East West Shrine Game Loses Nearly $2 Million Over Four Years, Operating Illegally?

If you’ve followed this investigation the past two and a half years, you know my process.

I get up before the sun, nuke a cup of coffee from the day before and start reading nonprofit tax returns or some other equally exciting documents.

They’re exciting to me anyway in an intellectually challenging kind of way as I've been doing this for six years now.

So, what does nonprofit mean?

According to online sources, nonprofit means:

"An agency, institution, or organization owned or operated by one or more corporations or associations having no part of the net earnings or benefit of any private shareholder or individual not conducted or maintained for the purpose of making a profit. Instead, it operates to serve a public good. Note that 'tax exempt' also does not excuse an organization from maintaining proper records and filing any required annual or special-purpose tax returns."

Benefit means things like the "excess benefit transactions" described in the April 10, 2008 internal Shriner committee report that detailed their investigation into allegations that Ralph Semb, Chairman of the Shriners Hospitals for Children Board of Trustees and Gene Bracewell, Imperial Treasurer, behaved unethically and with conflict of interest as they lobbied to re-contract with Vantage Direct Marketing after they raised $47 million on behalf of the hospitals but kept $43 million.

In other words, the hospitals got only $2.5 million out of the $47 million raised on behalf of the burned and crippled children.

The report also detailed the committee's efforts to discover the circumstances surrounding Semb's abrupt and unsubstantiated firing of the Director of Corporate Development. The investigative committee further reported that Semb pressured the hospital's executive VP to violate employee confidentiality in an attempt to skew the director's performance evaluations and falsely create cause for dismissal because he opposed re-contracting with Vantage.

There may be a relationship from this same situation to the alleged "resignations" of four high level Shriner executives opposed to the same deal with Vantage.

When the IRS determines a group such as the Shriners or Royal Order of Jesters or East West Shrine Game qualifies for their 501(c) designation, that organization is then exempt from certain federal, state and county taxes in exchange for providing a benefit to society.

Qualifying for this nonprofit status means that the exempt organization must provide the last three years' tax returns AKA 990s and its application for exempt organization status, the 1023, to anyone who asks within 30 days of their request.

The Orlando Sentinel investigated the Shriners 20 years ago and wrote that:

"Estimates from available records also show that Shrine hospitals in 1984 received just 1 percent, or $182,000, of an estimated $17.5 million in profits from about 175 Shrine circuses. Only one of the 76 temples for which IRS records were available reported contributing any circus money to the hospital system."

Back to the 84th East West Shrine Game that will be televised on ESPN2 tomorrow at 3:00pm from the University of Houston's Robertson Stadium.

The East West website claims that the game raises money for the hospitals.

According to a January 12, 2009 press release:

"The football match-up, which began in 1925, features many of the best college players in the nation divided by region, but coming together to raise money for Shriners Hospitals for Children, an international health care system of 22 hospitals across North America."

I wanted to find out how much money the game actually raised for the hospitals and sent email requests on July 8, August 11 and November 23, 2008 to executive director Jack Hart, asking for the East West Shrine Game's 1023 and nonprofit tax returns for the past three years.

After the first 30 day deadline passed, I called Hart to find out why my request remained unanswered. He said he never got it, though I used the same email address that's on the East West website and that I needed to send another request.

So, after two more unanswered requests, for a total of three over a five month period, a December 3, 2008 email brought this and other concerns to the attention of Imperial Potentate Douglas Maxwell, Chairman of the Board of Trustees Ralph Semb and Director of Corporate Public Relations Alicia Aargiz-Lyons.

To date, no response from any of them.

Through Guidestar.org I was able to download the East West Shrine Game's tax returns for 2002, 2003 and 2004.

According to these tax returns, the game's exempt purpose is to raise money for Shriners Hospitals for Children.

These returns show that the game not only failed to raise any money for the hospitals but instead lost:

- $192,000 in 2001

- $618,984 in 2002

- $805,621 in 2003

- $321,975 in 2004

That's a loss of $1,938,580 over four years.

The 2003 return reports an $834,833 loan from a related entity, either the Imperial Council AAONMS or Shriners Hospitals for Children and a $69,345 line of credit, for a liability of $904,178.

The 2004 tax return reports that Shriners Hospitals for Children converted a short term debt of $729,531 to a "contribution."

The Shriners Hospitals for Children 2004 tax return fails to report this "contribution" or affiliation with the East West Shrine Game.

Though the East West tax return discloses Hart's expenses, the Shriners' tax returns consistently list $0 for expenses on behalf of the hospitals' 21 directors, officers and trustees, giving the appearance that these individuals pay their own way to attend functions like the East West Shrine Game without reimbursement.

This is another bone of contention alluded to in the above-mentioned internal Shriner investigation report.

In an attempt to find out if more recent tax returns had been filed, a call yesterday to the IRS Exempt Organization office revealed that the East West Shrine Game "has not been recognized as being tax exempt" since June, 2007.

This means that the Concord, California group's status is now "for profit" and as such, must be registered with the California's Attorney General and Secretary of State.

An online search revealed that the East West Shrine Game is not registered with the State of California as either a nonprofit or for-profit corporation.

This means that the group could be operating illegally.

So, what did the Shriners get for their "contribution" after the game lost $805,621 in 2003?

Take your pick.

Maybe Hart's $85,000 salary, $16,200 expense account and $4,200 auto allowance for a total of $105,200?

Or maybe the $422,812 spent on "Promo, Sponsorship & Other Misc."

Or maybe the $394,883 spent on "Other Game Expenditures."

Or maybe the $209,005 spent on "HOF (Hall of Fame) Various Expenses."

Or maybe the $201,677 spent on "Game Giants Expenses."

If any combination of these doesn't add up to the Shriners "contribution" maybe these can be factored in to equal things out:

$12,611 spent on "Misc. Expenses."

$20,924 spent on "Staff Benefits."

$12,000 spent on "COLA."

$8,436 spent on "Board Meeting."

$10,446 spent on "Travel."

$41,079 spent on "Occupancy" as rent to the Asiya Shrine Temple.

In an attempt to find out if donations to the game were tax deductible, a call to the East West Houston office revealed that the game’s number is the same as the Houston Shriners Hospital, indicating some sort of cooperative relationship between the nonprofit hospital and an unregistered for-profit entity. I was told that donors wishing to support the game should make their checks out to Shriners Hospitals for Children and that their donations are tax deductible, though this is not made clear on the East West "Donate Here" web page.

And are sponsorships likewise tax deductible?

Those interested can ring up or email Jack Hart though be warned that emails may not be answered.

At this point, the only ones who might be able to figure any of this out may be investigators from the FTC for the possibility of false advertising or from the IRS exempt organization classification office in Dallas, just a four hour drive to Houston, south on I-45.

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