Sunday, June 24, 2012

Orange County Register: Internal TBN Accounting Review Cites Financial Problems


The Orange County Register, CA, continues to expose the TBN pervasive violations of fiduciary and financial duties.



May 15, 2012

Extravagant meal, hotel and limousine costs — along with personal expenses charged to the company — continued to be “a pervasive issue” for the Trinity Christian Center of Santa Ana, according to an internal review by an accountant that was never meant for outsiders’ eyes.

“As stated earlier, control parties of a church are considered to work in a fiduciary capacity on behalf of their congregants and donors,” said the March 3, 2011 compliance review by Guinn, Smith & Co of Irving, TX. “The fiduciary duty carries with it the implication that funds will not be spent in an extravagant or unreasonable manner. In the 2009 review of credit card and travel expenses, extravagant meal, hotel and limousine costs were noted, and personal costs which were not reimbursed by the employee were also noted on hotel bills. This continues to be a pervasive issue for control parties of TBN.”

“Control parties,” translated, means exactly what you think it means: The bigwigs of the Crouch family, who control the world’s largest Christian broadcasting empire and its nearly $200 million annual budget, as well as net assets of nearly $1 billion.

SWANK HOTELS

The review was signed by Donald E. Guinn , a certified public accountant with Guinn, Smith & Co., founded in 1975 “with the goal of providing complete financial, accounting and taxation services for ministries, non-profits and general business clients,” its web site says. “We’re very familiar with issues and questions unique to religious nonprofit organizations and ministers’ personal tax and housing allowance issues.”

Some of Trinity’s eyebrow-raising expenses, as identified by Guinn, included stays at the Ritz Carlton in New York: “One control party’s room dated 11/27/09 incurred $10,616.52 in charges for a 3 night stay at an average of $1538/night in charges. Another control party’s room dated 6/20/10 incurred $16,432.42 in  charges for 4 nights at an average of $4,108/night in charges (note the base room rate was $3737/night including taxes and fees).”



There was also a stay at the W Hotel in New York, where lodging and in room charges were $984.67 per day for a three-day stay (the Internal Revenue Service‘s per-diem for business travelers in New York City is $360 per day, Guinn points out); and there were excessive hotel phone bills at the Portofino Hotel Orlando on many occasions. “While the calls may have had a business purpose, a cell phone should likely have been used to avoid this excessive expense,” Guinn wrote.

EXPENSIVE EATS

Spending on meals was also a bone of contention. ”As in prior years, we noted several charges where meals were shared several nights in a row with only family members, in the vicinity of TBN offices,” Guinn wrote. “Although a general business purpose was listed on the receipt, the IRS could easily question the validity of a business purpose when the meal consisted of all family members eating near their homes and near the office at the expense of the exempt organization. ”

He also provided this chart as “a small sample representative of expenditures that might be considered extravagant:”

OTHER ISSUES

Guinn’s compliance review of Trinity – substantially less extensive than an audit — is part of a declaration filed by Crouch granddaughter Brittany Koper in Orange County Superior Court in support of Joseph McVeigh, her uncle by marriage. McVeigh and Trinity are battling over a loan he received through Trinity companies.

Trinity maintains that this, and other documents in the Koper declaration, were stolen or altered, and is trying to keep them out of the public eye. The assertions in the Koper filing are “untrue, defamatory, and attempts to use documents that appear to be stolen,” Trinity attorney Colby May told us by email (more on that below).

Koper’s attorney, Tymothy MacLeod, said the documents are what they are, that Koper signed no confidentiality agreement in her last position with Trinity, and has stolen nothing.

Guinn’s review identified numerous other areas of exposure that could jeopardize Trinity’s nonprofit status in the eyes of Uncle Sam, including:

  • How Trinity compensates its big wigs. “The organization’s board should approve total compensation packages for anyone who has served on the board of directors within the last five years nd their immediate family members,” Guinn wrote. “The minutes for 2008/2009 did not include authorization for these individuals’ compensation packages. I recommend the board annually review and approve all elements of compensation …and consider an outside compensation committee for recommendation to the board for review and approval.”
  • How it accounts for more than $1 million in vehicles it owns or leases. “Automobiles owned by the organization, but partially used for personal activity is an issue that again came to my attention. Any personal use of the organization’s vehicle, whether owned or leased, should have this use valued according to the methods prescribed by the IRS. The appropriate amount should be included on the employee’s form W-2. It is important to note that when an employee does not document to the organization the business use of the vehicle provided to them, all use must be considered personal. We only received vehicle logs for a Suburban and a Red Ford Pick Up which are used at the Santa Ana production facility. The fixed asset ledger indicated $1,342,420.32 in cost for vehicles owned by TBN as of 12/31/09. I suggest that an attempt to document the vehicles at each location be made as soon as possible. In addition, a usage log should be kept with each vehicle. “
  • Undocumented charges. ”While no system is perfect and employees may not turn in 100% of their receipts, the missing receipts from 2008 to 2009 seemed to increase dramatically. For instance, during a 3 month period, one of the American Express cardholders charged items for over $60,000 and no receipts for these 57 charges were included in the documentation to the approved bill. Obviously, TBN accepts as true that these items had an ordinary and necessary ministry purpose since the charges were not disputed, but the IRS would treat them as inurring to the benefit of the purchaser considering them ‘nonexempt’ expenditures.”
  • Provision of health benefits. “During the course of the credit card review, we noted that Paul and Jan’s vitamins, prescriptions and other medical related expenses were paid with ministry credit cards, and were not reimbursed by them. Such expenses should be included in the W-2 income for Paul and Jan and should be recorded as taxable fringe benefit.
  • Guest houses. “As in prior years, the documentation of the business use of TBN guest houses is not complete or sufficient. Given the potential for personal use on a residential property, it is imperative that the organization maintain accurate and complete logs documenting the use of these properties….We asked to view the Shiloh Ranch property …. During this tour, it came to my attention that one of the guest houses used predominately by a control party has ATV’s on the property which were purchased by TBN. ATV’s at a guest house generally used by control parties would likely be considered inherently personal in use and I believe the IRS would disallow them as ministry assets. I suggest that the control party purchase them from TBN at the price originally paid or that they are included in the W-2 or 1099 Misc of the control party as taxable earnings.”

Guinn goes on to remind Trinity that an exempt organization must use its funds “in the most reasonable and prudent manner because of its fiduciary responsibility,” and that a substantial amount of “nonexempt expenditures, or a pattern of such, may jeopardize the Church’s exempt status.”

It could also incur “prohibitive” taxes on excess benefits paid out.

“Areas with the greatest exposure include: Unreasonable Compensation, Personal Use of the Organization’s Assets, Use of the church’s credit card for personal expenses, Excessive Spending,” the review concludes.

On the up side, no personal flights appeared to be listed in the flight log for the two planes in the company airline.

TRINITY SAYS

We’ve been telling you how Koper accused the world’s largest Christian broadcaster of unlawfully distributing charitable assets worth more than $50 million to its principals — and of firing her as its finance director, and beginning a campaign of “malicious retaliation” against her and her family, for refusing to go along with the scheme.

Trinity paints a very different picture — saying it was Koper and her husband who committed financial misdeeds. It maintains that the couple embezzled money, forged documents and misappropriated funds to the tune of some $400,000. An earlier suit on these allegations was dismissed, but a new suit revives them.

The declaration filed last week by Koper, which included Guinn’s review, is currently under wraps. We at The Watchdog got hold of the records during a 24-hour window when they were public. Trinity asked that the records be sealed until a hearing can determine whether they are stolen or forgeries.

“(T)here is a Minute Order and pending seal order in the case regarding this very document – which is untrue, defamatory, and attempts to use documents that appear to be stolen. Public disclosure could violate that order,” Trinity attorney May told us.

“It is nothing more than a desperate attempt by “uncle McVeigh” and his lawyer to avoid having to pay Trinity’s (and all defendants) lawyer’s fees and costs in defending against this contrived suit, and in filing an anti-SLAPP Motion for dismissal of the McVeigh case. The anti-SLAPP Motion made plain that, as a matter of California law, McVeigh’s claim of malicious prosecution, etc., is utterly baseless and he is responsible to therefore pay the legal fees and costs of Trinity, et al. The dismissal of the case will not alter this responsibility.

“…(S)everal of the documents appear to have been fabricated or altered by Koper. That is a very serious concern, and until I can determine authenticity, let me properly reiterate what I have said previously: Trinity takes its financial stewardship seriously, and this is why it conducts two separate comprehensive and independent annual reviews. The first review covers all financial procedures, transactions, and record keeping in order to insure GAAP and FASB (Financial Accounting Standards Board) compliance. The second covers IRS compliance. Trinity properly responds to these audits every year.”

Confused? Hold on.

McVeigh’s complaint against Trinity and its lawyers — of malicious prosecution in connection with a $63,000 loan he received through Trinity companies — is one of a swirl of suits and countersuits between the parties. Tymothy MacLeod, attorney for both Koper and McVeigh, said McVeigh had indeed dismissed his complaint against Trinity in Orange County Superior Court, as May maintains, but only in an attempt to consolidate numerous suits in federal court. McVeigh’s complaint will be proceeding in state court nonetheless.

More from the now-under-wraps documents, from Koper’s POV, soon.

(Note: The bolding of names and numbers is our style here on Watchdog; this type does not appear in the original documents. )

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