Mismanaged Financials

December 1, 2000       Matthew Sinclair      

Two of the nation’s largest nonprofits are in the throes of significant management changes brought about by financial mismanagement. The problems came to light within the span of just a few weeks at Food for the Poor and Larry Jones International Ministries/Feed the Children.

Both organizations were were among the NPT 100 charities listed in the November issue, with FTC ranked 31st and FFP coming in 42nd.

While Oklahoma City-based FTC is only replacing one person, that person is Monty Rainwater, the chief financial officer. Deerfield Beach, Fla.-based FFP, on the other hand, is trying to overcome the loss of its founder and chief executive officer, Ferdinand "Ferdy" Mahfood, who resigned amid charges of sexually and fiscally inappropriate activities.

After the inappropriate activities came to light at FFP, several high-placed officials tried to persuade the organization to go outside for a new chief executive. Several top officials were summarily fired or resigned due to the situation. Those fired included Rod Taylor and Russ Russell, the fundraising director and head of protestant church marketing respectively. Those who had resigned included Executive Director James Cavner and Brian Schutt, the program director and head of FFP’s speakers’ bureau.

With Ferdinand reportedly receiving counseling in Connecticut for bipolar disorder, the board placed his brother Robin, who had served as vice chair of the organization, in the top spot. This decision was made despite requests from top officials to go outside the organization — and certainly outside the family. If that association wasn’t close enough, Robin is also the president of Essex Exports, which handles much of FFP’s overseas shipping, with its offices in the same hallway of the building.

Ferdinand Mahfood was accused of illicit sexual affairs and embezzlement of funds. The missing $275,000 allegedly went to the women with whom Ferdy was having affairs and members of one of the women’s family. The Mahfood family has reportedly repaid a total of $275,000 to the organization. Though FFP directed questions to a spokesperson, that person did not return repeated calls for comment.

Taylor filed a wrongful termination suit against the organization alleging that the organization had tried to buy his silence. He explained that after he told the organization he could not continue to serve due to the way in which it was being run, the two sides began negotiating a severance package.

When the offer of $50,000 (roughly half a year’s salary) came with the condition he not say anything to the press or law enforcement about the organization’s operations, Taylor refused and his employment was terminated, he said.

"There are several key executives including myself who, when we found out about the alleged sexual and financial improprieties, tried to pressure (the leaders), stated our opinions to do the right thing, which in our opinion was to remove Ferdy, bring in an oversight committee and bring in a new CEO with no prior ties (to the organization)," Taylor said. "We were completely isolated at that point."

The Federal Bureau of Investigation is probing the organization, which receives federal funding in addition to its large donation base. An FBI representative would not comment on the ongoing investigation.

Paul Nelson, president of the Evangelical Council For Financial Accountability (ECFA), said its investigation of FFP is ongoing, focusing on board governance and donor contributions. Nelson said the board had been open with the ECFA team and given access to individuals. As for donor contributions, "It would appear that restitution has been made and that the donor contributions are clear and have really gone to the purpose for which they were intended."

He added that, at first blush, the problems seemed to be confined to "the moral failure" of Ferdinand Mahfood and the subsequent results of those failings.

Nelson said he was not particularly pleased with the choice of Robin Mahfood as the new president. "That raises questions in the minds of many people," he said. "As a practical matter, we’d recommend that’s not the best circumstance. That is a call that belongs to an independent board, not ECFA."

But the question of the board’s "independence" lingers. Taylor and others have called the board a rubber stamp for Ferdy’s wishes and beholden to the Mahfood family. Nelson said such charges are often made, and a strong leader chooses others who are not simply "yes men" but will support the mission and message of the organization.

Nelson added that, while the monetary figure is less than other notorious scandals in the sector’s past, the principle integrity issue remains the same. "I know we’re all shocked by bigger numbers," he said. "You can’t say there’s any amount of money too small if you’re handling donor money."

Feed The Children

When Larry Jones, head of Larry Jones International Ministries/Feed the Children, didn’t receive what should have been easily retrievable information from his chief financial officer past summer, he brought in financial consultants to explore the workings of the finance department closely, according to Barry Gardner, one of the consultants. What they found was a chief financial officer, Monty Rainwater, who eventually confessed to forging signatures and providing management inaccurate documents, an organization official said.

As a result, FTC’s financial reports for 1998 and 1999 are being re-determined, and Rainwater has been fired, FTC officials said. Tim Hackler, a spokesperson for FTC, said the organization had not had any reason to be concerned about Rainwater’s job performance before this summer. "Everybody’s scratching their head around here," Hackler said. "He told us he was behind in his work."

Gardner, director of consulting of the Carol Stream, Ill., office of accounting firm Capin Crouse, said Rainwater’s basic strategy was to keep management apart from the auditing team of Arthur Anderson. So even though the 1998 report was almost completed by Arthur Anderson and the 1999 report was only about 10 percent complete, "Feed the Children management had the impression that both reports were completed," he explained. "He gave them copies of these bogus reports."

Gardner said he believed the complete financial reports for both years might be ready by the end of the year. "You can imagine the shock of FTC management when they discovered that the numbers they’d been given by the most trusted financial person in the organization weren’t true," he said.

Hackler said there’s no indication of misappropriation of funds, and the organization does not believe there will be a "material" change in the final reported figures. "Our fraud investigation isn’t quite complete, but based on what we’ve seen so far, we haven’t seen anything (to indicate missing funds)," he said.

Gardner has also been involved with interviewing the organization’s next CFO. "Obviously, filling this position is one of their highest priorities," he said. "I’ve urged them to make the right choice rather than a quick one."

"Donors have shown an understanding," Hackler added. "This is not going to have an impact on the stability or mission of Feed the Children."