experts for nondisclosure of business deals with board members and millions in
executive pay, said yesterday that it is asking the Internal Revenue Service
to examine the organization’s records and address points raised by recent
articles in The Sun.
Also yesterday, the Maryland Association of Nonprofit Organizations said
the articles prompted it to question Chimes’ compliance with its ethical
standards and to consider expelling the Chimes Foundation, which solicits
donations to support the Chimes group.
“That membership is under review,” said Peter V. Berns, the association’s
executive director. “The articles on their face raised serious issues about
legal compliance with requirements of the Internal Revenue Service that apply
to charities.”
Charities must report, on publicly available IRS forms, executive
compensation and all deals with board members so that donors and regulators
can sense how much money might be flowing to insiders instead of to a
nonprofit’s mission.
Based on their analysis of Chimes IRS filings, former IRS officials and
other nonprofit specialists said the organization appeared to have concealed
from potential donors $2.44 million in compensation for three top executives
over three years, including $1.07 million for chief executive Terry A. Perl.
Chimes also should have disclosed business deals with at least four board
members, including hundreds of thousands of dollars in equipment-leasing
business done with a company run by Chimes Inc. Chairman Allan Levine, experts
said.
Chimes delivers vocational training, set-aside jobs, residential care and
other services to the disabled. Its leaders have heatedly denied wrongdoing,
but in a memo to employees Perl said the group would ask the Internal Revenue
Service to review its records.
“We believe that by taking this course of action … we will put this issue
to rest, rather than letting the opinions of a few `experts’ or those whose
views are based on half truths have the last word,” Perl’s memo said.
Martin Lampner, Chimes’ chief financial officer, said yesterday that the
group “has initiated contact with the IRS.” He declined to comment further,
saying the employee memo “speaks for itself.”
Chimes’ invitation to the IRS is an encouraging sign, Berns said.
“[It is] a positive step that they are taking to try to demonstrate that
they are not doing anything that is illegal, or at least that they didn’t
intend to do anything illegal,” he said.
Other nonprofit specialists said Chimes might get a visit from the IRS
whether it wants one or not.
“They go in when they want to, not when they’re asked,” said Peter Swords,
former executive director of the Nonprofit Coordinating Committee of New York.
“Your newspaper stories may force them to go in.”
Swords examined Chimes’ IRS filings at the request of The Sun, as did
Daniel L. Kurtz, a former New York charities regulator and attorney
specializing in nonprofit law.
“Let them invite the IRS in,” Kurtz said yesterday. “Obviously, if the IRS
comes in, they are going to make findings that are going to be adverse. It
seems to me they are going to have problems.”
In his memo to employees, Perl said, “We are confident this review will
have no impact on the ongoing operations of this organization, your job or the
people you serve.”
An IRS spokesman declined to comment on whether the agency had been
contacted by Chimes or whether an investigation was under way, saying federal
law prohibits disclosure of such information.
Chimes operates through about 10 corporations in several states. One,
Chimes Foundation, is a member of the Maryland Association of Nonprofit
Organizations, Berns said.
The association is recognized as a national leader in improving the ethical
behavior of charities and other nonprofits.
It asks members to commit to eight “guiding principles,” including a
standard that instructs nonprofits’ directors and staff members to “act in the
best interest of the organization, rather than in furtherance of personal
interests.”
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The standards also require groups to be “accessible and responsive” to
public inquiries and to implement policies “to prevent actual, potential or
perceived conflicts of interest.”
Revelations about Chimes “raise questions about whether the organization
does share a commitment to abiding by the guiding principles,” said Berns.
The association has never expelled a member and would not expel Chimes
Foundation lightly, he said.
“We don’t like to terminate members,” he said. “Generally, our greater
interest is to try to help organizations to try to improve their performance.
We only resort to terminating a member if we really think the organization
doesn’t have a genuine interest in functioning at a high level.”
Allegations of impropriety at Chimes center on disclosure of board-member
business deals and executive pay.
The IRS directs nonprofits to report on Form 990, which is similar to a tax
return even though charities pay no income tax, whether they did business
“directly or indirectly” with directors or major contributors.
Chimes entities have done business with consultant Huell E. Connor Jr., who
sits on the Chimes Inc. board; Yellow Transportation/Connex President Mark L.
Joseph, a Chimes Foundation director; attorney Joel Margolis, a life member of
Chimes Inc.’s board; and leasing executive Levine, who is chairman of Chimes
Inc. and Chimes International, a related management company.
The relationships were not disclosed on Form 990, and Chimes said they were
not required to be disclosed.
The IRS also requires nonprofits to report “aggregate compensation of more
than $100,000 from your organization and all related organizations” paid to
executives or directors.
Chimes Inc. and its main subsidiaries reported only about a fourth of the
total pay received over three years by Perl, Lampner and Chief Operating
Officer Albert Bussone.
The rest was paid and reported through the obscure corporation Chimes
Delaware, which gained most of its revenue from the main Chimes group and
whose only employees were the three top Chimes executives and Perl’s wife,
Martha, who is Chimes’ vice president of human resources.
Terry Perl’s total pay and benefits for fiscal 2002 came to $542,101, but
less than half of that was reported on the IRS filings for Chimes Inc. and its
main subsidiaries.
Nonprofit specialists said the Chimes Delaware compensation should have
been reported on IRS filings for the main Chimes group so that donors could
get a full picture of the group’s pay practices. Chimes Delaware, Kurtz said,
appeared to have been created, “at least in part, to shield from public view
the very high compensation these … individuals are receiving.”
Chimes leaders said Chimes Delaware is a separate trade association whose
executive pay did not need to be listed on reports for the main Chimes group.