More Obfuscation with Our Money

I recently finished that book on "revaluing" markets/economies. The author presented discussion of the historical "bureaurocratic" response to social movements that challenged the political status quo, a status quo that is always characterized by the concentration of power and resources into the hands of a very small number of the overall group. He also discussed how those power groups have responded to requests and movements for a more transparent and truly democratic community with hostility and manipulation. As examples, he pointed to the "recharacterization" and even criminalization of vocal women as "witches" in New England around the 1700's, of indigineous peoples as "savages" during periods of colonization, and of indigineous Africans as "possessed by spirits", as we see proselytizing Christians doing even today.

In short, no political cabal grows, changes, or goes down without engaging in acts of scapegoating, witchhunting, and demonizing those they perceive as the social group's weak link and most able "to-be-silenced".

Granted it is possible to think that the author's comments have no relevance to Mt. Gretna Borough or to the PA Chautauqua. Certainly, those with the concentration of power here have gone to great measure to make it seem as if all is well here, and that all their conduct is above any sort of reproach.

However, do not forget that we are indeed a democracy, and that any one of us has the right to know our public officials' actions and to criticize it. Indeed, in order for the democracy to work, we must ask, research, and know what our public officials are doing. Most importantly, for a democracy to work, each member of the group must participate--at a minimum, each member must express a responsibility to protect the right of the individual to participate in their government unit. For those in this community that have sat idly by on the sidelines while our own community's cabal have denigrated, defamed, and worked with County officials to attack and harass those who are asking for transparency and accountability from our public officials, know that the day will come for your voice to be heard too. Just pray that you do not speak too late to have anyone standing beside you.

Now, on to the next installment in the series, "All the Ways They Screw with Our Money." (And, for any Fat Mac's that may be following this blog, let this entry be an example to you of how real lawyering is done. You know, where you take a set of facts, research them, and then research the law to make an argument--based on a real concept of probable cause, that a law has been violated, rather than to manipulate the resources associated with your position in order to promote and protect you and your friends' political and personal ambitions, however corrupt those ambitions may be. )

If one were to research the Pennsylvania Chautauqua's financial documents, especially their tax and budget documents, you may find some very disconcerning issues. Today, in this post, we will only discuss one of those issues, and, unfortunately for those laymen in the audience, it will take on the tone of a legal document (without all the citations, of course).

Today's issue analysizes the legality, in terms of compliance with IRS Code, of PA Chautuaqua Treasurer, Michael Bell's representations on the Chaut.'s IRS Form 990's. In those filings, he consistently and repeatedly fails to report that the Chaut. transfers compensation to one of its own officers. Under IRS Code, apparently any amount of compensation to an officer must be reported--there is no triggering threshold of, say, $100,000.

Also, because this transaction also seems to fail several of the IRS tests regarding the determination of whether her compensation is reasonable, it is very likely that he must be reporting it on the Form 990 as an excess benefit transaction. Under these circumstances, both he and his wife must pay a 25% tax on the excess benefit, and, if they do not correct the "excess", the tax rate bumps to 200%. That presents a pretty significant motivation to intentionally misreport transactions. And, a pretty significant motivation to try to "disparage" the messenger--if successful, then no one will really look into the message.

Linda and Michael Bell apparently are Disqualified Persons Under the Code
On the Chaut’s Form 990’s filed annually, Mr. Bell repeatedly and consistently reports his wife as a Director-member of the governing board. As a Director, she is a voting member of the Chaut’s governing body. Michael Bell also consistently and repeatedly reports himself as the Chaut's Treasurer and as Linda Bell’s husband. Therefore, both Michael Bell and Linda Bell are likely considered “Disqualified Persons” according to the IRS in determination of excess benefit transactions.

All evidence discovered thus far strongly suggests that the economic benefit that Ms. Bell received for services rendered to the Chaut. greatly exceeds the value of the services actually rendered.
The Chaut. compensates Ms. Bell for “services rendered” throughout the year. Board meeting minutes show that it agrees to let Ms. Bell (along with her husband, Michael Bell, and a person unrelated to the Chaut., William Care) determine the amount that is transferred to her each year. In 2008, for example, that amount was 31% of her Borough salary, or approximately $22,400, according to Borough Invoices. In addition, the Chaut. apparently agrees to pay that percentage of her Borough employee benefits, including health insurance, PA Municipal Retirement/Pension, etc. This adds to her monetary gain significantly.

However, there is no evidence that the compensation is comparable or was properly decided. For example, compensation paid by other nearby and similarly sized HOA’s for such services suggests that Ms. Bell is overcompensated by well over $25,000 a year.

No evidence is apparently provided to demonstrate or confirm her actual work performed during any pay-period in which she bills the Chaut. for services rendered.
In fact, the “Labor Services Rates” chart that she provides to the public clearly demonstrates that the Chaut. is automatically billed set percentages of Borough’s full-time staff member’s salaries, regardless of whether the Chaut. needed services rendered for that pay period, and regardless of what services were actually rendered during that pay period. [And, she even "charges" the Chaut. during the weeks of set-up and break-down for the annual art show. This will be particularly relevant to those out there that know that the Borough is supposed to be providing these services for "free", according to the arrangement that was agreed upon a couple decades ago when the Borough approached the Chautauqua claiming that its budget shortfall could be rectified that year if it were allowed to share in the art show profits.Well, today, "free" is no longer the fact. Care and Bell charge the Chaut. for straight time during this period (which is another apparent farce perpetuated upon us, but we will save that for later, too), and the rest charge straight time and ample overtime to the Chaut during these periods. So, now, on top of this compensation for labor that was supposed to be free, the Borough takes its set portion of the gate receipts.]

Ms. Bell’s compensation likely does not meet the IRS’s test for determination of “reasonable compensation.”
First, as evidenced by Ms. Bell’s repeated responses to information requests that NO documentation describing the arrangement exists, the Chaut. has NOT clearly indicated, in writing, its intent to treat the benefit(s) as compensation. This expression of intent is required under IRS Code.

It is not enough to say that the Chaut's intent is clearly indicated by Ms. Bell’s possible inclusion of the compensation in her 1040. The basis of that reporting would solely and entirely originate from her Form W-2’s from the Borough, thus providing no indication as to the Chaut's compensation paid to her, much less as to its intent. This is especially unclear where there is no written documentation of the agreement.

Second, they have presented no evidence showing that the compensation enjoys a rebuttable presumption of reasonableness, as may be provided under IRS Code. There is apparently no evidence tending to show that persons without conflicts voted to approve the compensation; nor evidence tending to show that an “approving” body obtained and relied upon appropriate data as to comparability of the compensation; or evidence tending to show that an approving body adequately documented the basis for its determination concurrently with making the determination. Each of these is required under the Code for the Chaut to enjoy a rebuttable presumption of reasonable compensation. Therefore, the Chaut. has not, and likely cannot, show that Ms. Bell’s compensation is reasonable and not excessive.

In conclusion, given that no actual services need to be delivered for the Chaut. to be invoiced, and that no documentation of actual services is ever offered, and that Ms. Bell appears to be unreasonably and over-compensated--even if she is performing the services alleged, the arrangement appears to be an excess benefit transaction. If so, as per the Code, her husband, also an officer of the Chaut., would be deemed to have indirectly benefited from her receipt of the excess benefit.

If an excess benefit transaction would be determined to exist by the IRS, this also means that Ms. Bell, and her husband would be jointly and severally liable for the tax on these excess benefit transactions, and the tax rates are:
25% on the excess benefit,
200% on the excess benefit if it is not corrected with in the specified time frame.

An alleged non-profit's tax-exempt status is a very serious issue, and my experience has shown that the IRS simply does not allow this "loosy-goosy" sort of reporting, where they ask you four or five times to report an officer's compensation and you just "work around" the fact that an officer of the exempt organization is indeed receiving compensation--ergo, benefiting, from the organization, an organization that is alleging that its primary purpose is to provide a social benefit to the community at large.

For a taste of the Code on this issue, See “Tax on Disqualified Persons” in Section 4958 of the IRS Code.

Let me close out this post by reminding readers that these questions are being asked and these issues are being analyzed not because I have any sort of agenda. They are being presented here because our community leaders are putting the cart before the horse, so to speak. These community leaders demand our acquiesence and approval of their behavior before we even know the true details about their conduct.

For example, in discussing the Chaut's tax exempt status, or in discussing the Borough's work for private corporations, the issue is not whether I think the actions or status should or shouldn't be terminated. Its about us taxpayers and shareholders being able to make decisions and to participate in our community based on transparent, truthful, and accurate information.

Why is this truthfulness and accuracy important? Its important because many of these activities present legality issues, as well as ethics issues, that, quite frankly, someone-someone who doesn't deserve it, always gets the short end of the stick on.

Here's another way to explain why demanding truthfulness and accuracy from community leaders is so important: Its one thing when your pastor asks you for money to support the summer boys camp, buts its another when you learn that the its likely that the pastor is doing something unethical or illegal either with that money or with those boys...And, if presented with inquiries, would you expect an errant pastor to simply roll over and say, "Oh, well, you caught me. Let's just skip straight to the punishment." Or, would you expect him to say something like, "We have a great congregation here; you have all enjoyed the benefits of my diligent and worthy spiritual guidance and will continue to do so, regardless of what that troubled boy says about me or my actions. That boy has been troubled since he came here. Let's pray for him and call it a day. In fact, let's have a party to celebrate my service to this community. We'll just pay for it out of the "Parent Fund.""

On the other hand, if he truly had his community as his first priority, he would say, "Look, the success of this program and its participants is the priority here--not whether or not the books or the "organizers" activities should be kept secret. Pick a representative or two, let's meet, review all relevant documents, answer all your questions, work together to make a plan to move forward with, and then move forward. Let's learn and grow from this."