Charity's finances criticized Report questions spending by former United Way leaders

April 04, 1992|By Felicity Barringer | Felicity Barringer,New York Times News Service

WASHINGTON -- The ousted president of the United Way of America and two close aides transferred more than $1 million a year to other organizations they controlled and spent hundreds of thousands more on their travel, pensions and insurance plans, the new management of the beleaguered charity said in a report released yesterday.

In contrast to the charity's soothing assurances a month ago that any financial irregularities stemmed from "sloppy record-keeping" and "inattention to detail," the report revealed in damning detail a pattern of financial manipulation over a five-year period far more extensive than any the organization had previously disclosed.

This included the payment of hundreds of thousands of dollars in consulting fees to aides Stephen J. Paulachak and Thomas J. Merlo.

It also included the spending of more than $100,000 of the charity's money by the former president, William Aramony, for limousines, flights on the supersonic Concorde, and such personal items as golf equipment, jewelry and flowers.

While the report's authors and Kenneth W. Dam, the interim president of the United Way of America, were careful to avoid accusations of criminal activity, the Justice Department, the IRS and the congressional General Accounting Office have requested copies of the report.

Mr. Dam, who released the report at a news conference yesterday, said: "These conclusions are disturbing and will certainly outrage people who have given their hard-earned money week by week to help the United Way help those in need. They will, and should, feel betrayed."

Mr. Aramony denied any breach of trust but did not address the accusations of the report, which was prepared by the law firm Verner, Liipfert, Bernhard, McPherson & Hand, and the Investigative Group Inc.

The details of the report were being relayed to local United Way affiliates yesterday. Mr. Dam said he hoped that the willingness to disclose painful details would begin to restore the trust of the 2,100 affiliates and the donors, who gave $3.1 billion to support 40,000 charities.

Most executives of non-profit institutions interviewed yesterday said they hoped the report's frankness would persuade donors that the organization was serious about controlling possible abuses. But some wondered if the news would destroy the already frayed public trust.

"I'm astounded," said Kenneth L. Albrecht, president of the National Charities Information Bureau, a organization based in New York that sets national standards for non-profit institutions.

"This kind of stuff leaves you grief-stricken. It doesn't just affect the United Way of America, it affects local United Ways, it could affect local senior citizen and day-care centers. It affects every // single one of us who are involved in the charitable field in this country. We are all diminished, and the public trust has been diminished."

Mr. Aramony resigned under fire Feb. 27 and was dropped from the payroll March 17. His lawyer, Thomas H. Boggs Jr., released copies of two letters sent this week to John F. Akers, former chairman of United Way of America's board of governors, accusing him of convening "a modern-day Salem witch trial-by-press-release."

"I reject categorically any suggestion of misappropriation or breach of trust during my tenure at United Way of America," Mr. Aramony wrote. "The Board of Governors at all times was fully informed about the management of the United Way of America as well as the so-called spinoffs."

Although the board met and discussed the report Thursday, neither Mr. Akers, who is also chairman of IBM, nor the incoming United Way board chairman, W. R. Howell, who is chairman and chief executive officer of J. C. Penney Co. Inc., appeared at the news conference or returned phone calls yesterday.

Mr. Paulachak, reached at home, said, "I can't comment on the report." Mr. Merlo could not be reached.

Berl Bernhard, the lawyer for the United Way of America and the senior partner at the law firm that prepared the report, said that the United Way of America has been in contact with the IRS and expected an audit.

IRS rules allow the withdrawal of a non-profit organization's tax-exempt status if its funds are used for private benefit.

The United Way of America's $29 million budget is paid for by dues payments of about a penny of each dollar contributed to the autonomous local affiliates. Mr. Dam said the national organization had received about $400,000 in dues payments in March instead of the expected $2 million. Many affiliates have refused to continue payments until they are satisfied that controls are in place to prevent a repetition of any abuses.

At the press conference, Mr. Dam reported that the board of governors on Thursday had unanimously approved the report's recommendations for new financial controls, including recommendations that apparently would dissolve some of the spinoffs or, at minimum, put their functions directly under United Way of America's control.

Some locals, such as that in St. Louis, resumed dues payments after a national convention in Indianapolis at which Mr. Dam promised a thorough airing of the problems and committed himself to instituting new controls. But affiliates in Detroit and Kansas City are continuing to withhold dues until they have a chance to review the report.

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