Just
in time for Christmas, the graves of fallen soldiers have been decorated with
wreaths to honor their military service. The charity responsible for this
effort is Wreaths
Across America, a 501(c)(3) public charity founded in 2007 with a mission
to “conduct wreath ceremonies in all 50 states to remember our fallen US
veterans, honor those who serve, and teach our children the value of freedom.”
While
honoring our nation’s veterans in this way may be a worthy cause, CharityWatch
and The Military Times are raising serious questions about who may benefit most
from this effort given that the vast majority of the charity’s sponsorship
revenue goes to a wreath supply company owned by the husbands of two of its
board members.
CharityWatch
CEO, Laurie Styron, told The
Military Times:
“’If
it is the case that the for-profit vendor would collapse or need to
significantly downsize were it to lose the business of the charity, it is a
glaring conflict of interest to have owners of that vendor on the charity’s
board or in key staff positions,’ said Laurie Styron, CEO and executive
director of CharityWatch,
an independent charity watchdog group.”
“’The
owners and their close relatives should either sell off their financial
interests in the for-profit vendor, or the interested parties should resign
from the charity and allow an independent board to recruit leaders in whom the
public can have confidence in their capacity to act independently.’”
Conflicts
of Interest
It
is considered best practice for charities to avoid both real and perceived
conflicts of interest, and in this regard Wreaths Across America falls short. The
vast majority of its cash spending in fiscal 2022 went to a company owned by
the husbands of two of the charity’s board members.
Specifically,
in Schedule L of its 2022 IRS Form 990, Wreaths Across America reports
"Transactions With Interested Persons" in the amount of $21,457,810.
The "Name of interested person" is reported as "Worcester
Resources; [dba, Worcester Wreaths];" the "Relationship between
interested person and the organization" is reported as "Owners are related
to me[sic];" the "Description of transaction" is reported as
"Sponsorships, shipping and other."
In
its fiscal 2022 tax filing, Wreaths Across America reports bringing in
$30,867,081 of total revenue, of which $29,934,432 is reported as "Wreath
sponsorship." The same fiscal year it reports total expenses of
$31,275,595, of which $21,377,509 is reported as "Sponsorships, Trucking
& Other Sponsorship costs." It reports paying $20,605,527 to
“Worchester Resources DBA” for “the calendar year ending with or within the
organization’s tax year.”
According
to Wreaths Across America’s fiscal 2022 IRS Form 990, Part VII, and Schedules L &
O:
- Renee
Worcester and Sarah Worcester are officers and employees of Worcester Wreaths.
Renee Worcester is reported as a “Director” and "Secretary,” of Wreaths
Across America, and Sarah Worcester is reported as a “Director” of the charity.
- The
husbands of Renee Worcester and Sarah Worcester, who are reported as Michael
Worcester and Morrill Worcester II (Robbie), own the majority ownership
interest in the company Worcester Wreaths.
- The
Executive Director of Wreaths Across America, Karen Worcester, who is reported
as having worked an average of 40 hours per week for Wreaths Across America
while receiving a reported compensation of $0, is also "the mother of the
two owners of Worcester Resources."
Renee
Worcester and Sarah Worcester are sisters-in-law. Karen Worcester, the
Executive Director, is the mother-in-law to both Renee Worcester and Sarah
Worcester. Ann Hanson a Director of Wreaths Across America, and Wayne Hanson,
Chairman of the board of Wreaths Across America, are spouses but are reported
as "not related to the Worcester family." Pamela Slaven-Lee, a
Director of Wreaths Across America, is reported as "daughter to Karen
Worcester."
The
members of a charity's board of directors have a fiduciary duty to make
decisions that are in the best interest of the charity. Two ways a charity
ensures this in practice is by maintaining board independence and by avoiding
real and perceived conflicts of interest. For example, a charity that needs to
purchase millions of dollars’ worth of goods and services in order to carry out
its mission would be expected to collect bids from competing vendors in good
faith to determine the market rates for such goods and services. It would be
expected to maximize value for the charity by negotiating volume and other
discounts, and to oversee quality control of the items purchased. It would
be expected to periodically reevaluate its programmatic activities to determine
if its existing programs, and what it is spending to fund such programs,
continues to be the best way for the charity to fulfill its mission. These
practices are more difficult for a charity to carry out when a major vendor has
close family ties with the officers and directors of the charity to which they
are selling millions of dollars’ worth of goods and services.
In
its fiscal 2022 IRS Form 990, Wreaths Across America reports having a board of
directors comprised of 18 total members, of which 15 are reported as being
"independent." It also reports having basic governance policies in
place such as a conflict of interest policy, a whistleblower policy, and a
document retention and destruction policy.
In
addition, in its tax filing (IRS Form 990, Schedule L) the charity claims to
have certain checks and balances in place with respect to transactions between
the charity and its wreath vendor, saying that “relationships with Worchester
Wreaths were disclosed to the board of directors for Wreaths Across America,
pursuant to the organization’s conflict of interest policy, and they recused
themselves from discussion and vote of the agreement between the organization
and Worchester Wreaths.”
Still,
CharityWatch remains concerned that the family relationships and the
significant financial interests of certain board members in the charity's
primary vendor may impact the independence with which the charity's board can
make decisions.
As
CharityWatch CEO, Laurie Styron, told The
Military Times:
“’There
is too much financial interest concentrated in one family’s company to inspire confidence
that the charity’s board will act with true independence given the close family
ties the charity reports among key staff,’ she said.”
Causal
Relationship
Operating
a charity with a mission that just so happens to require millions of dollars’
worth of annual purchases from a company that just so happens to be in the same
industry as the one owned by family members of two of the charity’s directors is
eyebrow raising at best. This arrangement calls the true purpose of the charity
into question. Does this company exist to serve the charity and its mission, does
the charity exist to serve the company, or something in between?
It
is typical for large charities such as Wreaths Across America to have their
finances audited by an independent Certified Public Accountant (CPA) each year.
The charity did have an audit conducted of its 2021 finances, and the published
audit included the following notes regarding related party transactions and
concentrations, respectively.
“During
the year ending June 30, 2021 the Organization paid Worcester Resources, Inc.
for wreaths, balsam products, shipping and other services. The husbands of an
officer and an employee are majority owners of Worcester Resources, Inc. Total
payments to Worcester Resources, Inc. during the year ended June 30, 2021 were
approximately $14,750,217 and $18,849,087 during the year ended June 30, 2020
for wreaths. At June 30, 2021 and 2020, no amounts were owed to Worcester
Resources, Inc. for goods or services provided.”
“Worcester
Resources, Inc., as the sole supplier of wreaths for the Organization,
accounted for approximately 99% or $14,750,000 of the sponsorship related costs
for the year ended June 30, 2021 and 98% or $18,849,087 for the year ended June
30, 2020. The Organization is committed to maintain the relationship disclosed
with this vendor...through the December, 2021 wreath laying event."
"Wreath
sponsorships, as the major source of revenue, accounted for approximately 93%
or $21,834,564 of total revenues for the year ended June 30, 2021 and 93% or
$24,972,497 for the year ended June 30, 2020. The Organization has no plans to
significantly diversify its revenue sources.”
Lack
of An Independent Audit of Its 2022 Finances
In
its fiscal 2022 tax filing, Wreaths Across America responded "No" to
the question: "Were the organization's financial statements audited by an
independent accountant?" (Part XII, line 2b).
The
lack of an audit means that an independent CPA has not subjected the charity's
financial reporting to auditing standards that would test the effectiveness of
its internal controls and assess whether or not its financial information is
fairly presented and free of material misstatements.
An
audit includes inspecting a charity's assets and examining its accounting records,
including source documents (e.g., invoices, purchase orders, expense reports,
credit memos, cancelled checks), journal entries, and ledgers (the aggregate
set of records containing all of a charity's accounts). Before expressing an
opinion on a charity's financial health and conformity (or nonconformity) with
Generally Accepted Accounting Principles (GAAP), an independent CPA conducts
analytical procedures to identify possible problems with its financial records
and investigates them. Analytical procedures may include comparing different
sets of operational and financial information, reviewing the consistency of
historical relationships, and examining trends in financial ratios to identify
any unexplained variances.
When
a large charity (annual revenue of $1 million or more) responds "No"
to this question on the Form 990, this is a potential red flag since it is
unusual for larger charities to not have their books audited by an outside
accountant. A lack of independent audited financial statements has prompted
CharityWatch to investigate certain large charities in the past, such as HeroBox and Central Asia Institute, where we uncovered and reported on
additional problems.
In
addition, the charity's lack of an independent audit raises potential red flags
for a charity of this large size. While the charity reports that its fiscal
2022 tax return was prepared by a Certified Public Accountant (CPA), tax
preparation is not equivalent to the rigors of an audit, which is conducted
according to Generally Accepted Auditing Standards (GAAS) and which presents
the charity's financial information according to Generally Accepted Accounting
Principles (GAAP).
CharityWatch
Rating for Wreaths Across America
CharityWatch
is unable to issue a letter grade rating to Wreaths Across America due to the
charity’s lack of audited financial statements and the potential conflicts of
interest inherent in the relationship between the charity’s governing body and
its largest vendor. For this reason, we have assigned the charity a “?” rating
for its 2022 fiscal year. More information can be found here.
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