American Health Assistance Foundation (AHAF), the poster charity for related party transactions, with over $43 million of them during the past eight years, is reforming. These transactions, which were reported in AHAF's financial statements, were with fundraising related vendors owned and operated by family members of the charity's former husband and wife team of Eugene Michaels, President, and Janet Michaels, Executive Director. The Michaels were removed from their positions at AHAF in December 2004, according to this charity's fiscal 2005 audit. Transactions with the firms owned and operated by family members of the Michaels were discontinued in fiscal 2006, according to AHAF's audit of the same year.

AHAF did not completely clean house. It hired AHAF's former Development Director, Kathleen Honaker, with 22 years of experience at AHAF, as its new Executive Director. She said that she had worked on major donor fundraising and had no say over AHAF's direct mail.

AHAF also did not discontinue having family members in important positions at the charity. Ms. Honaker said that her son oversees caging operations and building maintenance at the charity, and that she has no input on his salary or employee evaluation. According to Honaker this is the only family connection among AHAF employees, and her son was "grandfathered" in by the charity's board of directors since he worked there prior to her becoming Executive Director.

AIP asked Honaker if she was concerned that her son's oversight of AHAF's contribution processing might give a bad appearance and compromise the separation of duties among individuals, which is an essential part of good internal controls. She said that her son oversees the people managing the money, not the money itself. There are lots of internal controls such as cameras to monitor the caging area, reports Honaker. Her son does not physically work in the area where the donations are being processed but does lock and unlock the door for the people when they enter and leave the caging area. About one week after AIP expressed our concern to Honaker about her son overseeing the charity's caging operation, she called us to report that she has taken this duty away from her son and reassigned it to another AHAF employee. She thanked AIP for questioning this arrangement and said that in hindsight she now realizes that it created a bad perception.

Ms. Honaker said that she wants the charity to improve and has no defense and is not proud of AHAF's past. The charity has discontinued its questionable practice of taking credit on its financial statements for some research costs of universities and other institutions that it does not pay for. AHAF, which also raises money under the names Alzheimer's Disease Research, Macular Degeneration Research, National Glaucoma Research, and Stem Cell Research Foundation has improved its AIP grade from "F" to "D" for fiscal 2006. AHAF said that after March 31, 2007 it plans to discontinue its Alzheimer's Family Relief Program and National Heart Foundation.