When are audited financial statements unaudited? When the accompanying audit report is fake. The fiscal 1999 and 1998 financial statements of Feed the Children (FTC), formerly Larry Jones International Ministries, Inc., distributed to AIP and state regulators contain the forged signature of Arthur Andersen L.L.P., a major public accounting firm.
According to FTC, its former Chief Financial Director Monty Rainwater confessed that he forged Arthur Andersen’s name on FTC’s ’98 and ’99 financial statements. Tim Hackler, a spokesperson for FTC, said that Mr. Rainwater had told officials that he did it because he got behind in his work. Mr. Hackler said no one told Mr. Rainwater to forge the documents and that he did not do so for financial gain.
Mr. Hackler said that he feels at this time that the unaudited numbers used in the financial statements are good. He also said that Arthur Andersen is currently conducting an audit of FTC’s 1998 and 1999 finances.
FTC became suspicious a few months ago when officials could not get a few financial documents from Mr. Rainwater in a reasonable amount of time, according to Mr. Hackler. FTC then asked Capin Crouse, a Chicago accounting and consulting firm that specializes in nonprofits, to take a look around the finance department. At the time of Capin Crouse’s investigation, Rainwater admitted creating the forged audits and was fired shortly thereafter, according to a statement from Capin Crouse.
Although FTC has stated that it does not doubt that the 1998 and 1999 forged statements are materially accurate, AIP still is concerned that FTC’s Board of Directors did not discover over a two-year period that a real audit was not conducted. Typically at nonprofit organizations, the board or an audit committee of the board annually approves an audit and also receives communications from the auditor concerning the organization’s internal controls and other financial management practices. Barry Gardner of Capin Crouse told AIP that FTC’s audit committee approved the forged fiscal 1998 audit and he did not know if the committee had approved the forged fiscal 1999 audit. FTC’s audit committee approved the 1998 audit in spite of the fact that it had not received direct communication from its auditor. Mr. Rainwater, according to Mr. Gardner had circumvented direct communication between FTC’s board and its auditor.
ACCUSATION OF BRIBE COVER-UP AND ONGOING CONCERNS
Wesley Billings, a former FTC finance officer, says he quit his job in 1998 at the charity because he was asked to create false paperwork to cover up a $20,000 bribe that was allegedly made by the charity to a Russian official, and because he was concerned about other purported financial irregularities, which he said he described in memos to FTC officials. Mr. Hackler told The Oklahoman that Mr. Billings was referring to a $30,000 bribe that a Moscow customs official demanded to allow goods to clear customs. FTC was given the option to pay $58,000 in government fees in lieu of the bribe and this is what the charity chose to do. Mr. Hackler accused Mr. Billings of making vague accusations against FTC.
Feed the Children continues to receive an “F” grade from AIP for spending only 12% of its fiscal 1999 cash budget on program services that are not conducted in conjunction with fundraising. FTC also continues to spend most of its cash budget on television programming and advertising, direct mail and postage, which accounted for $37 million, or 75% of total cash expenses, in fiscal 1999.
AIP believes strongly that an organization with a name like Feed the Children should devote more of its efforts to collecting and distributing food. Only 13% of the $243 million of gifts in kind that FTC distributed in fiscal 1999 was “Food and child care items,” this category accounted for 23% of gifts in kind in fiscal 1998. FTC continues to distribute far more dollars worth of “Medical, dental and optical supplies, equipment and services” and “Other materials and services” than food.
POPULARITY OF CHARITY GROWS
These problems have not been obstacles to FTC’s rapid growth. According to FTC’s unaudited figures for fiscal 1998 and 1999, cash contributions have jumped 168% from $25.0 million in 1994 to $67.0 million in 1999, including a 41% increase from 1998 to 1999. Gifts-in-kind or donated goods contributions have rocketed 251% from $69.9 million in 1994 to $245.2 million in 1999, including a 60% boost from 1998 to 1999.