SNG looks to rebuild after financial collapse

Staff laid off as NRP penalty and financial problems surface

After apparently pulling itself out of debt in 2003 after the mismanagement of Neighborhood Revitalization Program (NRP) funds, the Seward Neighborhood Group (SNG) once again finds itself in the red.

Since July 2003, when recently resigned Executive Director Lori Stone took the helm, SNG has raised roughly a half million dollars in foundation grants, employed full- and part-time staff and managed a number of community programs.

The success has proven unsustainable, however. By mid-September — less than a month after Stone left the organization — the group’s checking account was overdrawn by $1,000, said current Board Treasurer Kevin Brown, and there was no money to meet payroll. On Sept. 14, the SNG Board of Directors was forced to lay off all its paid staff, as more and more evidence of financial trouble began to surface.

Compounding the problem is the $135,000 penalty likely to be levied on SNG for the “unauthorized expenditure” of NRP housing funds between 1998 and 2003, according to an Aug. 1 letter from NRP Director Bob Miller.

Furthermore, current Treasurer Kevin Brown said a line of credit listed in financial statements at $25,000 is actually almost $9,000 higher than was reported to the board.

Finally, in its officially released statement, the SNG board stated: “We believe that funds from several of our institutional and foundation funders which were dedicated to certain programs have in fact been spent on general operating expenses, in violation of the funders’ conditions and, potentially, state law.” The amount may exceed $80,000, stated the board.

Stone denied that she spent funds that should have been dedicated to programs. The Bridge was unable to confirm the $80,000 in unallocated foundation funds that the board claimed had been spent on general operating funds.

Stone said she believes SNG’s current problems stem from the board’s inability to come up with a transition plan after she left at the end of August. However, a review of SNG tax filings shows that the organization has ended the past two years in increasing defecit — $17,269 at the end of 2005 and $63,072 at the end of 2006.

Although some board members seemed blindsided by the collapse, there had been discussion over the past year about the possibility that SNG was overextended.

Since 2006, Stone had twice recommended a reorganization “to increase efficiency and decrease the staffing budget deficit we were heading for,” she told The Bridge in a recent interview. That reorganization — largely based on the elimination of a housing program coordinator’s position — was rejected by the board, said Stone.

During a discussion of 2007 organizational goals at a February board meeting, current Board President Jean Johnstad said “It is important to break down the costs of staffing and running the programs, [and] learn exactly what… we can afford to continue and what needs to be cut back.”

The late-summer crisis brought all this to a head, however, and forced a heavy-handed reorganization that has left SNG as an all-volunteer organization, at least for the near future.

Johnstad said she hopes SNG’s programs — which still have some funding, according to the board statement — will be able to continue. Committees continue to meet — including a newly formed Revitalization Committee — and she thanked community members and former staff who have volunteered to make sure events like the recent King’s Fair and upcoming Seward Arts Festival take place.

Johnstad has also pledged better transparency and communication with the neighborhood about SNG’s operations and standing. “This organization has been around for 47 years,” she said. “We’re not going to go away.”

NRP problem goes back almost a decade

While the $135,000 penalty from NRP was largely inherited from a previous executive director and board, delays in reconciling the housing program’s financial details drew the problem out for four years.

The problem stems from deposits and transfers of revenue, garnered from housing programs, into SNG’s main account between 1998 and 2003. The funds — mostly from a deferred loan program through which SNG gave small loans to Seward residents for home improvements — were intended for use on housing-related programs but were used for other purposes, according to Jack Whitehurst, Seward’s NRP contact.

As the official city-recognized neighborhood organization for Seward, SNG receives and administers NRP dollars — public funds generated by projects in tax-increment financing districts — for a wide range of neighborhood projects and some staff funding.

While such fund transfers are common with NRP dollars, they require a “plan modification” and approval by the publicly elected neighborhood board and/or NRP — neither of which were aware of the transfer of the funds in question, according to both Brown and Whitehurst.

Whitehurst said it is likely that the organization will have to return the $135,000 to NRP, possibly by giving up NRP funds available but not yet contracted from SNG’s Phase I and Phase II plans.

In 2003, an NRP contract administrator met with Stone and Housing Coordinator Bernie Waibel to request a report from SNG with financial details of the programs, according to the Aug. 1 letter from Miller. Despite several subsequent requests and an offer of NRP assistance in the audit, SNG did not submit the reports until April 2007.

Pending the completion of the reports, NRP froze SNG’s unspent housing program funds — more than $82,000 intended as home improvement loans for Seward residents. That money will likely be returned to NRP, said Whitehurst, along with $32,000 still unused from SNG’s completed Phase I NRP plan and other remaining Phase II dollars, to cover the $135,000 owed to the city.

Current Board President Johnstad — who came on as chair in January after less than six months on the board — pressed Stone and Waibel to complete the NRP reports, which Waibel did over the course of several weekends, on his own time.
NRP has given SNG until January 2008 to come up with a proposal to pay back the dollars in question, said Whitehurst, who stressed that the current SNG board is “working very diligently to sort it out.”

Accounting and accountability

The current situation raises questions not only about SNG’s past financial management, but about how much the Board of Directors — a revolving group of neighborhood stakeholders publicly elected and charged with the fiduciary duty of sustaining the organization — has known about the apparently overextended organization.

“Boards can ask questions of staff and feel like they’re getting the information fully and accurately when they’re not,” said Whitehurst. “Boards can also not ask enough questions to stay on top of the organization’s finances.”

Asked if the executive director or the board of directors is responsible for the mismanagement of the NRP funds, Whitehurst said, “I think the buck stops with all of the above.”

Since January, Johnstad and the current board have taken steps toward better accounting of the organization’s expenses. In July, they approved a Financial Procedures Manual toward this end.

As The Bridge went to press, Board Treasurer Brown was working with the organization’s contracted independent bookkeeper to sift through SNG’s finances. “The filing system appears to be fairly random,” he said.

By mid-September, Brown had yet to locate tax filings from years prior to 2006. He did provide an unsigned copy of a 990 form for 2006, which shows the $63,000 shortfall at the end of last year.

The 990 also reports only $27,000 of credit line liability, which Brown said was documented at $34,700 in January 2007, just after the 2006 fiscal year ended.

Some money is currently coming in, according to Brown, who said the board’s first priorities are to pay its former staff and contractors and to pay its rent.

Despite the dire financial straits, board members are hopeful that the organization can carry on its work.

“We intend to make every effort to maintain at least some of our programs,” states the SNG Board in its official release, which expresses gratitude to “capable and hardworking” program staff that may be asked to continue on as independent contractors.

The board is “actively working with the NRP program to resolve their concerns…” and to get a full picture of their financial condition, states the release.

Johnstad said members of the community have come forward to volunteer help to SNG. Brown said that “a slim but positive benefit is that everybody on the board is very committed to having SNG return to its roots of grassroots organizing.”

Details were still emerging as this issue The Bridge went to press. We will continue to report on the events that led up to the situation, and we will follow the organization’s efforts to rebuild. Watch this website for more coverage this month.

last revised: October 3, 2007