January 7, 2009
Disclosure at Chimes puts donors in the dark
Finances: The Baltimore-based nonprofit failed to properly report large executive salaries and business relationships with board members, experts and former IRS officials say.
The Chimes, a highly respected, Baltimore-based nonprofit group that
provides jobs and care for the disabled, paid three top executives $2.44
million over three years that it failed to disclose in Internal Revenue
Service filings of Chimes Inc. and its main subsidiaries.
Chimes also failed to report business relationships with several members of
its boards, as required by the IRS, experts say.
Former IRS officials and other experts sharply criticized Chimes'
disclosure practices, saying potential donors were left in the dark about
significant aspects of its operations.
The undisclosed compensation amounted to 75 percent of the $3.25 million
total pay and benefits received from 2000 through 2002 by the managers - Terry
A. Perl, chief executive; Albert Bussone, chief operating officer; and Martin
Lampner, chief financial officer - who oversee an array of Chimes operating
units.
The payments, including $1.07 million for Perl, came from a nonprofit
corporation with just four employees, called Chimes Delaware, that derived
most of its revenue from the main Chimes group.
The government requires nonprofit groups to disclose annually, in publicly
available IRS forms, "aggregate compensation of more than $100,000 from your
organization and all related organizations" paid to executives or directors.
Independent nonprofit specialists who studied the Chimes returns said that,
based on their analysis, the payments from Chimes Delaware should have been
included on the IRS reports for Chimes Inc. and its main subsidiaries so the
public could see the executives' entire pay package.
"It certainly is a large amount of money passing through the organization
to individuals - individuals with multiple positions in multiple entities
seemingly making a very handsome income," said Marcus S. Owens, former
director of the Exempt Organizations Division of the Internal Revenue Service,
who examined Chimes' returns.
"It would appear there should have been a schedule consolidating that on
each of the [returns]," which are often the public's main source of
information about charities, said Owens, now an attorney for Caplin &
Drysdale, a law firm in Washington.
Chimes, which has obtained tens of millions of dollars in government
contracts set aside to employ the retarded and other disabled people in
janitorial and other service jobs, should also have disclosed the business it
did with its board members, experts said.
Form 990, which nonprofit groups must file with the Internal Revenue
Service and make available to the public, directs the organizations to report
whether, "directly or indirectly," they did business with directors, trustees
or major contributors.
"The failure to disclose is simply wrong," said Daniel L. Kurtz, a lawyer
in New York, former charity regulator and author of Managing Conflicts of
Interest: A Guide for Nonprofit Boards.
Chimes staunchly defended its reporting and said it has built a strong
record of integrity.
"This is an organization that is a valuable community resource. We've done
nothing wrong," said Perl, Chimes chief executive. "We're not playing games."
The nonprofit group, which recorded revenue of $107.5 million in fiscal
year 2002, mostly from government programs and contracts, said it reported
Chimes Delaware executive pay on that organization's IRS reports and was not
required to disclose the pay on returns for the other Chimes organizations.
Chimes Delaware was a separate trade association, they contended.
A recent move to close Chimes Delaware will cause all executive income to
be reported to the IRS on the Form 990s of Chimes Inc. and main subsidiaries
for fiscal 2003 and in the future, the organization's leaders said.
Chimes officials also said the organization was not obligated to reveal
board member transactions on its 990 forms.
"We've done this according to what we felt were very strong, professional
and ethical standards," said Douglas M. Schmidt, chief executive of Chesapeake
Capital Consultants Inc. and a board member at the affiliated Chimes
Foundation. "There are no skeletons here in terms of self-dealing or anything
like that."
Known as a well-organized, can-do group that attracts hundreds of thousands
of dollars in annual donations, Chimes revealed some details of its
operations, including audited financial statements for the main Chimes group
and IRS returns for Chimes Delaware, in meetings and e-mail exchanges with The
Sun.
But independent specialists in nonprofit governance said Chimes' executive
pay information should have been directly available to donors and the public
on the returns of Chimes Inc. and its core affiliates.
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Copyright © 2009, The Baltimore Sun
