Sean Penn's Charity, CORE, Described as "a Money Mess"
Apr 04, 2023
Sean Penn’s charity, Community Organized Relief Effort (CORE), “has been accused of widespread financial mismanagement and failing to address allegations of sexual harassment,” including “failing to put in place adequate accounting processes,” according to a February 1, 2023 article in The Times. The article cited a January 31, 2023 article published by Bloomberg, which described CORE as “a Money Mess.”
CharityWatch started looking into CORE’s finances in August of 2022. Unable to locate the charity’s audit on its website or in online public databases, CharityWatch reached out to CORE directly via email on August 31, 2022 to request a complete copy of its fiscal 2020 consolidated audited financial statements, including notes. We also asked for clarification about the charity’s name, noting that its federal tax ID #27-1703237 was associated in various government filings under two names: CORE Community Organized Relief Effort; and Jenkins Penn Haitian Relief Organization.
While CharityWatch did receive an acknowledgement of our initial inquiry via email the same day, we did not receive a response to our subsequent attempts to follow up on September 22, 2022, December 12, 2022, or January 16, 2023. CORE never provided CharityWatch with a copy of its audit or provided clarification about its name change. Fortunately, we did eventually locate a copy of CORE’s fiscal 2021 consolidated audited financial statements in ProPublica’s Nonprofit Explorer.
CharityWatch has issued CORE Community Organized Relief Effort (CORE) a "?" rating for its fiscal year ended 12/31/2021 due to our specific concerns related to its independent auditors' "Schedule of Findings and Questioned Costs for the Year Ended December 31, 2021" in connection with its financial statement audit concerning CORE's receipt of federal government awards.
During a financial audit, auditors conduct various forms of sampling, which involves checking a portion of an organization's financial transactions to ensure that they are accurately recognized and recorded, that sufficient documentation exists to substantiate them, and that proper internal controls are being maintained by an organization's management. Samples are planned, selected, and evaluated for the purpose of providing an organization's auditors with statistically representative data adequate for inferring the overall accuracy of the reporting. An audit does not entail the auditors checking 100% of an organization's financial transactions to confirm the accuracy of the total of the reporting. For this reason, errors may exist in an organization's financial reporting that go undetected by its auditors.
CORE reports receiving approximately $48.4 million in government grants in 2021, according to its IRS Form 990 tax filing (Part VIII, line 1e). The $48.4 million comprises approximately 42% of CORE's reported cash-based total revenue of $115,930,876 in 2021. CORE's auditors raised concerns about the organization's accounting for and reporting of federal grants in 2021, in addition to other items, as further detailed below.
According to the "Other Reporting Required by Government Auditing Standards" section of CORE's Independent Auditors' Report, dated December 15, 2022, issued in connection with the CORE consolidated financial statements for the year ended December 31, 2021:
"In accordance with Government Auditing Standards, we have also issued our report dated December 15, 2022, on our consideration of the Organization’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Organization’s internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Organization’s internal control over financial reporting and compliance."
Section I of the "Schedule of Findings and Questioned Costs for the Year Ended December 31, 2021" related to the independent auditors' reporting concerning CORE's receipt of federal government awards (the "Auditors' Schedule") states: "The auditors' report expresses an unmodified opinion on whether the consolidated financial statements of CORE Community Organized Relief Effort were prepared in accordance with general[ly] accepted accounting principles.” An “unmodified opinion” means that in the opinion of the auditors, the organization’s financial statements are presented fairly, in all material respects, in accordance with generally accepted accounting principles. However, such an opinion does not guarantee that an organization’s financial statements are free from error.
The auditors report that during the federal awards audit process they identified “Material weakness(es)” and “Significant deficiencies” in CORE’s “Internal control over financial reporting” of its financial statements. A material weakness is one or more control deficiencies that create a reasonable possibility of material misstatement in an organization’s financial statements. This does not necessarily mean that a material misstatement has occurred, but rather that the organization’s internal controls might not be good enough to detect or prevent a material misstatement from occurring. A significant deficiency is a single weakness or combination of weaknesses in an organization’s internal controls sufficient to merit scrutiny of those responsible for administering its financial reporting. Under "Internal control over major programs" for Federal Awards on the Auditors' Schedule, the auditors report that the "Auditee" (CORE) does not "qualif[y] as low-risk auditee."
Section II of the Auditors' Schedule, "Findings Financial Statements Audit," states that CORE's staff did not have sufficient information available to be able to prepare an accurate and complete Schedule of Expenditures of Federal Awards (SEFA) for the audit. This was "[d]ue to the Organization's rapid response to support [COVID] testing efforts nationwide" which caused CORE to experience "a surge in workforce capacity, while implementing systems, processes, and controls." Additionally, the Auditors' Schedule states that CORE "faced turnover in management and accounting personnel during 2021 as well as significant growth in the number and complexity of contracts..."
As a result, according to the Auditors' Schedule: "Significant auditor assistance was required to identify the grants and correct expenditure amounts to be included in the SEFA. Modifications to the original SEFA included the addition of 3 Assistance Listing programs, 9 grants, and approximately $20 million in expenditures." The Auditors' Schedule also reported: "Inaccurate reporting of the federal expenditures in the SEFA could result [in] inaccurate major program determinations, risk assessments, identification of compliance requirements, and ultimately incomplete reporting of federal funds expended to granting agencies."
For the "Recommendation" regarding the material weaknesses in CORE's Schedule of Expenditures of Federal Awards, the auditors state: "We recommend management implement more robust procedures and policies around tracking of federal grants and the related expenditures to ensure accurate and complete reporting of the SEFA..." The "Management's Response" that follows the Recommendation states: "CORE disagrees that the observed condition represents a material weakness in internal controls over financial reporting."
The Management's Response cites several mitigating factors, such as "noncompliance at the pass-through entity level" and "the delayed issuance" of information by the government necessary to complete required reporting. CORE's management also states: "CORE now maintains a matrix of all grant awards which includes information on the funding source, award and CFDA numbers [Catalog of Federal Domestic Assistance numbers assigned for each government award]. Management reviews this information monthly for accuracy and completeness." The "Auditor Response" to CORE's management acknowledges and agrees that not all necessary information was provided to CORE, but it also states: "The auditor believes ultimate responsibility for obtaining all necessary information from granting agencies lies with the receiving agency, including keeping up with changes in federal award requirements."
Regarding the Recognition of Revenue by CORE, the Auditors' Schedule reports: "Revenue may not be recognized accurately or in the proper period." The auditors' recommendation includes that "management implement more robust procedures and policies around tracking of grants, grant requirements, and revenue recognition..." In response, CORE's management characterized this revenue recognition issue, which related to $1.8 million, as an "oversight" and stated that "although regrettable, [it] represents 1% of total revenues." The "Management's Response" by CORE also includes: "These conditions surfaced during the 2020 audit which was finalized in January 2022. The 2021 audit started five months later in June of 2022. At the completion of the 2020 audit, CORE agreed that a significant deficiency in control design existed and immediately took action to resolve the control weakness by hiring seasoned non-profit accounting professionals, implementing more thorough monthly review processes, and starting the process to transition to a more robust ERP [Enterprise Resource Planning] system which includes detective revenue recognition controls."
With respect to CORE's Document Retention, the Auditors' Schedule reports: "During the course of the audit, we noted certain documentation was not maintained to support the review and approval process" of certain items. The items cited include:
– No available documented approval of payroll prior to processing for approximately 50 of the 100 samples tested.
– No available documented approval of invoices for approximately 35 of the 100 samples tested with respect to authorization and approval of disbursements.
– No available documented approval of invoices for 37 of the 40 samples tested with respect to authorization and approval of revenue invoices.
– Not all donated goods and services had available backup documentation regarding nature and estimated value.
– Documentation was not available to substantiate management's oversight and review of the monthly financials for several months of the year.
According to the Auditors' Schedule: "There was no monetary impact to the exceptions noted as the auditor was able to get comfortable that the transactions did exist and were related to the location to which they were recorded. Such information used by the auditor included: a) the supporting payroll registers; b) invoice and check/payment support; and c) grant invoice." In response, CORE's management cited several measures it has taken to prevent such issues in the future, such as "hiring a veteran payroll director to manage all aspects of payroll activities" and transitioning to a "replacement payroll system."
Regarding CORE's "Year-End Close Process," the Auditors' Schedule reports: "There were several adjustments recorded as a result of audit procedures, which may indicate certain month-end close processes are not working as designed. These adjustments included a reduction of expenses by approximately $200,000 for an invoice booked twice, reduction of revenue of approximately $200,000 for artwork sold that was booked twice, and an adjustment of approximately $450,000 to reconcile balances between the US and Haiti divisions and the related expenses." The auditors cited CORE's "surge in workforce capacity" and "turnover in management and accounting personnel during 2021" as having contributed to the cited issues.
The Auditors' Schedule reports that the effect of the above cited Year-End Close Process issues is: "Financial reporting may not be accurate." The auditors' recommendation is that CORE "implement additional closing procedures to ensure all necessary journal entries are recorded, accounts are reconciled, and management reviews monthly financial reporting." In response, CORE's management stated that "CORE's 2021 expenses increased to $105 million from $49 million in 2020," and that the two adjustment and reconciliation "oversights" cited by the auditors "represent less than 1% of the total expenditures for 2021."
The above information from the Auditors' Schedule represents only a sampling of the independent auditors' findings and the responses of CORE's management. A complete copy of CORE’s audited consolidated financial statements for the year ended December 31, 2021 is available on ProPublica’s Nonprofit Explorer website.