Faith at Altitude

Religion and spirituality in the shadow of Pikes Peak

Tuesday, April 17, 2007

Oh, these Tangled Webs

I've gotten some response from Sunday's story about Grace, Armstrong's meeting and the Anglican Communion Institute. Some thought it was pretty good. Others thought I missed the point of the meeting.

In the midst of it all, some folks said that the story was, frankly, downright confusing.

I can understand that. Any storyline that involves taxes and bookkeeping and financial audits isn't going to be adapted as a movie-of-the-week.

And frankly, all that confusion is central to the issues at play here. During the meeting, Grace senior warden Jon Wroblewski said that Armstrong's hired his own accountant to look through the books to find out just what went on, and that accountant won't likely make a report for a month.

The main confusion over the story revolved around the Anglican Communion Institute -- what it is and why it's important. So with that in mind, let's dive into a bit of detail.

The ACI is a theological think-tank -- a loose group of Anglicans and Episcopalian scholars who swing conservative and want to change the liberal-leaning Episcopal Church from within. Members write papers, speak at conferences and run a Web site.

But while it's an international organization, it is legally a ministry of Grace Church, overseen and run by its executive director which, before ACI broke away from Grace, was Armstrong. Because it was a church ministry, Armstrong used it as a convenient bookkeeping tool to, among other things, fund part of his children's education.

What appears to have happened is that ACI, the organization, was somewhat distinct from ACI, the bookkeeping entity. Make sense so far? The ACI itself never funded Armstrong's college funds, but Armstrong used the ACI as a conduit for those funds, which were in fact supplied by the church.

Whew.

It's important to note that Armstrong says there's nothing wrong with this: The church's wardens approved the scholarship money, and utilizing the ACI as a conduit to pay those funds was simply a bookkeeping tool: The ACI was already used to provide scholarships, so it made sense (Armstrong says) to extend that ability.

Which is where it gets REALLY confusing, because other folks at the ACI say they weren't aware of the ACI providing scholarships of any kind, though ACI President Christopher Seitz said the organization did issue a grant once. Armstrong said the organization provided lots of money to help Episcopal clergy continue their education.

So we've got a difference of opinion over the ACI's duties from two folks -- Seitz and Armstrong -- intimately involved in the organization. Some folks may find that weird, but there it is.

Every week will bring more clarity to this story. Until then, we'll keep trying to make the matters at play as clear as possible. Maybe we can run a nice little flow chart in the next couple of months. Flow charts always make things easier, don't you think?

6 Comments:

Blogger noel said...

This still doesn't make sense to me, Paul:

"The ACI itself never funded Armstrong's college funds, but Armstrong used the ACI as a conduit for those funds, which were in fact supplied by the church."

What does "used as a conduit" mean?

8:41 PM  
Anonymous Anonymous said...

Part of what that means, as is evident in the presentment (Charge 1b), is that +Armstrong caused funds to be transferred from Grace ostensibly to the ACI for "outreach expense", but for which "[i]n fact, ACI never received any of the payments ...". Some of these funds were made directly payable to "Donald Armstrong-College Fund". One might say these funds were "laundered" through ACI since the entries at Grace do not reflect their final disposition.

It makes you wonder who was keeping the books at ACI when all this was going on.

6:47 PM  
Anonymous Robert said...

OK Class, here is this morning's Tax 101 quiz:

1. If an unrelated third-party foundation or non-profit charitable corporation provided Armstrong's children with scholarships, would the receipt of that scholarship money by Armstrong's children ordinarily be exempt from income tax?

2. If an unincorporated, loosely-knit group of "six guys with a website" allowed Armstrong to use their "institute" to launder his employer congregation's tithes and offerings in such a way that Armstrong's children got their room, board and living expenses paid for by compensation that was disguised as scholarship money, would the receipt of those funds still be tax exempt to Armstrong?

3. If your answer to hypothetical 2 above is "no", who could be held civilly or criminally responsible for paying the employee and employer 940 and 941 taxes, interest and penalties on the unreported income: Armstrong, the six-guys with the website, the Grace Church warden who authorized the "diversion", Grace Church as the employer, or a combination of the above?

6:13 AM  
Blogger scott said...

While not an accountant or tax attorney, i have been an executive at a recognized non-profit. i can't answer questions #1 or #2 with any certainty, but did once encounter a situtation involving 941 tax liability incurred by a non-profit.
According to the company's lawyers and the IRS reps in that case, the liability would fall initially upon the individuals who were authorized to sign checks for the employing organization. Further, the members of the governing board of that nonprofit employer are also at risk of bearing the liability.
While all the people at risk for bearing the liability can be assessed for a portion of the liability payment, the individuals who will be assessed the highest percentage are those with the most available assets.
The IRS is also much more likely to first negotiate a payment plan with the employing company before pursuing individual company officers.

6:53 AM  
Blogger Eddo said...

Fascinating.

Like most not-for-profits Grace Church likely uses the fund accounting method, a means of keeping the church’s designated monies separated on the books without needing a bank account for each ministry that collects designated money (altar guild, outreach, special music fund, cemetery fund, there are others, we have Tuesdays at Trinity). ACI is described as one of many funded ministries of Grace Church. The money raised and then spent for the ACI events went through Grace Church, and everyone expected that, and a positive or negative balance would show on the church’s balance sheet. Here, it appears, additional transactions were attributed to ACI on the church’s books. The rest of ACI was unaware of this, having no real interest in the Grace Church financials. It seems unlikely ACI members ever saw a statement related to their activities, other than an email saying, “It’s gonna cost $$$$, we’ve only raised $$.” Having not seen the financials, members would have no idea what transactions appeared on the ACI ledger.

The method is common for not-for-profits of all kinds, but hopefully what's described is not so.

Points out, once again, the need for vestries to demand to see proper financial statements.

7:13 AM  
Anonymous Ken said...

I believe that ACI itelf, per their statement, had no knowledge of financial irregularities at Grace involving accounts with the ACI name.

I'd like to speak directly to the trust fund situation. The presentment states, under "factual allegations":

- the Bowton trust has a scholarship committee, consisting of the Bishop, Grace Church Sr. Warden, and Ms. Bowton's attorney

- the trust had very specific criteria for distribution of scholarships: intent to pursue theological studies, intent to enter the Episcopal ministry, and financial need

- from July 1999 through about March 2003, Don Armstrong directed either by voucher or otherwise the payment of more than $115,000 to certain payees, and the Bowton trust was charged

- Since before 1992, no applications for scholarships have been recieved and no awards have been made.

The alleged theft of that money, in unauthorized Bowton Trust payments, is just part of one count in the presentment. I've heard no explanation from Don Armstrong about how those Bowton Trust payments were legitimate.

1:24 PM  

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