Nobel Prize Nominee's Charity Wins No Award for Accountability
UPDATE, Published April 2012:
Montana Attorney General announces a settlement agreement requiring Greg Mortenson, author of Three Cups of Tea, to pay more than $1 million in restitution for financial wrongdoing at the charity he founded, Central Asia Institute. Read the CharityWatch article that sparked the investigation below, and visit the Montana Attorney General's website to read its investigative report, released on April 5th, 2012. The very same three person board, which includes Greg Mortenson and is responsible for the mismanagement of CAI, is empowered with selecting its replacement board, according to the settlement reached with the Montana Attorney General.
SEE ALSO: UPDATE, Published March 30, 2011
ORIGINAL ARTICLE, Published in the April 2010 issue of the Charity Rating Guide & Watchdog Report:
Central Asia Institute (CAI) is one charity that for many donors and avid readers alike requires no introduction. CAI's co-founder and executive director, Greg Mortenson, is a New York Times best selling author two times over and has received wide recognition for his charitable work in Pakistan and Afghanistan, including two Nobel Peace Prize nominations. While many people are interested in reading Mortenson's books, Three Cups of Tea and Stones Into Schools, the one document that AIP is most interested in reading does not exist—CAI's audited financial statements.
Having received many inquiries from donors about CAI, AIP sent a certified letter to the charity last year requesting its financial documents, including audited financial statements. When the charity failed to respond after many months, we followed up in November of 2009 and were told by CAI's operations director, Jennifer Sipes, that the charity "[does not] have audits." When asked why not, Sipes told AIP that CAI's board of directors is currently working with an attorney to "get this sorted out," but could not say for sure when an audit would be available, or what years it would include.
One point of confusion an audit of CAI might help to clear up is how much, if at all, the charity benefits from the sales of books co-authored by its executive director, Greg Mortenson. Mortenson's books are prominently displayed on the home page and other large sections of CAI's web site at ikat.org, with synopses and photos of the books' front covers, and links to two web sites, threecupsoftea.com and stonesintoschools.com, that describe where the books can be purchased. According to threecupsoftea.com, if a person buys books from certain retailers using the links provided, the purchases "will generate up to 7% of proceeds to benefit Greg Mortenson's nonprofit foundation, Central Asia Institute." The stonesintoschools.com site makes a similar claim that "up to 9% of proceeds" will benefit CAI. Since "up to" can mean anything from 0% to 7% and 9%, respectively, it is not clear that the charity is actually receiving any proceeds from sales of books. CAI's 2008 tax form, the most recent available, does not break out any revenue from book sales, and when AIP asked CAI in February of 2010 how much it receives from book sales each year, the charity would not respond to our questions.
Also unclear is whether CAI receives any of the speaker's fees charged by Penguin Speakers Bureau, the company that exclusively represents Mortenson for speaking engagements, according to the charity's web site. The dates and venues of Mortenson's extensive 2010 speaking schedule are advertised on CAI's web site, along with information on purchasing tickets for the events, typically via the sponsors' or venue hosts' web sites. Those interested in booking Mortenson as a speaker or special guest are redirected to the web site threecupsoftea.com where a list of "minimum event support requirements" is posted, including a speaker's fee of $25,000.
CAI considers Mortenson's speaking events, at least in part, to be a program activity of the charity. According to CAI's 2008 tax form, $1.5 million or about 37% of the charity's total program spending of $4 million consisted of "Domestic outreach and education, lectures and guest appearances across the United States telling CAI's story and the plight of children in Pakistan and Afghanistan." This description suggests that at least some of this $1.5 million includes expenses related to Mortenson's speaking events. If CAI is going to take credit for Mortenson's speaking engagements as a program expense of the charity, it makes sense that it should be entitled to a portion of any revenues, such as speaker's fees, generated at these events. Nowhere on CAI's 2008 tax form does it report revenue from speaker's fees, and CAI would not respond to AIP's question as to whether or not the charity receives any of the fees or ticket sales from these events.
An argument can be made that the publicity generated by the charity's well-known founder and executive director results in contributions to the organization that it otherwise might not receive. While this may be true, AIP is concerned that the activities that generate revenue or create expenses for CAI are not being properly segregated from those that generate income for outside parties like the publishers of Mortenson's books, Penguin Speaker's Bureau, or for Mortenson personally. Mortenson is already compensated by the charity, $145,309 in 2008 according to CAI's tax form of the same year, for his role as executive director of CAI. It is fine for the head of a charity to earn additional income for himself through book sales or speaking engagements, but such endeavors should be conducted separately from a charity's activities and be paid for by the person or business that benefits financially.
AIP also questions whether advertisements for books and speaking engagements from which the charity reports earning no revenue are the best use of CAI's web site. At the very least, the charity should be entitled to compensation in the form of advertising revenue from the companies or persons who earn income as a result of such ads. To avoid misleading donors CAI should be explicit as to what portion of the revenues the charity receives, if any, from the goods and services being advertised on its web site.
CAI reports on its 2008 tax form that it took in $13.1 million in contributions, had expenses of over $5 million, and carried out programs nationally and internationally. Most charities of CAI's size and reach have independent auditors conduct an annual audit of their financial activities which includes reviews of internal controls, potential conflicts of interest, and other activities that could significantly impact the charity's operations. An audit often reveals information about a charity that it does not want to, or is not required to, report about itself on its tax form.
Some states have laws requiring charities with as little as $150,000 in annual revenue to submit audited financial statements as a condition of being allowed to solicit contributions in their state. CAI is a large charity with a national following, making it seem questionable that the group would not have been required to file an audit at some point in the thirteen years between now and 1997 when it was initially granted tax-exempt status. AIP asked CAI in February of 2010 if it was currently in compliance with all filing requirements in any state in which it is required to be registered. CAI did not directly answer this question, but responded that it is the organization's policy "to provide the reports and information to the official local, state and federal governmental regulatory agencies as required by law," including "the Internal Revenue Service and Attorney General Offices in the states in which we conduct activities." AIP attempted to verify CAI's statements regarding its compliance by making inquiries with several state charity offices, but had not yet received responses as of the date this article was published.
Every charity has an obligation to be transparent in its financial reporting to the public, and an independent audit of a charity's financial activities does a much better job of fulfilling this obligation than does the self-reported, and often far less reliable information reported in a charity's tax form, which is not audited. "We are in the process of having our initial financial audit performed by an independent accounting firm. This information will be available on our website at the time we publish our [2009 tax] Form 990," CAI told AIP in February of 2010. It is AIP's hope that a rigorous audit of CAI's financial activities, if conducted and made publicly available, will soon provide answers to the questions about the charity's financial activities that CAI was not willing to answer when contacted by AIP.
In mid-2010, Central Asia Institute did finally publish audited financial statements for its fiscal year-ended 2009. However, the information contained in the audit unfortunately did not assuage AIP's concerns about the lack of segregation between Central Asia Institute's financial activities and the personal business interests of its executive director, Greg Mortenson.
According to Central Asia Institute's 2009 audit, "The Organization has an economic interest in a book written by the Executive Director, Greg Mortenson, which is written in regards to his journeys in Afghanistan and Pakistan while pursuing the organization's mission. During the fiscal year ended September 30, 2009, the organization paid $1,729,542 for book-related expenses associated with outreach and education." As in past years, Central Asia Institute does not report receiving any revenue from book sales in its 2009 audit or tax form.
A donation to Central Asia Institute, at least in 2009, was more likely to be spent on costs related to educating people in the U.S. about problems in Pakistan and Afghanistan than on helping children in central Asia with their education. According to the charity's 2009 tax form, Central Asia Institute spent $4.6 million on "Domestic outreach and education, lectures and guest appearances across the United States telling Central Asia Institute's story and the plight of children in Pakistan and Afghanistan." In contrast, the charity's 2009 tax form reports that expenses related to serving schools in central Asia totaled less at $4 million, including $3 million for building materials, supplies, labor, and transportation; $759,000 for school operating expenses like teachers' salaries & supplies; $40,000 for scholarships; and $139,000 for project managers' travel expenses.
AIP continues to be concerned about conflicts of interest at Central Asia Institute. Greg Mortenson, who not only benefits personally from sales of his books promoted by the charity, also regularly receives $30,000 in speaker's fees for his lectures. The charity does not report earning any revenue from speaker's fees in its 2009 audit or tax form. AIP is concerned that Central Asia Institute looks to be covering expenses related to "domestic outreach and education, lectures and guest appearances…" while apparently not receiving a portion of the related speaker's fees or any other revenues generated at these events.
In October of 2010, AIP mailed and e-mailed questions to Central Asia Institute's executive director, Greg Mortenson; its operations director, Jennifer Sipes; and its outside auditors, Anderson, Zurmuehlen & Co., PC. We asked why the charity does not report receiving any revenue from books for which it incurs significant, related expenses, or speaker's fees for any lectures Greg Mortenson gives as a representative of the charity. We also asked what controls the organization has in place, if any, to ensure that activities that generate personal income for Mr. Mortenson or for outside, for-profit companies are kept separate from activities that generate revenue or incur expenses for Central Asia Institute, and inquired as to the role the charity's board of directors plays in enforcing these controls.
No one from Central Asia Institute has responded to these and other questions posed by AIP. As of the end of March, 2011, AIP continues to issue Central Asia Institute a rating of "?" based on the charity's fiscal year-ended 9/30/2009 reporting.