Amidst Financial Struggles, St. Paul Federation Looks To Move Forward
By Lonny Goldsmith
[Author’s Note: In the second half of 2018, TC Jewfolk received two anonymous letters, indicating that the St.Paul Federation was, “not transparent with donors and volunteers.” After examining these claims against the Transparency section of the St. Paul Federation website, we felt compelled to better understand the Federation’s financial campaign goals, achievements, and its allocations over the last decade with the goal of sharing with our readers how they are working toward improved processes to better serve the St. Paul community in the future. We reviewed publicly available information, contacted those who were involved, and sat down with members of the current St. Paul Federation board and leadership team to discuss the information at hand. This article is the result of that process.]
When the board members of the St. Paul Jewish Federation learned their organization had accrued nearly $3 million in unmet financial commitments over the course of a decade, the news was met with shock and disbelief.
At the board leadership meeting in November 2017, the new then-CEO, Rob Jacobs, revealed the shortage as part of a report explaining the Federation’s financial status during Jacobs’ first 100 days at the helm.
At the heart of the matter, Jacobs explained to the board, was a $2.7 million shortfall in planned versus paid allocations that had accrued over the previous decade under the leadership of his predecessor, Eli Skora.
Mark Adelman, current president of the St. Paul Federation Board of Directors, and then-president, Steve Brand, surveyed the faces around the table.
“The board had absolutely no knowledge of the difference between what we thought we had raised and what was actually raised,” Adelman told TC Jewfolk in a meeting in January 2019. “Steve [Brand] was shocked. We then had an executive committee meeting and I saw the look in (the committee members’) eyes. First of all, they yelled and screamed, ‘No that can’t be. That’s not true. That’s not what happened.’”
The board would later acknowledge in its minutes and in interviews with TC Jewfolk, the shortage was real.
There are 148 Jewish Federations across the US and Canada, and two such nonprofit organizations in Minnesota, one in Minneapolis and one in St. Paul. According to the St. Paul Jewish Federation’s website, “Working with our beneficiary agencies, Federation nurtures and educates our children, maintains and strengthens Jewish families, brings comfort and care to the elderly, and reinforces our connection to the worldwide Jewish community.” Jewish agencies, both local and overseas, receive funding from Federations. Many of the overseas beneficiary agencies receive their funding through Jewish Federations of North America, or JFNA, the umbrella organization of the Jewish Federations of the United States and Canada. JFNA serves in part to pass through dollars raised in local communities to international partners.
Though unable to meet the totality of its overseas commitments, St. Paul Federation staff and lay leaders that met with TC Jewfolk emphasized that they still kept the local partners’ allocations at the promised funding level in order to ensure that the local agencies would not suffer any funding losses. They also explained that JFNA’s partner agencies only budget based on dollars actually received, not what is promised to them, and therefore the overseas agencies did not actually come up short.
JFNA’s Financial Relations Committee agreed to write-off the $2.7 million in August 2018. The write-off was approved because Jacobs inherited a situation where prior campaigns had been misreported, and the total amount owed had grown larger than the amount raised in any recent annual campaign.
The write-off came with the stipulation that at least 10 percent of the annual campaign going forward would be committed to JFNA for overseas allocation, with the aspiration of rising to 20 percent. The most recent projected allocation on the St. Paul Federation website indicates an 8 percent allocation to overseas partners.
Under the leadership of Skora, the St. Paul Jewish Federation “overestimated” what it anticipated receiving for its annual fundraising campaigns, which led to the failure to pay the overseas commitments in full.
According to former Finance Director Philomena Clausen, the campaigns in her five years at Federation – which ended in July 2018 – never reached the goals set by former longtime CEO Skora. While Federation was publicizing allocation amounts between $2.4 and $2.6 million, the campaigns received less than $2.3 million every year since the 2009-10 campaign. The previously-stated allocation amount was not adjusted downward to reflect the amount actually raised. Local beneficiary agencies were not impacted, and the overseas contributions were reduced without notifying the community.
“Eli overestimated campaigns and therefore overestimated the pledges. It was done without malice,” Clausen said. “Whatever Eli did, he did for the benefit of the community. He made some errors, but it was always to the benefit of the community. He loved that community.”
Minutes from early 2018 indicated that a list of “apparently ‘fake pledges’” had been submitted in prior years’ campaign reports. St. Paul leaders Adelman, President-elect Rick Linsk, and Chief Development Officer Jeff Prottas disputed the description from the board minutes; they explained “presumed pledges” is a better term.
“There were a handful of gifts that we believe the former CEO (Skora) believed would come in,” said Prottas, who said that assumptions were made based on an individual’s giving history with no information to assume otherwise. “The gifts didn’t come in and the computer wasn’t adjusted accordingly to reflect that.”
Prottas said that when the Federation’s Central Budget Review Committee (CBRC) does the work of allocating funds to beneficiary agencies, both local and overseas, they meet in the middle of the year before campaign donations are finalized. The CBRC looked at how much the campaign intended to raise, and made allocation decisions based on that. Pie charts that were in Federation annual reports and on their website gave that intended number but were never adjusted to show the actual amount allocated.
“The only thing you could conceivably argue that people could say they were misled about was if they gave their dollars because people believed it was a 70/30 (percentage) split (between local and overseas allocation, respectively), and we found what was actually given was 78/22,” incoming board president Rick Linsk said.
According to documents reviewed by TC Jewfolk, there were several differences between the annual reports’ “planned allocation,” the “actual commitment” to JFNA, and the “final payment” to JFNA:
- In 2012-13, the annual report stated $664,538 would be allocated overseas. $572,958 was committed to JFNA; $110,316 was paid.
- In 2014-15, the annual report stated $668,172 would be allocated overseas. JFNA reported a commitment of $578,625. Payments of $308,304 were made.
- In 2015-16, St. Paul stated $709,934 would be allocated overseas. They committed to JFNA to pay $593,434 and paid $118,000.
In four campaign cycles, St. Paul’s commitment to JFNA was paid in full: 2010-11, 2011-12, 2013-14, and 2016-17. In two of those cycles, 2010-11 and 2016-17, the commitments and full payments to JFNA were lower than what was recorded in annual reports and on the St. Paul Federation website. In 2010-11, $532,209 was indicated in the annual report as an allocation for overseas and $44,761 was committed and paid to JFNA; in 2016-17, the annual report and website stated $731,500 would be allocated overseas, and $55,856 was committed and paid. In summary, the St. Paul Jewish Federation made payments toward their JFNA commitments over the time period in question totaling approximately $3.4 million and came up short by approximately $2.7 million.
Said Linsk: “No one had a reason to question the CEO at the time when he would give me a number as CBRC chair (in order to determine allocations).”
Prottas, who started in his role in October 2018, said that Federation had always believed the campaign income would rebound and the liabilities would be made whole.
Prior to the ’Great Recession’ which started in the fall of 2008, St. Paul’s annual campaign topped $3 million. Skora had once told TC Jewfolk that their campaigns had only been reduced by “100-to-200,000 (dollars) worth of funding.” Financial records show the last nine campaigns were between $500,000 and $1 million below the pre-recession amount.
A decline post-recession was not unusual for Jewish Federations, and charities in general, as highlighted in this JTA article from 2010. “As every agency experienced in late 2008, 2009, 2010 period of time, there was a significant amount of decrease that was attributed to the collapsed financial markets,” Prottas said. “Whether it was Madoff or the general stock market, I think every organization, all the individual agencies, saw a significant decrease in their campaign totals because people simply weren’t able to continue to make gifts at levels they previously intended to give.”
Prottas continued, “The campaign I don’t think ever regained the steam it had. Whether it was changing demographics – the makeup of the community had changed – people giving to individual organizations as opposed to federations – is something [that] impacts all organizations. It was a series of small decisions that led to a large number, but there was no intent to mislead the community.”
Said Linsk: “No one was damaged and holding the bag because of that. We always tell recipient agencies that funding is contingent on raising it. At the end of the year, our former CEO found there wasn’t enough to send the full amount allocated to JFNA. That was in the audit every year.”
The last three audits, six years of IRS Form 990 tax returns and 16 months worth of meeting minutes are available on the St. Paul Federation’s website in the transparency section, which Jacobs created.
Role of the Auditor
The St. Paul Federation board meeting minutes from February 2018 noted that in the previous year, under Skora, there was no formal audit committee in place to review the audit before the board approved it.
Clausen said when the auditors from CliftonLarsonAllen came to present to the board, they said the books looked good.
“It’s not the auditors’ job to make sure the cash backs up the payments, but to make sure the books are straight,” she said. “They don’t get involved in the day-to-day. The accounting systems and transactions were all correct.”
Adelman said that the auditors reported, in Adelman’s words, “what was the standard practice in the accounting field.”
“We as board members didn’t know what that means,” he said. “The amount that was in there, for example, an outstanding liability of what became close to $3 million. We didn’t know that was owed to JFNA; we thought that was our annual allocation to our agencies. We looked at it after Rob told us what was going on. We blamed the accountants but they did it the way they were supposed to do it.”
One year later, St. Paul leaders have indicated that a finance/audit committee is fully operational and that steps are being taken to create a, “fully integrated budget process focusing on total revenue and total expense and ensuring quality financial reporting, accurate budget analysis, and forecasting.”
Jackie Kruger, the director of marketing for CLA Minneapolis, did not return calls seeking comment.
Role of JFNA
According to the minutes of the December 2017 St. Paul Federation board meeting, Jacobs said that based on the JFNA’s advice, Federation, “ha[s] not informed the general community about the Federation’s budget and allocation issues.” JFNA disputes that characterization of their advice. In an email, Rebecca Dinar, the associate vice president for strategic communications at JFNA, said: “JFNA advised the Federation to determine the facts and a course of action as a first step in preparing to engage stakeholders.”
Said Linsk: “When Rob helped bring this to our attention, the decision was made to meet with a lot of our major donors, organizations we work closely with, and communicate it in a direct way and fix it. We got some advice from JFNA about messaging and we didn’t want to do damage and make things worse by scaring people. The idea was first to try to work with JFNA to fix it.”
Linsk said this situation has JFNA changing how they communicate issues to their member organizations.
“JFNA is making plans to be more careful that they don’t communicate about issues like this just through the exec,” Linsk said. “Why all those years did they not say anything to the board president?”
Adelman said the current leadership structure will not include an interim CEO. There is a management committee made up of the officers of the board: Adelman, Linsk, Vice Presidents Sharon Benmaman and Alan Bernick, Treasurer Jay Baldinger, and Secretary Deb Weiss. Linsk, who was a journalist prior to his current career as an attorney, is working with the organization’s marketing and communications staff. Adelman is working with Prottas, Baldinger is working with the finance staff.
A committee of eight members of the board and chaired by Linsk is considering its options for a new CEO. They shared with TC Jewfolk that they are, “working with a search consultant, and exploring all possibilities in order to fill the position within a reasonable timeframe.” A job posting has not yet been publicly posted.
Prottas said the communication of how campaigns are tracking relative to their goals will change in the future, including, “a transition to a more aligned campaign calendar with our fiscal and allocations calendar to reduce speculative commitments.”
“In my short time at Federation, I’ve had a significant number of conversations about this and other issues that speak to us being more transparent,” he said. “As we move forward, the way we report campaign progress will be different because I’m a different CDO. I want to communicate based on what we know, not what we think.
“While there might have been a few things we could have done better over the years, we always maintained our commitment to local organizations and made sure that was always made whole regardless of whatever the financial situation was.”
In subsequent emails received by TC Jewfolk from the St. Paul Federation leadership team, the Federation emphasized their increased commitment to accountability and transparency by their staff and Board as well as a commitment to be more communicative and transparent with the broader community on specifics related to their campaigns and allocations. They also indicated a commitment to Board development and training to ensure that the Board has a full understanding of roles and responsibilities going forward.
In January, JFNA’s President and CEO Jerry Silverman and Executive Vice President Mark Gervis were among the staff who were in town to meet with St. Paul’s interim leadership team.
“I think it was a good, open, honest discussion that will help our organization move forward in a good way,” said Prottas. “I think JFNA got answers to their questions and they could impart their wisdom on us. We all expect things to be stronger and better moving forward.”
This article was originally published on TC Jewfolk; reprinted with permission.