,” it said in 2003.
Other board members said they had never heard there was money unaccounted for.
“That's news to me,” board President Dwight James said. “I'm unaware of those overages.”
The tax forms also show the group bought a building but not the $87,000 resulting debt.
“I will admit there's a lot we need to do to get things back in line,” Kroemer said. “At the same token we don't know where to start.”
‘Money was spent'
Up The Stairs Community Center, which operates at 514 E. Washington Blvd., is the business name for the Fort Wayne Community Educational Center Inc., run by a five-member board. The group advocates for gays, lesbians, bisexuals and transsexuals in Fort Wayne. Its budget has averaged about $57,000 since 2000.
In the last seven years, the group at least twice incorrectly reported financial losses as gains, artificially inflating the group's assets. Another time, Up The Stairs overstated its losses by reporting a gain as a deficit.
In 2005, the group had $1,772 more in income than it did in expenses. That should have added to the assets of the group. But it also had $16,653 missing - nearly a quarter of its revenue for the year, and triple the donations it received.
The group reported an $18,425 loss to the IRS, however, because officials recorded the $1,772 profit for the year as a loss and added it to the missing amount.
Kroemer said that after The Journal Gazette began interviewing board members about the group's finances, he looked again at the 2005 figures and discovered what was wrong.
Up The Stairs received a $14,000 grant to pay for computer technology that year, Kroemer said, and when he was posting the numbers he accounted for the income but not the spending.
“The money was spent and the expenses weren't accounted for,” he said, adding that he now intends to amend the group's tax return for that year. He did not offer an explanation for the remaining $2,000 that was missing.
Dave Bennett, executive director of the Fort Wayne Community Foundation, confirmed the foundation had given Up The Stairs a grant of $14,613 for computers.
Because the expenses were not recorded by Up The Stairs, there was no way to know whether 23 percent of the group's annual budget had been spent properly.
‘It's not my job'
James, who has been a board member for more than a decade and became president in 2006, said he would look into the situation.
“Like I said, this is news to me, so I can't answer the questions,” James said.
James said he had never seen the group's tax returns.
Kroemer, the treasurer, said board members were aware of the problems and saw the tax forms.
“Everything that I do financially is reported to the board,” Kroemer said. “The 990s forms, all that's been presented.”
Fred Hefter, who said he has been on the board since the 1980s, first said he was not aware the group had reported an $18,000 discrepancy to the IRS, then said he had forgotten about it, then said he had read last year's return, then said he couldn't remember whether he had read any returns since 2002.
Hefter was treasurer before Kroemer took over in 2000.
“No, I haven't tried to solve the problem; it's not my job,” Hefter said. “I'm assuming the board will be taking a look at it.”
Trent Stamp, the executive director of Charity Navigator, a New Jersey-based watchdog that helps donors ensure their money is well-spent, said there is no excuse for financial sloppiness.
“It's a shame that it takes a reporter poking around for them to see where they misplaced a quarter of their budget,” Stamp said. “You'd like to think a board member would ask why Column A doesn't equal Column B.”
Robert A. Katz, a law professor at the Indiana University School of Law in Indianapolis, said board members are legally responsible for the money in their organization's care.
“The directors have a ‘duty of care' to pay attention to the organization's affairs, and also to supervise the people to whom they delegate tasks,” Katz said. “So that's who you look to first.”
Mary Clifford, who was board president in 2005 and 2006 but has since left the board, said the discovery of accounting irregularities prompted her in July 2006 to propose an audit, but the idea was met with resistance. She said she contacted both the Indiana Attorney General's office and the Allen County prosecutor, but both said an audit needed to be performed before they could investigate.
Clifford said board members then tried to remove her, and she resigned from the board at the end of 2006 because of health reasons.
Rob Grayless was on the board for two months in 2006 but was kicked off, he said, because he was asking too many questions about the group's finances. He confirmed Clifford's account.
“I was told you're a probationary board member for six months,” Grayless said. “If you do anything in that first six months they don't like, they throw you out. They don't want outsiders to know what's going on.”
James said it was true that Clifford and Grayless pressed for an audit but he opposed it because there was no money to pay for it. He said Clifford and Grayless were removed from the board for bylaw violations.
The 2005 loss was explained on the tax return signed by Kroemer this way: “In-depth review indicates possible bounce-back from positive (overage) Results from prior 2-to-3 years.”
Except the group did not have overages in the prior two or three years. The year before, 2004, it had an overage - when it could not explain where $5,859 came from - but the year before that, in 2003, it had a $1,072 unexplained loss. It also had similar losses in 2000 and 2001. In 2002 it reported ending the year on balance.
Even if it was counting the 2003 loss of $1,072 as an overage - it was incorrectly reported to the IRS that way - the two years of overages in 2003 and 2004 would have covered less than half of the $16,653 reported missing.
“The general rule of accounting is inputs should equal outputs. This isn't like trying to run the Red Cross where you literally have billions of dollars in investments. You're talking about a five-figure budget,” Stamp said. “If you can't measure what comes in the door and what goes out the door it seems to me you can't measure what kind of impact you're having on the community, either.”
The 2002 tax return shows the group's land and building assets increasing from $25,000 to $94,600, and explains that the increase is due to the purchase of a building. But the line for liabilities that year - and every year after - is blank, even though a land contract for the purchase shows the group owed $87,000 on the building it bought.
That could lead a potential contributor to think the group was financially strong, with almost $111,000 in net assets at the end of 2002. In reality, the net assets were less than a quarter of that.
Kroemer said he didn't know he needed to list the debt on the tax returns.
“When I took this over, I just followed the same form that had been used year after year,” he said. “Show me what I'm doing wrong, and I'll fix it.”
Charity Navigator's Stamp said inexperience or a lack of knowledge is no excuse for financial misstatements.
“They've either omitted or forgotten about their largest liability,” Stamp said. “If you're omitting it for whatever reason, either because you want people to think the situation is better than it really is or because you're not with it enough to keep a basic checkbook, this is irresponsible at best.”
Can't afford an audit
Board members say the group can't afford an outside audit. Audits generally cost about $3,000.
“It's nice to say you need to do whatever you can to get an audit but you can't pull the money out of a rock to do it,” Kroemer said.
Board member Hefter said he might have tried harder if he had been aware of the problems.
“We have always wanted to” get an audit, Hefter said. “We have not felt we could afford to get one.”
Stamp said the group owes its donors and the community an outside audit, whatever the cost, because of the trust they hold.
“(Tax-exempt status) really is a perk, and it's a perk given out by the taxpayers. In return, you promise to us that you will serve the public trust,” Stamp said. “You have an obligation and a commitment to run your organization that befits the honor of that public trust. Keeping fast and loose books is not the way you honor that public trust.”
Marilynn Fauth, coordinator of the Paul Clarke Non-Profit Resource Center at the Allen County Public Library, said groups like Up The Stairs don't have to struggle on their own.
The center offers board training to non-profits, ranging from sessions on accountability to individual training on accounting practices.
“I'll sit one on one with people,” Fauth said. “And if we don't have (what the group is looking for), we find the information for them.”
Kroemer said the accounting problems have led to allegations in the community of financial impropriety at Up The Stairs, but that is not the case.
“There's people out there whose insinuation is there's something sneaky going on at the community center and that's not true. Everything's ready for an audit. My files are in order,” Kroemer said. “I'd welcome an audit, simply because if I am making mistakes in accounting I want to know what I'm doing wrong.”
Dan Stockman may be reached via email firstname.lastname@example.org