Grassley Seeks Details on the United Way's Finances

WASHINGTON – Sen. Chuck Grassley, ranking member of the Committee on Finance,
today asked the national United Way to explain how it ensures chapter integrity and the Washington,
D.C.-area chapter to explain how it manages donations. Grassley’s inquiry comes after allegations
of financial mismanagement at the Washington, D.C.-area chapter.

“Giving to a charity isn’t a frivolous act,” Grassley said. “People think hard about how much
they can afford and where their money will do the most good. Charities should treat them accordingly.
The more transparency from charities to potential donors, the better. Transparency instills public
confidence.”

Grassley’s letter to the United Way follows his ongoing correspondence with the American
Red Cross, which has been criticized for its delivery of Sept. 11 relief and its chapter management.
Grassley also worked to include greater reporting or “sunshine” provisions in the charitable giving
bill passed by the Finance Committee in June.

The text of Grassley’s letter to the United Way of America and the United Way of the
National Capital Area follows.

Via Regular Mail and Telefax:
United Way: 202-488-2082;
National Capital Area: 703-683-7846

Brian Gallagher
President and Chief Executive Officer
United Way of America
701 North Fairfax Street
Alexandria, VA 22314

Norman O. Taylor
Chief Executive Officer
United Way of the National Capital Area
95 M Street SW
Washington, D.C. 20024-3622
Re: United Way Accountability to its Directors and Donors

Dear Messrs. Gallagher and Taylor:

As Ranking Member of the Senate Committee on Finance (Committee) with jurisdiction over
tax-exempt organizations including charities, I am committed to help ensure that U.S. charities
prioritize accountability to maximize their financial relief to those in need. While I continue to
praise the mission of the United Way of America (United Way) and its approximate 1,400
community-based United Way organizations dedicated to improving people’s lives, I am concerned
about allegations regarding mismanagement, misuse of funds, and inflated fund-raising totals at the
United Way of the National Capital Area (National Capital Area).

The Washington Post reports, “[National Capital Area] has acknowledged that it has taken
credit for millions of dollars in contributions it never handled; has withheld from charities more than
$1 million it collected for them; and has covered its overhead by deducting as much as 45 percent
from contributions in some situations.” (August 14, 2002; Pg. B01.) Perhaps for this reason,
representatives of the National Capital Area met on August 15, 2002, with executives from major
local companies to announce that they are delaying the fall annual fund-raising drive for a month.

It is reported that, “The support of the executives . . . is crucial to the health of the local United Way,
which collects $10 million to $20 million annually from their employees.” (Id, August 15, 2002; Pg.
B01.)

Today I write to understand how the National Capital Area seeks accountability for each
donation received as well as United Way’s management system to ensure chapter integrity. I am sure
you will agree that people think hard about how much they can afford and where their money will
do the most good. Charities should treat them accordingly. The more transparency from the United
Way and its community-based organizations to potential donors, the better. Transparency instills
public confidence.

To encourage the spirit of patriotic giving to the United Way and its 1,400 community-based
organizations that I will call chapters for purposes of this inquiry, I appreciate your responses to the
following questions. For your convenience, I have divided these questions into categories for the
National Capital Area and United Way.

Allegations of Improper Accounting and Misuse of Funds: Questions for the National
Capital Area

1. At an August 15, 2002, meeting of National Capital Area representatives including
Mr. Taylor and executives from major local companies, Mr. Taylor allegedly “spoke
briefly about management reforms and cost cutting the organization has undertaken”
in response to allegations of mismanagement and misuse of funds. (Id.) Please
describe in detail these reforms and other remedial measures, and produce all
documents relating thereto.

2. The United Way’s Web site states that, “A vast network of volunteers keeps
administrative expenses low, averaging 13 percent of all funds raised at the largest
United Ways. This figure compares favorably with Better Business Bureau
guidelines of up to 35 percent.” As queried by The Washington Post on May 26,
2002, please provide the following information:

a. Exactly how much of every dollar goes to the agencies specified, and how
much goes for administration?

b. Exactly what is the administration spending, and for what?

c. How might administration spending be reduced?

3. For the past five (5) years, please describe the sources and amounts of your funding
to include from any government entity as well as from taxpayers. Of this amount,
provide the following information:

a. State how much of that money is paid, directly or indirectly, at any time, to
professional fund raisers.

b. Describe how much of that money is allocated to “joint costs” on your
Internal Revenue Service Form 990 (Form 990).

c. Describe the program services delivered as part of the joint costs.

d. Produce copies of your Forms 990 for the past five (5) years.

4. I was concerned to learn of allegations brought by a former National Capital Area
board member, Ross W. Dembling, relating to expenses for travel that had little or
no relation to United Way’s mission, and that $85,000 allocated to make restrooms
more accessible to the handicapped had gone to decorate Mr. Taylor’s office as the
charity’s new chief executive. According to The New York Times, “Mr. Dembling
also complained about a consulting contract for Mr. Taylor's predecessor, Oral Suer,
that pays Mr. Suer $6,000 a month for a year, as well as up to $5,000 in monthly
expenses. The full board was unaware of the contract until Mr. Dembling told
members of it in a July 24 letter. The contract was approved by a board committee,
but not all committee members knew about it.” (January 23, 2002; Section A; Page
16.) Accordingly, please provide the following information:

a. Explain National Capital Area’s procedures for investigating the veracity of
allegations that in any way reflect negatively on the management and
financial accountability of your organization (mismanagement, misuse of
funds, inflated fund-raising totals, nepotism, etc.).

b. State whether any of these allegations are true. If so, explain the reason for
these expenses, allocations, and contracts. Also, explain why the committee
members did not know about the contract.

c. State whether any of these allegations violated a National Capital Area
regulation or guideline. If so, identify the regulation or guideline and state
whether any penalty has or will issue against the responsible person.

d. State whether National Capital Area has instituted any regulation or guideline
in response to these allegations, and explain the purpose of that regulation or
guideline.

e. For the past five (5) years, identify any conduct by a National Capital Area
employee or volunteer that has violated its regulations or guidelines, identify
the guideline, and state whether any penalty has or will issue against the
responsible person.

5. Describe all regulations or guidelines relating to reporting requirements for actual or
perceived conflicts of interest by current or former employees and volunteers. If
there are no such regulations or guidelines please explain why not. If such
regulations or guidelines exist, describe them and provide the following information:

a. State whether the reporting is mandatory or voluntary and, if voluntary,
explain why.

b. Describe the nature of the information contained in the reports.

c. State how often these reports are required to be filed.

d. Identify who reviews the reports for timeliness, completeness, and accuracy
(i.e., officials at United Way or an independent auditor).

e. Identify any penalty for failing to file in a timely, complete, and accurate
manner.

f. Identify any United Way employee or volunteer that has failed to file a report
in a timely, complete, and accurate manner, state the circumstances
surrounding the actual or perceived conflict of interest, and describe any
penalty that was issued. If no penalty was issued, explain why not.

6. Describe the regulations or guidelines in place that govern the National Capital
Area’s obligations to its board of directors, particularly relating to responsiveness and
disclosure responsibilities. Also, describe the current status of the allegations at issue
and state whether you believe the National Capital Area has fulfilled its obligations
to the board. Further, for the past five (5) years, please list any information requested
by but not given to the board of directors.

Accountability: Questions for United Way

7. Please answer the following questions concerning United Way’s relationship to the
chapters:

a. Describe all guidelines for uniform record keeping, financial reporting, and
use of funds by the chapters.

b. With particular regard to financial reporting by the chapters, provide the
following information:

(i) State whether chapters are required to give periodic financial reports
to United Way. If so, describe the information contained in these
reports and state how often these reports are required to be filed.

(ii) Describe how these reports are reviewed for accuracy, and state who
conducts the review.

(iii) Describe any penalty for failing to file in a timely, complete, and
accurate manner.

c. Describe United Way’s oversight procedures for ensuring that its chapters
adhere to their membership agreements.

d. Describe United Way’s procedure for sanctioning a chapter, to include what
action by a chapter will lead to a sanction by United Way and the type of
sanction.

e. Has United Way ever revoked the charter of a chapter? If so, describe the
circumstances for the revocation and state whether that chapter’s employee
or volunteer was disciplined in any way related to the revocation. In the case
of disciplinary action, describe whether United Way, the chapter, or another
entity decided on the nature of and carried out the disciplinary measure.

f. Besides charter revocation, identify any sanction that United Way has issued
against a chapter for the past five (5) years. Specifically, describe the
circumstances for the sanction to include who received the sanction, what for,
and whether United Way, the chapter, or another entity decided on the nature
of and carried out the sanction. Also, state whether that chapter has received
any subsequent penalty and, if so, describe the nature of the penalty.

8. Please respond to the allegations about misreporting of funds raised and
inappropriate expenses, allocations, and contracts made by the National Capital Area.
Kindly include the following information in your response:

a. When did United Way first hear of these allegations?

b. Explain United Way’s procedures for investigating the veracity of allegations
of improper conduct by a chapter employee or volunteer.

c. Does United Way have a penalty structure for violations of any United Way
regulation or guideline by a chapter? If so, explain the nature of this structure
to include information about the violations, penalties, and any appeal process.

d. Are the allegations against the National Capital Area true? If so, state
whether the allegation violated a United Way regulation or guideline. If so,
identify the regulation or guideline and state whether any penalty has or will
issue against the responsible person or against the National Capital Area
chapter.

9. State whether United Way or any chapter has been audited by any governmental or
private/internal entity in the past 10 years and, if so, please state the findings.

10. Please describe any uniform qualification or performance standard for United Way
officers at the national or chapter level, and produce any United Way document
provided to the chapters related thereto. Also, explain United Way policy for hiring
and firing United Way and chapter employees and volunteers.

11. Concerning the funds that have been donated to United Way, its chapters, and
particularly the September 11 Fund in response to the terrorist attacks of September
11, 2001, The Washington Post has raised concerns that, “A full accounting of how
hundreds of millions of donated dollars were spent may not ever be possible because
the funds often are distributed through a network of smaller nonprofits... Experts in
philanthropy argue that a careful accounting of the funds raised since Sept. 11 is
critical because public opinion on whether the money was well spent could affect
charitable giving long into the future.” (June 11, 2002; Pg. A01.) Please describe
in detail how United Way intends to account for the funds distributed, and identify
a point of contact for my Committee staff to follow-up with regarding this issue of
accountability.

Thank you for your cooperation. Given the timeliness of this information, I appreciate your
providing me with your complete responses by September 23, 2002.

Sincerely,

Charles E. Grassley
Ranking Member

cc: The Honorable Max Baucus,
Chairman, Senate Committee on Finance

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