What Went Wrong?

Board’s actions at issue at troubled D.C. United Way

In 1998, Oral Suer, then chief executive of the United Way of the National Capital Area, in Washington, told The Chronicle

that he sought no raise in pay, declaring that his annual compensation of $196,000 was “adequate.”

Mr. Suer now stands accused of ripping off the Washington United Way for as much as $1.6-million in improper payments during his 27-year tenure at the organization, a reign of alleged rapaciousness that is all the more stunning because it occurred under the eyes of a 45-member board that included lawyers, accountants, and business executives from some of the region’s biggest companies.

While the U.S. attorney’s office in Alexandria, Va., and the Department of Labor decide whether to pursue criminal charges against Mr. Suer, former and current board members of the Washington-area United Way are assessing whether and how the charity’s board could have prevented the alleged fraud. In addition, United Way of America — the umbrella group for the nation’s United Ways — has begun imposing strict standards for board performance in an attempt to prevent similar episodes from occurring.

Audit Details Spending

An audit of the Washington United Way’s finances and operations by the accounting firm PricewaterhouseCoopers, released last month, revealed that while Mr. Suer served as chief executive, from 1974 to 2002, he received $2.4-million more than his approved compensation and apparently paid back less than half that sum. The United Way said it plans to sue Mr. Suer for $1.6-million and is considering what restitution it might seek from the United Way’s accounting firm, Councilor Buchanan & Mitchell.

The United Way also is investigating what role two former board members, William G. Tull, then a bank president, and Burt K. Fischer, then an executive partner at the accounting firm Grant Thornton, might have played in the affair. The PricewaterhouseCoopers audit alleges that Mr. Fischer and Mr. Tull knew for years about money that Mr. Suer owed the organization, but did not tell the rest of the board about the problem.

Neither Mr. Tull nor Mr. Fischer responded to requests for comment. Mr. Suer did not respond to messages The Chronicle left at his home in Alexandria, Va., and a lawyer who represents him did not return calls seeking comment.

Signs of Trouble

Because Mr. Suer’s alleged misdeeds occurred over several decades and in a wide variety of ways, nonprofit observers said it seemed likely that the Washington United Way’s board would have spotted trouble at some point.

Mr. Suer is accused of pocketing unreimbursed cash advances, skimming off improper compensation for vacation and sick leave, and receiving excessive pension payments. He allegedly charged the United Way for hotel rooms and weekend dinners while visiting his children in college, sought advances for travel to conferences he never attended, received United Way reimbursement for more than $20,000 in personal campaign-pledge payments, and took payments for 28 years’ worth of unused vacation and sick days despite evidence that he frequently took leave, the audit said.

But current and former United Way officials say that because of the organization’s management culture and governance practices, and the tendency of board members to avoid controversy, it was extremely difficult for directors to detect financial improprieties.

“This was definitely a ‘clapper’ board,” said Nancy LaValle, who worked for 20 years as a staff member at the United Way of the National Capital Area. “They listened to staff members tell wonderful stories about how much money we were raising, and they applauded instead of asking tough questions.”

Not everyone sees the United Way’s board as culpable in failing to stop Mr. Suer’s actions.

“Blaming the board would be easy here,” said Richard L. Moyers, executive director of the Ohio Association of Nonprofit Organizations, in Columbus, a consortium of 550 nonprofit groups. “But if you break down the situation and look at what could have been done differently, it becomes difficult to place that kind of blame automatically.”

He added: “If an individual in power intends to hide certain things, or mischaracterize them, it doesn’t matter how many pointed questions board members ask. This is more about someone lying than about lax oversight.”

Concerns About Time

Still, former board members acknowledged that the United Way’s internal culture made it tough for directors to exercise a proper level of fiduciary oversight, a problem they say contributed to the scandal.

Donna Kloch, a seven-year board member who served as vice president of the board during Mr. Suer’s tenure, noted in an interview that the board met only quarterly, for a total of eight hours a year. She and other former directors said they often felt rushed into making uninformed decisions.

Further, Ms. Kloch said, the large size of the board discouraged her and some other directors from feeling comfortable voicing their opinions as often as they might like.

And board members who wanted to follow up with fellow directors after the formal meetings ended, Ms. Kloch said, found it difficult to do so. When she attempted to get the phone numbers of other directors on several occasions, she said, an executive secretary of the local United Way told her that certain board members did not want their personal information to be given out.

Encountering Hostility

Even when allegations of impropriety were surfacing, some board members sought to stifle them. Ross Dembling, a former board member who is a partner at the law firm Holland & Knight in Washington, wrote a memo to fellow directors in 2001 outlining concerns he had with how the organization was accounting for its donations. Soon after, Mr. Dembling said, the organization booted him off the board.

When Ms. Kloch fought to persuade the board to investigate Mr. Dembling’s concerns, she said, she encountered such vitriol from other directors that she began to think they were covering something up.

Once, she said, she told directors, “We need to pay attention. We have a problem here.” A fellow board member responded curtly: “You’re the problem.”

The real problem, said Ms. Kloch, was that a majority of board members worried that they would be micromanaging the organization if they “got involved with every little detail of how the group operated.”

But as they argued over whether to raise concerns about even small matters, a scandal of massive proportions was under way.

The allegations about Mr. Suer’s actions are “so much bigger than anything we ever discussed,” said Ms. Kloch. “When I heard about what he did, I was much sadder about my time there than I had ever imagined I would be.”

Ms. Kloch said board members at United Way or any other nonprofit organization need to recognize that they have a right to obtain any piece of information they request — and that it is their duty to oversee the financial well-being of the organization. “People who are refused or denied any information about the charity should be very suspect about why,” she said. “The fiduciary responsibility board members have is not taken seriously enough, but directors need to be vocal that it’s their role to oversee finances.”

‘Devil’s Advocate’

Trustees do have some weapons in the fight against fraudulent activity, according to Debbie S. Hechinger, the incoming president of BoardSource, a 13,000-member Washington organization that provides resources to boards of directors and chief executives about how directors can operate effectively.

A growing number of boards, she said, are choosing one trustee to be a “devil’s advocate.” Some boards elect a person for this role; other boards rotate the role annually. The approach forces at least one trustee to “think critically” about the organization, Ms. Hechinger said, by asking pointed questions and not feeling embarrassed when lacking an understanding of issues. For example, instead of rubber-stamping a plan to pay for more-expensive office space, a devil’s advocate might ask if the money should be spent for something else.

While it is important for board members to scrutinize the finances of organizations, the primary responsibility of boards is to evaluate the chief executive’s performance, Ms. Hechinger said. BoardSource encourages trustees, while watching over the top executive, to look for red flags that might suggest financial irregularities. For example, board members should look for any gaps in financial reporting and any unwillingness by management to allow an independent review of financial data. In addition, trustees should be able to confer privately with independent auditors, she said.

“Good board governance doesn’t ensure that there will never be a mistake,” Ms. Hechinger said. “But if there is impropriety, it will be much easier to rectify if the board knows what to look for.”

Assisting Boards

Helping boards know what to look for, and encouraging them to think of themselves more as fiduciary stewards than as cheerleaders, are the focus of the United Way of America’s efforts to impose tighter standards on chief executives and boards of directors at United Ways across the country.

“We decided that if certain United Ways weren’t going to create more effective boards and better management practices, we’d act for them,” said Brian A. Gallagher, president of United Way of America. “We’re trying to impress on boards: You are ultimately responsible for this organization.”

The “vast majority” of chief executives and board members at United Ways “completely get it,” Mr. Gallagher said.

But because of fraud that has occurred recently in cities besides Washington — including East Lansing, Mich., where a chief financial officer was convicted of embezzling $2-million last spring — Mr. Gallagher said he instituted a “standards change” across the country. United Way of America now requires all 1,400 local United Ways to provide national headquarters with annual financial-data reports, to pay for independent financial audits, to write and adhere to a code of ethics, and to have an independent company perform a detailed organizational assessment of the group every three years.

In addition, the 165 largest United Ways, which represent $3-billion of the federation’s $4-billion in revenue, must submit their Form 990 informational tax returns and annual audited financial statements to the national organization. United Way of America is working with the accounting firm Deloitte & Touche to provide an additional audit of the finances and accounting practices of the largest United Ways.

“We were guilty of inconsistency in our organization, so we’ve moved from suggesting guidelines to enforcing standards,” Mr. Gallagher said. As a result, he said, “I have confidence that fewer situations like Washington will occur.”

To head off potential future fraud, the United Way of America might institute a toll-free number that employees and volunteers can call if they suspect impropriety, Mr. Gallagher said.

And to help board members perform their jobs more effectively than they have in the past, the United Way of America has staged a series of workshops to teach trustees how to assess the work of finance and audit committees, how CEO performance and compensation-evaluation decisions should occur, and how budgets should get approved.

“The lessons we’ve learned are pretty clear,” Mr. Gallagher said. “Any time you allow too much control to be in too few hands, that’s a formula for potentially bad stuff to happen. Our goal is to make sure that this sort of activity never happens again.”