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Experts: Financial claims of Giving Tree are improbable

In the words of one: ‘Anybody who works with nonprofits has to question this’

By Rob O’Dell and Patty Machelor

Arizona Daily Star

Tucson, Arizona | Published: 11.02.2009

http://www.azstarnet.com/metro/315747

The Giving Tree has grown exponentially in recent years.
What was a small charity for the homeless with $353 in the bank in 2000 is now a sprawling organization with nearly $1.4 million in revenue and services at more than 20 sites across Tucson.

The growth has given the Giving Tree a reputation for helping Tucson’s homeless. But a three-month investigation by the Arizona Daily Star found that the Giving Tree served expired and potentially unsafe food to needy kids, that it charges clients hundreds of dollars a month to live in crowded rental homes, and that at least twice it made a public display of giving kids gifts at holiday parties, only to take them back later.

Many of the Giving Tree’s actions violate city and state regulations, or are contrary to widely accepted standards for charities, the Star found.

The Giving Tree, formed in 1988 and incorporated in 1996, says on its federal financial reports that it serves 8,800 clients a year. The same reports say the Giving Tree provides all that service with almost no staff or administrative costs, which experts in running nonprofits say is improbable.

Giving Tree founder Libby Wright declined to comment for this story. Wright makes most of the organization’s decisions, and her board, which ranged from four to seven members in recent years, serves mostly as an adviser to her, board member Dick Mentzer said.

“Without Libby Wright, there is no Giving Tree,” Mentzer said.

Over three months, the Star reviewed public records from six government agencies that have some authority over the Giving Tree and interviewed more than 60 people — most of them former clients, employees and volunteers, or government officials.

Among its findings, the Star found the Giving Tree has grown rapidly in recent years, but the nonprofit reveals few details about its finances. In 2001, it reported $13,000 in annual revenue, jumping to nearly $200,000 in 2004 and $1.4 million in 2007, the most recent year for which data are available.

The numbers come from the organization’s federal Form 990, required to maintain its nonprofit status. Its filings with the Arizona Corporation Commission for 2008 have a list of corporate officers and answers to questions, such as affirming the organization is not in receivership. It has no financial data, which was not required that year.

Giving Tree federal reports in 2005 and 2006 listed no staff, no salaries, no administrative costs and no fundraising costs. In 2007, there were $12,000 in salaries and $5,800 in fundraising expenses.

Seven people told the Star that they were paid employees of the Giving Tree during those years, and another two said they were promised wages for working for a Giving Tree program but never were paid.

The organization is incorporated under four names in Arizona, making its finances difficult to follow. For example, a corporation formed in 2005 called the Giving Tree II had no income in 2005 and 2006, but in 2007 it claimed to have $315,000 in a checking account and $468,000 in other fixed assets for a total of $783,000.

And numbers in the state reports often conflict with information provided to the Internal Revenue Service.
Laura Otten, director of the Nonprofit Center at LaSalle University in Philadelphia, questioned how Wright could run an organization that serves 8,800 people annually with few costs for staff, inventory, case management, grant writing and fundraising.

“I have never seen anything like this — never,” Otten said. “Anybody who works with nonprofits has to question this.”

The Giving Tree’s accountant, Phyllis A. Conrad, was put on two-year probation in 2008 by the Arizona Board of Accountancy after a complaint was filed against her by another one of her clients for an error in a tax return. Conrad did not return calls from the Star.

Nancy Church, a certified public accountant who runs the Oregon-based Not-for-Profit Accounting Help, said a nonprofit’s administrative and fundraising costs can be as high as 20 percent to 30 percent of its expenses. The amounts listed by the Giving Tree in 2007 accounted for 2 percent of its expenses.

Wright pays herself no salary, and Giving Tree tax filings show she volunteers 100 hours a week. Other board members often are listed on IRS forms as volunteering 40 hours a week, with one at 60 hours a week.

On her own board

Wright sits on the Giving Tree’s board. In some years, the organization has had only three board members besides her.
Hildy Gottlieb, the director of the Tucson-based Community Driven Institute, which helps nonprofits improve their management practices, said boards are supposed to have authority to hire and fire the executive director. “There’s not a vote where the executive director does not have conflict of interest,” said Gottlieb, a nationwide expert in nonprofit-management practices.

A small board made up of supporters who are close to a program and/or its director does not represent the community, Gottlieb said. She said such a board — as is the case with the Giving Tree — often sees its role as helping or supporting the director.

Who owns the houses?

Roughly half of the Giving Tree’s rental homes and apartments are owned by Wright’s husband, Carlo Giovingo. He also holds the mortgage for two homes owned by the Giving Tree, meaning he receives monthly payments from the organization his wife runs.

State and federal financial reports don’t specify how money paid by clients — which can total thousands of dollars a month for a shared three-bedroom home — is distributed between Giovingo and the Giving Tree. The Giving Tree doesn’t list program fees or rent from the houses in its tax filings with the IRS.

Former Giving Tree clients and workers said Giovingo collects rent from the shelters and homes. Paul Bennett, former manager of the Compassion Hope shelter at 4650 E. Eastland St., said Giovingo came in the first thing every day to collect the money from the shelter.

Giovingo rents the Grace Home shelter for women and children directly to the Giving Tree for an undisclosed monthly sum. He also provided the home loan on two of the Giving Tree’s properties — the Compassion Hope Center and a midtown house. The financing arrangement means that if the Giving Tree fails to pay, he could be in the position of foreclosing on his wife’s nonprofit.

Although the Grace Home rental agreement is disclosed in the Giving Tree’s IRS filings, the home-loan financing is not disclosed in the “self-dealing statement” in the Form 990, which experts said it should be. The Star obtained the information about the home loans from the Pima County Recorder’s Office.

Gottlieb said nonprofits should avoid doing business with the spouse of a board member or the executive director. If that is not possible, she said, it should be disclosed, negotiated at arm’s length and done at market rates or below.

“In Tucson, Arizona, there is no excuse not to find rental property,” Gottlieb said, adding that Tucson also has many banks and mortgage providers for home loans.

Renata J. Rafferty, a lawyer who runs Rafferty Consulting Group in Southern California and specializes in investigating nonprofit financial activities, said that under IRS rules, the Giving Tree board must prove its dealings with Giovingo are at or below market rates, or board members who approved the contract could be fined by the IRS.

Problematic numbers

Otten questioned how the Giving Tree could raise money, manage inventory, do its finances, provide case-management services, prepare and serve food, and manage all of its houses without a staff or substantial payments to contractors.

“It’s staggering they do theoretically all this work with no paid employees,” Otten said.

Even if everything is on the up and up, Otten said, violations of best practices can break the trust that nonprofit organizations should have with the community.

Contact reporter Rob O’Dell at 573-4346 or rodell@azstarnet.com online. Contact reporter Patty Machelor at 235-0308 or PMachelor@azstarnet.com