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10th April
2011
written by Arizona Kid

Serving on a non-profit board is an honor and comes with important responsibilities. We’ve chronicled some Tucson boards that have been less than stellar in their management and oversight.  The local United Way, the Tucson Metropolitan Chamber of Commerce are a few of the biggest blunder boards we’ve seen in our market. When you serve on a non-profit board you have a responsibility to the organization, to the donors, the those the organization serves and to the community as a whole.

The Fiesta Bowl is the latest high profile board that is under scrutiny for improper oversight and conflicts of interest. The Fiesta Bowl is one of the most prestigious boards in the state with many of the Phoenix areas big hitters.

“How did the board not know this?” Nadler said. “It had to be an accepted culture that the board and others bought into.”

Other than Chairman Duane Woods and Treasurer John Zidich, CEO and publisher of The Arizona Republic, current Fiesta Bowl officers and board members contacted by the newspaper refused interview requests or did not return calls.

Woods said directors were kept in the dark for years by Chief Executive Officer John Junker before they commissioned the investigation last fall. They have launched a reform initiative in the aftermath, but Woods said in retrospect that more could have been done.

“When I look back, you have to beat yourself up on this,” Woods said.

Board oversight

The Fiesta Bowl is overseen by more than 20 directors, mostly community and business leaders, unpaid volunteers who attend occasional meetings.

But non-profit directors have a legal fiduciary obligation to see that funds are properly spent, laws are obeyed and ethical rules are followed. They may rely on information from staff, but the law holds them accountable if they don’t act on warning signs of corruption.

In a radio commentary last week, Herb Paine, an expert on crisis management for non-profit agencies, said: “I have yet to see a situation where the red flags of financial irregularity or distress weren’t waving well before the crisis escalated.”

Investigators for a Fiesta Bowl committee that released a 276-page report on March 29 documented numerous instances in which individual board officers turned their backs on possible abuses or conducted business with apparent conflicts.

The report suggests that Junker maintained an inner circle of these top board members and that others may have been oblivious to questionable conduct.

Still, Paine, former director of United Way in California, said there is no excuse for the lapse in oversight.

“I hold the entire board accountable. There is a fundamental code of responsibility that says when you are on the board, you own a collective liability,” Paine told The Republic.

Finances

Many of the failures involved financial practices. According to investigators, the Fiesta Bowl had no rules requiring advance board approval for expenses and barely any system to verify billing claims.

Their report alleges that Junker, using funds from four non-profit bowl agencies, went on trips with family, donated to favorite charities, had a party thrown for him and funneled money to politicians.

For at least the past eight years, the report said, those expenses seldom received written authorization from directors and frequently did not even have verbal approval.

Junker and his attorney declined comment. But the report makes clear that at least some board members knew about those activities, sanctioned them – even participated on some occasions.

Junker’s 50th birthday, celebrated at a golf resort in Pebble Beach, Calif., is a case in point. According to the report, then-board Chairman Mike Allen first suggested the 2005 bash, which wound up costing $31,188. Allen declined to be interviewed by The Republic. Allen, who attended the party, told investigators he never saw or authorized the party’s budget, according to the report.

Hotel rooms, airfare, rental cars and other party expenses were marked on billing statements as “BCS Exec Meetings.” Former bowl Chairman Kevin Hickey, who attended the event, told investigators he believed it was “excessive” and “had absolutely no business purpose.”

Yet there is no evidence that Hickey, Allen or any other member of the board challenged those costs.

Allen joined Junker and a lobbyist on another trip, to Del Mar, Calif., in 2009 for what the CEO described as “very important and serious talks.” Junker told Special Committee investigators that amid golf outings the group engaged in “long-range thinking.” He said Allen, an accountant, approved the trip, for which the bowl paid more than $4,000.

Junker’s 27 trips with family members allegedly charged to the Fiesta Bowl offer another case of questionable spending.

According to the report, such trips are not among benefits listed in Junker’s contract. Expense papers listed the travel purpose as “senior staff workshops.”

Yet Junker told investigators they were a “standard practice” authorized by directors. “And we extended the policy to the Board chairs,” he told them.

When Junker realized that investigators were concerned about the vacations, their report said, he paused before saying, “I’m a bit confused because if all of this is not approved by policy, how did it occur?”

Warnings

As chairman of the Fiesta Bowl board in 2003, Leon Levitt wrote a memorandum presciently warning of the possibility of a scandal.

“Scandals in corporate America have increased accountability and demanded stronger board of director oversight,” wrote Levitt. ” . . . It is not too great a leap to see potential abuses uncovered in the not-for-profit arena. Especially in college football, where visibility is high, controversy abounds.”

Levitt’s memo to the executive committee at the time was endorsed by Junker. It called for strict new financial controls and conflict-of-interest rules.

Levitt said many reforms he proposed were adopted. But the later report does not indicate they were maintained.

Levitt, a former Arizona Republic executive now at Cox Newspapers in Atlanta, said Junker shared information and decision-making almost exclusively with board chairs who changed annually, so there was no continuity.

Former director Bill Peltier has said each new chairman got charmed by the charismatic Junker. Levitt offered a similar depiction: “John was always very monogamous to his chairman.” Even among the Executive Committee, the top officers of the board, “there wasn’t a lot of visibility into the organization. . . . It certainly led to the abuses that happened.”

Triggering an inquiry

Board members also received repeated warnings about unlawful political activity. As far back as 2003, when Levitt called for greater accountability, an independent tax preparer warned that campaign-funding efforts could jeopardize the agency’s non-profit status.

According the Fiesta Bowl’s report, Stan Laybourne, then chief financial officer, passed on that concern in a memo to Levitt, Junker and Craig Williams, then the bowl’s chief counsel and a member of the Executive Committee. Laybourne wrote, “Being your PARANOID CFO, I wanted to make sure we all knew these rules.”

But Special Committee investigators reported that on more than one occasion, board members allowed Fiesta Bowl fundraising invitations for candidates to be sent out in their names, circumventing IRS regulations that prohibit the non-profit organization from political activities.

Junker and other employees also poured thousands of dollars into election campaigns while secretly getting reimbursements from the bowl disguised as bonuses, according to the report. After The Republic first reported those practices in December 2009, the Fiesta Bowl board hired Grant Woods to investigate. The former attorney general said he was instructed to conduct a probe with no official notes. Bowl employees later would tell investigators the inquiry was a cover-up.

Alan Young, then chairman of the board, said Grant Woods’ findings showed there was “no credible evidence that the bowl’s management engaged in any kind of illegal or unethical conduct.”

About that same time, Kelly Keogh, assistant to Junker, confided in former Fiesta Bowl Chairwoman Ellie Ziegler, telling her employees were reimbursed for political contributions and a cover-up was under way, according to the report and interviews with Ziegler. Ziegler said she did nothing.

“(Keogh) asked me to keep her remarks in confidence,” Ziegler told The Republic. “And she said she was going to report it to the proper authorities. I got the impression it would be in the very near future . . . I knew she was going to take it to someone.”

Keogh, through her attorney, declined to comment.

Keogh did not blow the whistle until about nine months later, in late September 2010, when she told Duane Woods, who had become bowl chairman. Her tip led to creation of the bowl’s Special Committee and its independent investigation.

Young, the former chairman, was subsequently hired as interim chief of staff. He has declined to answer questions about his oversight as chairman. Duane Woods, the current chairman, said Young was unaware of alleged wrongdoing.

Board conflicts

The Fiesta Bowl adopted conflict-of-interest policies in 2003 requiring board members to disclose any business or interaction with the bowl that could lead to personal profit or benefit.

David Tilson served as treasurer in 2005-06, chairman-elect in 2007 and chairman in 2008. During that time, the Special Committee report says, his construction company obtained four Fiesta Bowl contracts worth over $2 million without having to compete for the business.

Tilson did not respond to phone messages left with Scottsdale-based Renaissance Cos., where he is vice president.

The report says he planned and presented some of the work, including a $400,000 remodeling of bowl headquarters. In 2005, while Tilson was treasurer, Renaissance built a $1.3 million museum in Scottsdale for the Fiesta Bowl. Tilson, who is no longer listed as an active board member on the board’s website, told investigators he abstained from voting on the no-bid contract.

Special Committee investigators uncovered another financial arrangement involving possible board-member conflict. From 2007 until last year, former board member and Chairman Charles “Chuck” Johnson received $5,000 per month to serve as liaison between the Fiesta Bowl and the Bowl Championship Series. There was no written contract. The report says two other board chairs – Tilson and Dick Stemple – authorized the agreement.

Stemple declined comment. Johnson could not be reached.

Members react

Board members note that others who helped oversee the bowl’s operations didn’t indicate problems before the special report.

Zidich, the bowl’s treasurer, said he saw no hint of misconduct during his first five years on the roughly two-dozen-member board. Audits were clean. Bowl lawyers never issued a warning. Everyone who dealt with the Fiesta Bowl said the same thing, he said: “This was the best-run bowl in the country.”

The report does not describe Zidich participating in questionable trips or inappropriate spending. However, he did in early 2010 join the executive committee led by Duane Woods, who continued to deny any improprieties until the Special Committee was formed late that year.

Zidich said he was stunned when he and other board members read the Special Committee’s findings: “Disgust. Betrayal. And, also, we all looked at ourselves and said, ‘What did we miss?’ ”

Woods, the current board chairman, initially dismissed allegations that the bowl had financed political contributions, saying he had no proof at the time. In a memo to his board last summer, Duane Woods criticized the Arizona secretary of state’s investigation of campaign contributions as a waste of time. That probe later was forwarded to the Arizona Attorney General’s Office.

Duane Woods on Friday characterized his previous comments as a “poor choice of words.” He said he had been frustrated that the state investigation had taken so long. The Secretary of State’s Office, however, has said the bowl did not cooperate for much of last year.

By August 2010, Duane Woods knew of the state criminal investigation. Despite knowing that, he said he didn’t call for a new internal investigation until late the following month, when Keogh came to him. Duane Woods called that the first real evidence he had of wrongdoing. Even the bowl’s outside counsel, Snell & Wilmer, and its outside accountant, PricewaterhouseCoopers, had failed to signal any problems, Woods said.

Don Meyers, a Fiesta Bowl founder and critic of the current board, still supports Duane Woods, saying he was right to expose wrongdoing and to fire Junker. Meyers believes board problems began a decade ago, when directors changed Junker’s title and ceded too much control to him.

“They didn’t ask enough questions,” Meyers said. “The excuse that we didn’t know isn’t sufficient.”

Duane Woods said he plans to ask three “life members” on the board to disassociate themselves from the bowl, based on information disclosed in the Special Committee’s report. He declined to disclose their names.

Zidich said he is comfortable that current leaders are doing everything they can and should to repair the organization.

“This isn’t over yet, and it’s important to understand that, as well,” he said.

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