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New York Times: In Shriner Spending, a Blurry Line of Giving

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The New York Times

In Shriner Spending, a Blurry Line of Giving

March 19, 2007

Jessica McGowan for The New York Times

Clairence Ballard questioned how bingo money was used by a Shriners club in Decatur, Ala.


ABILENE, Tex. — John C. Goline is living proof of the good work done by the Shriners. Struck by polio as a child, he can walk today only because of his six years in and out of the Shriners hospital in Shreveport, La., where, like all patients, he received free treatment.

Grange Society Jessica McGowan for The New York Times

Inconsistencies at a Alabama club’s bingo game raised the suspicions of a Shrine leader, but many of his changes were rejected when he left office.
The experience inspired a lasting devotion to the Ancient Arabic Order of the Nobles of the Mystic Shrine, the 135-year-old fraternal organization that founded and controls the Shriners Hospitals for Children. “They did wonders for me,” Mr. Goline said.

But his faith was shaken when he joined the leadership of the Suez Shriners in San Angelo, one of 191 temples affiliated with the order. He found that much of the money collected to support the hospitals was commingled with money used for liquor, parties and members’ travel to Shrine events. The Shrine’s national auditor largely confirmed his findings, but not before Mr. Goline was forced out of office.

His experience is not unique. An examination by The New York Times of Shrine records and minutes of Shrine meetings and interviews with current and former Shrine officials painted a picture of lax accounting procedures and oversight under which money earmarked for the hospitals instead financed temple activities.

The examination found these things:

¶More than 57 percent of the $32 million the Shriners raised in 2005 through circuses, bingo games, raffles and a variety of sales went to costs of the fraternity, including keeping temple liquor cabinets full and offering expenses-paid trips to Shrine meetings and other events.

¶Only 2 percent of the Shrine hospitals’ operating income comes from money raised by Shrine temples and members’ dues. (The bulk is supplied by the hospitals’ $9 billion endowment.)

¶A top Shrine official told a meeting of temple treasurers that poor accounting for cash coming into the organization was “an increasingly common problem,” and that more than 30 temples had discovered fraud — like theft of money and inventory, altered bank statements, padded payrolls and fake invoices — amounting to as much as $300,000 and involving members of their “divans,” the five-member boards that govern each temple.

Yet whistle-blowers like Mr. Goline are often greeted with hostility, retaliation and official sanctions.

“I was really amazed and shocked when I got into what had been done,” he said, “especially because everyone kept telling me how everything was done by the rules.”

In Texas alone, at least four of the state’s 13 temples have lost money to theft, embezzlement and faulty accounting over the last five years, according to several Shriners there.

In one of the rare cases where the Shrine prosecuted wrongdoing, the Zem Zem temple in Erie, Pa., accused a former top official last year of misappropriating $1.2 million in bingo revenues. The temple settled for an undisclosed amount.

Critics say the line has been blurred between money raised for the hospitals and for members’ entertainment.

“Money raised for the hospitals is being used to pay for parties and liquor and trips, and they know it,” said Johnny L. Edwards, who was a leader of Oasis Shrine in Charlotte, N.C., until he began campaigning for better control over money. “The way I see it, they’re stealing from crippled children.”

Shrine officials dispute that. Bob Phillips, the director of temple accounting at the Imperial Council, the fraternity’s national umbrella organization, said the Shrine had strict rules about identifying when a fund-raising event was being used to underwrite temple activities and when the money was going to the Shrine hospitals.

“It is natural for the public to associate the fez and someone wearing it as raising money for the Shriners Hospitals for Children,” Mr. Phillips said, “but because of that, we make sure every activity is meticulously designated fraternal or charitable.”

Michael Andrews, the executive vice president of the Imperial Council, said that other charities sought the Shrine’s advice about how to ensure accountability and noted that the Internal Revenue Service had found no problems in an 18-month audit of the organization that ended in 1998.

That finding, however, referred only to the Shriner hospitals, which are a separate entity from the Shrine, and it covered only the 1993 tax year.

“I think if you compare us to any other charity in America, you would find we do the best job,” Mr. Andrews said. “I think you need to look at the big picture here: We probably do more for children with special needs than any other entity.”

Grange Society Jessica McGowan for The New York Times

"I was really amazed and shocked when I got into everything that had been done, especially because everyone kept telling me how everything was done by the rules," said John C. Goline, a former member of the leadership of the Suez Shriners in San Angelo, Tex.
Financing Shriner’s Hospitals A $9 Billion Endowment

The Shrine started in 1872 in New York City as a social club for Masons. It uses its own language and structure adopted from ancient Arabia, complete with potentates and secret initiation rituals. In 1919, it started building a children’s hospital whose operations would be supported by a $2 annual assessment on each Shriner and various fund-raising activities.

Today, 22 Shrine hospitals provide free orthopedic and burn care to needy children, and the charity that operates them is one of the country’s wealthiest, controlling $9 billion in assets amassed over 87 years — more than the Carnegie and Rockefeller foundations combined. Revenue from the endowment now covers more than 90 percent of the hospitals’ budgets.

And the endowment is growing. Individual Shriners and their wives make sizable donations to the hospitals directly and through bequests. The hospitals received roughly $235 million that way in 2005.

Though the charity is a separate operation, the Shrine organization continues to control it. The Shrine’s contributions to the hospitals, however, have become a negligible part of annual hospital budgets.

Only 2 percent of the hospitals’ operating expenses — $11.3 million a year, on average, from 2002 to 2005 — comes from money raised by Shrine temples and dues paid by their 411,000 members worldwide, according to the Shrine’s financial accounts.

And that number has been declining as membership falls. In 2005, the contribution to the hospitals from fund-raising by the temples was $9 million. The temples also set aside $4.7 million to cover the costs of transporting children in their districts to the hospitals.

That means that of the $32 million the Shriners raised in 2005 through fund-raisers like circuses and raffles, more than 57 percent went to Shriners’ activities and temple expenses. Mr. Phillips, the director of temple accounting, said any financial control problems were small, given the size and complexity of the organization.

“We have 191 temples from Montreal to Mexico City and Boston to Honolulu, with over 3,000 Shrine clubs and 2,500 units,” said Mr. Phillips, who like Mr. Goline benefited from the care of the Shrine hospitals. “Considering our international structure, cash control is not a big problem.”

Asked about the quality of temple record-keeping, James L. McConnell, the Imperial auditor, chuckled. “Let me tell you, it’s gradually getting better,” he said. “Every temple is different. Some have a staff of people, some have just one person in the office, which gives that person too much control over records and finances.”

Mr. McConnell said the Imperial Council had been working to teach temple treasurers standards of accountability. “Whether they have the ability to go home and do things right, that’s another question,” he said. “The Shrine is a volunteer organization.”

Mr. McConnell made it clear that he was not an auditor in the traditional sense, but rather someone who tried to determine the facts in local disputes at the request of the Imperial Potentate. “I don’t get a lot of calls,” he said. “Some years I don’t do any visits.”

Each temple is required to hire an independent auditor to review its accounts annually, and Mr. Phillips said he monitored a variety of temple financial records and was in daily contact with temple financial officers.

Those procedures have not prevented problems, however. Last summer, Charles G. Cumpstone, Mr. Andrews’s predecessor as executive council vice president, told a meeting of top Imperial officials, “We’re still having theft, both by temple employees and by temple officers” at temples with poor cash controls, according to minutes of the meeting. Mr. Cumpstone added that the Shrine “will not tolerate this type of conduct.”

But some Shriners say the opposite is true, contending that whistle-blowers are often forced out of office or subjected to internal disciplinary proceedings.

“The leaders of this organization think it is better to persecute the innocent than to prosecute the guilty,” said Clairence Ballard, a member of Cahaba Shriners in Huntsville, Ala., who found that charitable money raised through bingo was being used to cover fraternal, and perhaps personal, expenses and faced an internal inquiry.

Financing Shriner’s Hospitals Reached at his home in Palm Harbor, Fla., Mr. Cumpstone declined to respond to Mr. Ballard’s comments, other than to say, “I worked for the Shrine for 40 years, and I’m proud of my record.”

Mr. Ballard, Mr. Goline and two dozen other Shriners provided in-depth looks at questionable financial activities in two temples, the Suez and Cahaba Shrines, that they say are typical of the problems some temples have had.

An Envelope of Cash

Shortly after becoming Cahaba’s potentate in 2003, Mr. Ballard drove to Decatur, Ala., to oversee the installation of new officers at one of the temple’s affiliated clubs, the Decatur Shrine Club, which was known for a high-grossing bingo game every Tuesday night.

As Mr. Ballard was leaving, a club member handed him an envelope, which he tucked into his blazer pocket, assuming it was a check.

Instead, Mr. Ballard said, “It was $1,000 in cash.”

It is customary for a temple’s affiliated clubs to contribute to the potentate to help defray his costs during his year in office. What concerned Mr. Ballard was that the gift was made to him directly, not through the temple, and in cash.

“It scared me to death because I could have gone out and bought myself a new set of tires with that money and no one would have ever known,” he said.

The incident raised his suspicions, and he began looking into the bingo game. He discovered that three longtime club members held the deed to the clubhouse, contrary to Shrine rules requiring club assets to be held in the name of temples. He also found that the money the club raised selling snacks during bingo games was held in an account controlled solely by the Shriner who managed the kitchen, Lewis Tapscott.

And Mr. Ballard thought the bingo games, which were billed as raising money for the hospitals, were producing more money than the club was handing over to the temple.

Mr. Tapscott said he handled the snack proceeds properly. “I was the one who started that account, and I thought I kept good records and everything matched up,” he said in a telephone interview. He said the deed was in his and other Shriners’ names, rather than the club’s, “so it could be recorded at the courthouse.”

He said bingo money was disbursed to the temple according to a Decatur ordinance that allowed organizations that held bingo games to use 49 percent of the proceeds to cover expenses related to the games and for “internal” charitable purposes.

Mr. Ballard read the ordinance differently. He did not consider a new sign for the clubhouse or repaving the parking lot to be expenses related to bingo games or an “internal charity.”

He thought all the bingo receipts, other than what was needed to cover the costs of electricity, bingo cards and so forth, should go to the Shriners hospitals. (In fact, Shrine rules insist that temples transfer 100 percent of any bingo receipts to the hospitals.)

In June 2003, Mr. Ballard called Mr. Cumpstone for advice about how to establish greater accountability over the club’s finances. “He told me that if I did not have my divan behind me, there was nothing I could do,” Mr. Ballard said. “He said otherwise, even if I set things straight, it would all go back to the way it was once I left office at the end of the year.”

It was prescient advice.

The next month, Mr. Ballard ordered the club to put its property in its name and demanded that it get its financial affairs in order. But in September, the club reported a $2,500 loss on bingo, and Mr. Ballard decided to take over the games. He put together a committee to run the games, and installed cash registers in the snack stand.

On Nov. 25, the first night the new committee ran the game, gross revenues rose 41 percent from the average for the year; net proceeds more than tripled to $2,509. Yet the number of players rose only 14 percent.

That pattern continued over Mr. Ballard’s six remaining weeks as potentate. And the snack bar, which Mr. Tapscott had called a barely break-even operation, began pulling in profits of $100 to $200 a week.

Financing Shriner’s Hospitals While on site, Mr. Ballard stumbled across more evidence that money from the bingo games was missing — five years’ worth of deposit receipts that show the club had been depositing only checks, not the cash it received in payment for bingo cards.

“Our findings are basic internal controls are not in place,” wrote Terry Yancy, Tom Collins and Pat Volonino, the bingo committee members. They figured the club probably raised about $80,000 more than the $34,385 it had reported so far that year.

The games raised $17,124 in the six weeks after Mr. Ballard took over the operation. Nonetheless, John T. Craigmile, Mr. Ballard’s successor, removed the cash registers from the snack bar and dismantled many of the financial control mechanisms Mr. Ballard had put in place, just as Mr. Cumpstone had predicted.

“At any given time, there could be dozens of customers at the food windows, and to ask these mostly elderly volunteers to log in each purchase by description became unmanageable and extremely frustrating,” Mr. Craigmile wrote in answer to a question about why he removed the cash registers.

Mr. McConnell, the Imperial auditor, confirmed many of the bingo committee’s 2003 findings when he was dispatched to Huntsville after The New York Times began making inquiries.

But Mr. McConnell said he found no evidence of embezzlement or stealing. “They had the opportunity to do that, but there was no way to see evidence that happened,” he said in an interview. “If people are sticking $10 bills in their pockets, unless you’re standing right there, you wouldn’t know it.”

In November 2006, Nick Thomas, then the Imperial Potentate, ordered Robert Utley, Cahaba’s 2006 potentate, to come up with $119,000 to cover the money raised from bingo that the club had improperly retained in 2004, 2005 and 2006. Mr. Utley seized the club’s property and threatened to sell it to help raise the money needed under Mr. Thomas’s order.

Last month, Cahaba held a “trial” to consider charges by Decatur club members that Mr. Ballard had falsely accused them of stealing. At that proceeding, just after a club member testified that no theft had taken place, Mr. Ballard’s lawyer played a 2003 tape of the member telling Mr. Ballard, “We knew we took some, but I don’t know that it was a million.”

The Shriner presiding over the trial quickly ended it and brokered a deal to cover Mr. Ballard’s $4,000 in legal expenses in exchange for his agreement not to speak with the news media any more.

A Reform Effort

John Goline joined Suez Shriners in San Angelo in the late 1990s. In 2001, he was elected to the divan and took Richard A. Baumbach’s place as Oriental guide, the bottom rung of a ladder that leads to becoming potentate.

He soon joined forces with Mr. Baumbach, a retired Army officer, who had raised questions about financial accountability and concerns that the Suez Shriners were more interested in having a good time than raising money for the hospitals. “We were spending too much money on parties and travel and not enough on the kids, which is why I joined the organization,” Mr. Baumbach said in an interview.

As he rose and gained greater access to temple financial records, Mr. Baumbach concluded that Suez was using charitable money to cover deficits incurred on fraternal activities like trips, parties and alcohol.

In fact, all money raised by temple members went into a single account at Merrill Lynch that was used to cover all expenses, whether fraternal or charitable, in violation of Shrine rules.

Mr. Baumbach also found that bills were being paid with checks bearing only one signature, another violation, and that the temple had no control over accounts held by its affiliated clubs and thus no control over the money they raised.

He became potentate in 2003 and immediately received a personal reminder of flaws in the temple’s financial controls: The $10,000 he had raised the year before to offset expenses he expected as potentate was gone, tapped by his predecessor to cover temple deficits. “He told me that was the way the system worked,” Mr. Baumbach said.

He set about changing that system. He limited the amount a temple official could spend annually on travel to $750, and refused to reimburse expenses that were not supported by receipts or lacked appropriate approval. He insisted that every check have at least two signatures and that the temple’s name be added to accounts held by its affiliated clubs.

Financing Shriner’s Hospitals “He wouldn’t pay for them to go to the Imperial and other Shrine events because the temple didn’t have the money,” Mr. Goline said, adding that was what turned members against him and Mr. Baumbach.

Mr. Baumbach asked Mr. Goline to dig into the temple’s records to document the abuses he was trying to address. They gained an unexpected ally, Patti Ellsworth, the temple’s secretary, who was troubled by some things she was asked to do, like changing the dates on donation records so they would qualify for a $15,000 matching grant. But when Mr. Baumbach refused to reimburse the temple’s band $3,700 for an unapproved trip to a Texas Shrine Association meeting, the leader of the band called for his resignation.

Then Wayne E. Ulrich, the temple’s treasurer, filed a formal complaint against Mr. Baumbach and Mr. Goline, contending that they had engaged in “false and deceitful conduct” in saying that the tax code required Suez to be a signatory on club accounts when it did not; that Mr. Baumbach had created “a secret bank account” for the temple circus; and that he had treated the band leader, Edwin F. Watson, with “contempt” and “disrespect.”

In a telephone interview, Mr. Ulrich noted that Mr. McConnell, the national auditor, spent three days reviewing the charges. “The matter is closed because the allegations of missing funds were false charges,” Mr. Ulrich said. “They were unprovable.”

But Mr. McConnell did find deficiencies. “Evidence does show monies were commingled, transportation funds were transferred to cover a temporary shortfall in the operating fund, invoices were not turned in for patient airline tickets and a rather cumbersome set of records was maintained,” he wrote.

Reminded of Mr. McConnell’s findings, Mr. Ulrich, who resigned as treasurer in January, said the commingling of money resulted from a “coding error” by the temple’s outside accountants that had been corrected. He said checks with only one signature came from an affiliated club and thus were not a temple problem. “I have no jurisdiction over the finances of that subsidiary organization,” he said.

In December 2004, Mr. Goline was poised to succeed Mr. Baumbach as potentate. But a past potentate announced he wanted the job again and would run against Mr. Goline, a departure from the normal progression of the line.

At the same time, photos of Mr. Goline with Ms. Ellsworth began circulating along with a rumor that they were having an affair — though the pictures simply showed the two standing about an arm’s length apart outside Mr. Goline’s apartment building. They are now married, though both deny being a couple at the time of the rumors.

On the night of the election, busloads of Shriners began pulling into the temple parking lot. “There were people there that night that I never saw before and have never seen since,” Mr. Goline said.

After he lost the election, he placed his fez on his chair and walked out of the temple. Mr. Goline is now a member of another Shrine temple and toys with joining its leadership.

“I was hurt after I lost,” he said. “But I’ve looked back, and almost two years later, I would not do anything different. What I tried to do there was the right thing.”

Correction: March 20, 2007

A picture caption yesterday with a front-page article about the spending of money raised by Shriners misstated the state in which a leader at the Decatur Shrine Club raised concerns about proceeds from bingo. It was Alabama, not Georgia.

Further Reading:

The Royal Order of Jesters - The Shriners Secret Society Secret Society - 'Mirth is King'

The Shriners - The 'Krafty' Klowns