April 15, 2012 | Read Time: 4 minutes
A state regulator’s settlement this month with the charity co-founded by Greg Mortenson, author of Three Cups of Tea, drives home the importance of maintaining an independent board that can stand up to charismatic leaders, experts say.
Montana’s attorney general ordered Mr. Mortenson to pay a $1-million reimbursement to the Central Asia Institute, a Bozeman, Mont., group that builds schools and promotes education in Pakistan and Afghanistan. It came under scrutiny last year when reports by “60 Minutes” and the author Jon Krakauer raised questions about whether Mr. Mortenson fabricated parts of Three Cups of Tea and a second book, Stones Into Schools. The reports also alleged that he benefited financially from the charity.
Though Montana’s attorney general, Steve Bullock, found no criminal wrongdoing in his yearlong investigation, he said that Mr. Mortenson had committed numerous “financial transgressions,” such as failing to adhere to a royalty-sharing agreement with the charity, “double dipping” on travel expenses, and charging personal expenses like vacations and clothing to the charity.
Mr. Bullock was equally critical of the institute’s small board, which had shrunk by 2009 to just Mr. Mortenson and two loyalists.
“Despite consistent and repeated warnings about a lack of financial controls for the money CAI spent abroad and here at home, the board of directors failed to close those gaps over a period of nearly 10 years,” Mr. Bullock wrote.
$72-Million Raised
The settlement allows Mr. Mortenson to remain employed by the charity, but he cannot serve as a voting board member or hold positions requiring financial oversight.
The two other people now on the board, Karen McCown and Abdul Jabbar, must leave the board within a year. The charity also agreed to expand its board to seven members.
Anne Beyersdorfer, a friend of Mr. Mortenson who replaced him as interim director of the charity a year ago, said in an interview that she intends to leave shortly after the new board has been assembled.
The Central Asia Institute, founded in 1996, raised more than $72-million from 2003 to 2011, and it still has a reserve worth more than $23-million. The charity’s latest federal tax form shows that it had total revenue of more than $22-million in its fiscal year ending September 2010—six months before the controversy broke.
Ms. Beyersdorfer said donations to the charity had declined, but that it was still raising “millions of dollars.”
The concerns about Mr. Mortenson’s financial oversight first emerged when the Central Asia Institute was a much smaller organization, the investigation found.
Three members of the board resigned in 2002 amid concerns about Mr. Mortenson’s management of the charity. The charity’s financial manager resigned in 2004, after just a year on the job, following clashes with Mr. Mortenson over the financial controls she had set.
Mr. Bullock said he hopes the mistakes made by the Central Asia Institute can serve as a case study for other rapidly growing charities.
Douglas M. Mancino, a Los Angeles lawyer who advises nonprofits, said an executive who feels responsible for the growth of a charity may be more likely to fail to distinguish between its assets and his or her own, which makes it all the more important to have a strong board that is willing to intervene.
“When you have an organization that is controlled by a strong personality—not necessarily a public figure like Mr. Mortenson, but someone who may have founded the organization or been responsible for its substantial growth and prominence—the board almost has a heightened responsibility to be very scrupulous in its dealings,” Mr. Mancino said.
Donor Lawsuit Pending
Mr. Mortenson declined to comment on the settlement because a separate class-action lawsuit is pending against him and the charity. The challenge, which the charity says has no merit, has been pursued by people who say they were fraudulently convinced to buy his books and donate to the charity.
Even more challenges may lie ahead. Mr. Mancino said it is highly likely that the Internal Revenue Service will investigate the charity, given the high-profile nature of the case.
“I’d be surprised if this weren’t a front-burner examination,” he said.
Mr. Mortenson was represented in the Montana settlement by Marcus Owens, a former top IRS charity overseer. Nevertheless, Ms. Beyersdorfer said the charity had not been contacted by the IRS.
“We do not think there are any issues for the IRS to address,” she said.
