Update to members - NCNCA's finances, missing funds

There's just a few weeks left in 2010 so it's time to close out the year with a Treasurer's report on the can of worms that opened up in January. Those who don't follow NCNCA business might not be interested in this post, but I ask that every officer or delegate of a member club read it through.

For anyone who hasn't followed the blow-by-blow: in early January, when starting as Treasurer, I learned that NCNCA had some serious money issues to sort out, going back to 2005. As a 501(c)(4) nonprofit, NCNCA is supposed to file an informational tax return every year called a Form 990-EZ, as well as similar forms with California. Form 990 shows sources and uses of funds, and total assets and liabilities at the beginning and end of each year. The last time a 990-EZ had been filed was for 2005.

Because of all those missing filings, NCNCA was going to lose its nonprofit status on May 15, due to a law that took effect starting in 2007 (which said: miss three years and you're out). Also, our bank accounts had some sort of IRS flag on them. Because of the missing 990s, and potential loss of nonprofit status, USA Cycling in January suspended our Local Association payments - that's half of our funding.

So NCNCA started the year with ample funds in the bank, but also with very large potential liabilities including taxes, penalties, legal fees, and the potential loss of our relationship with USA Cycling.

Now the CSI part. The first step was reconstructing a financial history. There were no records from 2006, because they had been either lost or destroyed by the Treasurer from that year, Janice Goodrich (Ms. Goodrich at the start of 2010 was a licensed USA Cycling official, and had been Treasurer for approximately ten years ending in December 2006). Ms. Goodrich offered no help, other than a faxed copy of what was allegedly a financial statement from mid-late 2006. She would not even reveal the name of the bank NCNCA used at the time, and suggested that I just create a 990 filing based on old ones and "move on" (i.e., commit perjury by signing a fake tax return). This was all a big red flag that there might be more than just sloppy accounting going on.

Through our current bank, Wells Fargo, I traced the old NCNCA accounts at a bank in Elk Grove, and obtained statements for late 2005 through 2007. Several things immediately caught my attention. One was that the reported amount of cash as of 12/31/2005 on the 2005 990-EZ was way off - it said that NCNCA had about $41,000 in the bank, when it actually had only $7,000 or so. Another was that cash remained in the NCNCA accounts in early 2007, but NCNCA never received it. Another was that somewhere around $95,000 flowed through the bank accounts during 2006, but the stated revenue on the financial statement from Goodrich was well below that figure. Another was that there were a lot of withdrawals that appeared odd in their amount, frequency, and type. Finally, two former Officers shared that they had suspicions about Ms. Goodrich. They did not share why they let her slide for the past three years.

I turned this information over to a newly created Finance Committee in January. That Committee obtained copies of, and reviewed, every check and transaction done in NCNCA's prior bank accounts. The Committee found that Ms. Goodrich had taken over $36,000 in unauthorized funds from NCNCA's accounts during 2006 and 2007, in the form of cash withdrawals, checks written to herself, and payments to personal accounts. There was no plausible explanation other than theft. The missing cash as of 12/31/2005 remains a mystery; Goodrich had withdrawn substantial funds in prior years, but those might have been for valid purposes. The current Board's priority was the missing filings, not reopening 990s filed by former Officers.

To fulfill our legal obligations, NCNCA disclosed Goodrich's withdrawals as "excess benefit transactions" on Forms 990-EZ for tax years 2006 and 2007 (we initially disclosed them on a 2009 Form 990-EZ filed on May 15, 2010, to meet the filing deadline for that year. Once we had reconstructed the information needed to have a CPA prepare the missing returns for 2006-07-08, we amended the 2009 return). An excess benefit transaction is one where someone in a position of influence at a nonprofit uses that position to obtain funds inappropriately. The name may sound benign, but should the relevant agencies choose to prosecute, and find that these transactions met the criteria for "excess benefit," the penalties could be extremely harsh - including repayment to NCNCA as well as a 200% excise tax paid to the US Treasury. Other individuals could be subject to excise taxes as well, particularly if found to benefit from or facilitate her actions. Finally, NCNCA could also be penalized, particularly if it didn't address the problem.

Throughout this process, NCNCA received advice from attorneys specializing in nonprofit law. A CPA specializing in nonprofits prepared our final returns. The actions that the Board has taken regarding this matter, as well as the changes to NCNCA's overall governance and mid-year amendment to the Constitution, were all driven by advice of counsel. The goals have been first, to preserve NCNCA as a working nonprofit, and second, to get enough checks and balances in place to prevent this kind of thing from happening again.

And for those critical of the Board's "secret meetings" - the only truly secret parts involved discussions of Goodrich as we were trying to piece things together. Our attorneys recommended that we do that in closed session. We didn't know exactly what had happened, who was involved, and whether crimes had been committed. Frankly, we still don't, but we've pursued it as far as we could.

Based on this misappropriation of funds, NCNCA requested disciplinary action against Goodrich by USA Cycling. The result of their action was that Goodrich received a permanent ban from officiating in the sport. If you see her working at a competitive cycling event, please inform NCNCA or USA Cycling.

At the USA Cycling Local Association meeting, Bill Nicely and I gave a presentation to the other LAs about our rocky year and the changes we'd done. The comments were interesting; several LAs went back with questions for the people that handle their finances. And one Director from the Northeast shared that he had been on another nonprofit board where they discovered millions in misappropriated funds. The nonprofit went after the individual who had done it and was able to recover quite a bit; in part it was because of the involvement of law enforcement.

Which raises the question of whether NCNCA - me as Treasurer, the Board, and the Finance Committee - have done enough. On October 15th I filed 12 various returns with the IRS, Franchise Tax Board, and Attorney General for tax years 2006 through 2009, to catch up with all the missing paperwork. I've since received word from the IRS that our nonprofit status would not be revoked, thanks to a well-timed amnesty program that we were able to make use of. We're current with our filings, as well as 1099-MISC reporting for our independent contractors. Our governance is substantially improved and it seems inconceivable that someone could now take tens of thousands of dollars from NCNCA without it being noticed. And finally, we made a demand for repayment by Ms. Goodrich, but did not receive a satisfactory response. The Board has voted to turn the information over to agencies responsible for enforcing these laws, and call the matter closed.

Everyone on the Board has spent a lot of time and effort on this matter during 2010 - it's no exaggeration to say that it's been hundreds of hours for many of us. But ultimately, the Board works for the members. Have we done enough? I welcome comments and questions from the membership of NCNCA - here on the forums, by email to me (treasurer@) or to any of the NCNCA Board or Officer mailboxes.

And next year, more bike stuff.

-Tad

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