Several States Are Reviewing Loans Charities Made to Their Officials

The Minnesota attorney general’s office is investigating several nonprofit organizations that were identified by The Chronicle in a February 5 report as having made loans to their top officials, and charity regulators in at least four other states have begun reviews of organizations based on the newspaper report.

Lori Swanson, Minnesota’s solicitor general, said her state’s inquiries began before The Chronicle’s report (“Borrowing the Future: Nonprofit Groups Have Lent Millions of Dollars in Charitable Assets to Their Key Officials”) was published. She declined to identify any of the groups under review.

“We have some very specific investigations [under way] relating to loans by the boards of directors of nonprofits to directors or officers,” said Ms. Swanson, who added that the inquiries were part of a broader look into the governance practices of some nonprofit organizations.

“We’ve seen a lack generally of proper corporate governance by the boards of foundations and nonprofits in certain cases,” she said. “Oftentimes, when you see loan transactions that are inappropriate, it goes to the heart of whether an organization is, more broadly, being appropriately governed.”

17 Organizations

Under Minnesota law, nonprofit organizations can make loans to officers, directors, or employees if their boards determine that the loans will benefit the groups.

Ms. Swanson said that board members who vote to make loans that should not have been made can be held personally liable for the money.

The Chronicle identified 17 nonprofit organizations in Minnesota that had reported making loans of $10,000 or more in recent years. “Some of the organizations we’ve been looking at for a while are part of the 17,” Ms. Swanson said.

When its investigations are complete, the attorney general’s office could wind up suing alleged wrongdoers, said Ms. Swanson. “Definitely stay tuned,” she said.

Action in Other States

Charity regulators in other states said they have begun looking into nonprofit groups on The Chronicle’s list.

William Josephson, assistant attorney general in charge of the Charities Bureau in the New York attorney general’s office, said the bureau’s accountants are “plowing through” the files of the 166 New York charities The Chronicle found had reported being owed debts of $10,000 or more by officers or directors. New York law bars such loans, except at organizations that the state charters as educational institutions.

In many cases, officers or directors received below-market interest rates or interest-free loans. Mr. Josephson said that even if loans already have been repaid, his office wants to make sure the officers or directors who received the loans properly reported as income on their tax returns any savings from the lower interest rates.

Officials in the attorneys general’s offices in Washington and Hawaii also said their staffs are examining organizations in their states that The Chronicle listed as having given loans to officers or directors. Both states have laws that prohibit such loans.

A spokesman for the California attorney general’s office said it also was looking at nonprofit organizations on The Chronicle’s list.

While California does not ban loans to officers or directors, it does require all nonprofit groups that wish to make such loans first to get approval from the attorney general.