July 24, 2008 Issue                                       

©2007 The Chestnut Hill Local

Attorney General to investigate association, fund
by JOEL HOFFMANN

The Pennsylvania Office of Attorney General is investigating the accounting and managerial practices of the Chestnut Hill Community Association and the Chestnut Hill Community Fund to determine if either organization has violated state law, according to letters released by a senior investigator on July 10.

Both organizations have been ordered to submit by Aug. 13 all meeting minutes and financial records related to operating budgets, cash flow, fundraising and tax exemptions and liabilities from as far back as Jan. 1, 2001. Investigators are also asking for a complete list of both organizations’ personnel and membership for that time period. (The Local is not being examined.)

The state’s investigation stems from an internal dispute among CHCA board members that began late last year when the association’s founder, Lloyd Wells, joined three former board members and seven current members in accusing the association and the fund of financial mismanagement and questionable bookkeeping.

Among general charges that the fund and association failed to accurately track monetary transactions, the directors in the challenge cite the following as significant:

A $50,000 line of credit borrowed against a building owned by the CHCF that was initiated by then-Chestnut Hill Community Association president Maxine Dornemann, who signed loan documents incorrectly as the President of the Chestnut Hill Fund. Such a loan should have been signed for by the actual president of the fund, which at the time was Thomas “Chip” Butler.

Portions of a $10,000 grant from the Pennsylvania Department of Commerce and Economic Development for use on department upgrades at the Local were misused at a CHCF-owned building across the street, 8431 Germantown Ave. Receipts from work done at that building were altered to change the address from 8431 to 8434 Germantown Ave. and then submitted in paperwork to close out the grant.

In addition to Wells, former board members Jim Foster and Ed Feldman, current board members Meredith Sonderskov, Joseph and Susan Pizzano and past president Ron Recko were parties to the challenge.

In December 2007, the challengers hired legal counsel from Montgomery, McCracken, Walker and Rhoads to review the organizations’ financial records for the fiscal year ending March 31, 2006.

In May, Donald W. Kramer and Karl E. Emerson, the challengers’ attorneys, submitted their findings to the Local in an open letter addressed to CHCA president Tolis Vardakis and CHCF president Jean C. Hemphill.

“It is clear that certain financial and administrative practices were sloppy and not adequately reported,” they wrote.

Kramer and Emerson included a list of 18 reparations, nine for each organization, which, if completed, would keep their clients from seeking an audit or state action.

Because neither organization fully complied with the request, according to Kramer, the attorneys petitioned the government to intervene on behalf of their clients.

“We had made a referral to the attorney general because we thought the association had been unresponsive to a couple of questions we had raised,” Kramer said in a telephone interview. “We thought there clearly were improprieties.”

Kramer said the CHCF attempted to make reparations but did not satisfy his clients. The CHCA took no affirmative steps, he said.

Vardakis said in a statement e-mailed to the Local that he felt the association had complied completely with the requests of the directors’ challenge and said he believed the firm made a referral to the Attorney General because its investigation did not turn up any problems.

“My view is that they examined the General Ledger and they found nothing wrong,” Vardakis wrote. “Had they found anything wrong they would have been very happy to report it. Once its hopes were not satisfied they decided to take it to the AG, despite two consecutive unqualified audits.”

Vardakis also took exception to Kramer’s assertion that the association had not addressed or responded to the letter listing nine reparations. He wondered why that letter had not expressed a deadline of any kind and said that the board of the association was busy considering ways to improve its practices, including a policy to guard against conflicts of interest.

“Both the CHCA and the FUND have been working to properly address issues of good governance,” Vardakis wrote, “which we were doing well before any letter was received from Montgomery, McCracken. While it is true we have not provided a formal response to the letter, it is quite evident to anyone truly interested that we are working on the issues raised.”

In response to the state’s decision to investigate, Vardakis of the CHCA released a statement to the Local [printed below].

“While I do not know what the results will be from this government inquiry, I do want to note the considerable steps taken by both the CHCF and CHCA to comply with charitable regulations,” he wrote, adding that “I am committed to an administration that is in full compliance with both the letter and spirit of these laws because they are ultimately designed to ensure that funds are properly administered for the charitable purpose of funding programs to better our community.”

According to language in Pennsylvania’s Charities Act, an act of which the attorney general’s office said it believes the fund and association may have violated, the potential penalties are varied.

If investigators conclude that the CHCA and the CHCF have not followed nonprofit fundraising regulations under the act, penalties could range from a $1,000 fine to the revocation of organization’s nonprofit status.

If the attorney general’s office determines criminal charges are involved, it could seek to charge individuals found to have committed fraud or deception with first-degree misdemeanor charges, which carry a fine of up to $10,000 or a prison sentence of up to five years — or both.

The attorney general could also decide to file a civil suit against the organizations to seek damages.

Staff writer Joel Hoffman can be reached at joel@chestnuthilllocal.com

Vardakis said in a statement e-mailed to the Local that he felt the association had complied completely with the requests of the directors’ challenge and said he believed the firm made a referral to the Attorney General because their investigation did not turn up any problems.

“My view is that they examined the General Ledger and they found nothing wrong,” Vardakis wrote. “Had they found anything wrong they would have been very happy to report it. Once their hopes were not satisfied they decided to take it to the AG, despite two consecutive unqualified audits.”

Vardakis also took exception to Kramer’s assertion that the Association had not addressed or responded to the letter listing nine reparations. He wondered why that letter had not expressed a deadline of any kind and said that the board of the association was busy considering ways to improve its practices, including a policy to guard against conflict of interests.

“Both the CHCA and the FUND have been working to properly address issues of good governance,” Vardakis wrote, “which we were doing well before any letter was received from Montgomery, McCracken. While it is true we have not provided a formal response to the letter, it is quite evident to anyone truly interested that we are working on the issues raised.”