Report Alleges Wrongdoing within
Hospitals for Children
- Published October 2008 on www.charitywatch.org
In April of 2008 a Special Investigative Committee
of the Joint Boards of the Shriners Hospitals for Children
(SHC) issued an internal report on allegations that members of SHC's
board of directors unethically intervened in the executive evaluation
process of Edgar McGonigal, SHC's Director of Development. The purported
report was leaked and posted on wikileaks.org,
a web site that anonymously publishes sensitive material. It named
Chairman of the Board of Trustees and SHC President Ralph Semb,
and SHC Treasurer and Trustee Gene Bracewell, as the board members
involved in the alleged unethical evaluation, which may have stemmed
from a potential conflict of interest with a past poorly performing
fundraising vendor, Vantage Direct Marketing Services (VDMS). McGonigal,
who was fired and rehired by SHC, "believes that the actions of
Mr. Semb were based on his unwillingness to support initiatives
of Messrs. Semb and Blackwell with respect to direct mailing, among
other things, and therefore had retaliatory aspects," according
to the report. SHC is one of Americas wealthiest charities
with fund balances of $9.7 billion and receives an F grade from
AIP for having very large available asset reserves equal to
11.6 years worth of operation.
At SHC McGonigal is responsible for some fundraising
activities, including portions of the direct marketing program.
In the past, SHC had contracted some of this work to Vantage Financial
Services (VFS) whose apparent successor organization is VDMS, according
to the report. However, past contracts appear to have been unfavorable
to SHC: from June of 1999 through December of 2003, SHC received
about $2.5 million, or approximately 5%, of the $46.2 million that
VFS raised on SHC's behalf. For comparison's sake, from 2005-2007
SHC used a different fundraiser, Barton Cotton Sales Corporation,
for direct mail services and received approximately $11 million,
or about 46%, of the $23.9 million raised on SHC's behalf.
In June of 2006 and May of 2007, SHC received direct
mail proposals from two different affiliates of VDMS, Convergence
Direct Marketing and MCS Direct. Though neither of the proposals
appeared to make apparent the affiliations with VDMS, the connections
were apparent to McGonigal. Convergence previously used presentation
materials that contained both its and VDMS's name and MCS Direct
listed a joint venture with VDMS on its web site. McGonigal concluded
that the Convergence proposal was inferior to a contract SHC had
with a current provider and was not impressed with the MCS Direct
presentation. He did not recommend pursuit of either contract, according
to the report.
Also noted in the report is that VDMS is affiliated
with Vantage Deluxe World Travel (Vantage Travel), whose CEO is
the son of one of Bracewell's long-time associates. Bracewell has
traveled on cruises arranged by Vantage Travel, at least some of
which "have been provided to him at no charge
or a nominal
fee," according to the report. Semb claims to have not participated
in a Vantage Travel arranged cruise since at least 1999.
The report states that in October of 2006 Semb unilaterally
terminated McGonigal on the basis of poor performance. It also notes
that prior to McGonigal's termination, Bracewell had made comments
claiming that McGonigal was unsuitable for the position. A SHC Trustee
later came forth with documentation indicating that, in fact, McGonigal's
performance was not unsatisfactory. At the Joint Board meeting that
November, McGonigal was reinstated to his position.
In June of 2007 SHC began a routine, confidential
executive evaluation of McGonigal, for purposes of executive development.
According to the report, Semb contacted the director of the review
and encouraged him to solicit evaluations from two of McGonigal's
colleagues that Bracewell was in contact with. Both of McGonigal's
colleagues believed that Bracewell had urged them to give a negative
evaluation. Two unnamed senior executives indicated that these actions
"compromised the…review process in an unprecedented way."
The report also preliminarily investigated claims,
currently unsubstantiated, from a former SHC Controller that possible
irregularities may exist in SHC's expenses as reported on its 2006
tax Form 990 which was executed by Semb. The Committee had not yet
reached any conclusions with respect to these allegations at the
time of the report's publication. According to Committee member
John C. Nobles in a July 2008 The New York Times article,
the Committee has since been disbanded by the board.
Prior to the Committee's disbandment, it set forth
a series of recommendations for SHC, including: 1.) reprimanding
Semb and Bracewell for violation of SHC's Conflict of Interest Policy,
2.) further investigation by the Committee into the allegations
regarding the 2006 Form 990, including the hiring of an outside
forensic accountant, 3.) amending the Conflict of Interest Policy
to require compliance by assigning a full-time member of the legal
department to the role and by forming a compliance committee within
the Joint Boards, 4.) banning business with any entity that provides
gifts, gratuities or favors to any board member or executive, and
5.) implementing a confidential path or hotline for employees or
board members to report suspected wrongdoing.
According to The New York Times, Dr. Bernard
J. Lemieux, who headed the Joint Boards, said no reprimand of Semb
and Bracewell "was warranted or necessary." Lemieux also said in
The Times article that SHC had reviewed its reimbursement
policy and created a hotline to report wrongdoing. Semb told The
Times that he and Bracewell had not tried to influence the choice
of a direct-mail vendor.
As of press time, SHC had not responded to AIP's inquiries
regarding the allegations made in the report.