The Shriners & "Management by Mirth"

You know the Shriners.

Those grandfatherly types with the secret handshake who proudly wear their red Fezzes while parading around in those goofy little cars.

Their Saturdays are spent repairing their clubs so they can raise money for their Shriners Hospitals for Children (SHC) by serving up pancake breakfasts and family fish fries.

Some will get up at zero dawn thirty and start applying their clown makeup so they can drive in their colorful costumes to a nearby hospital, where they will dance and sing while twisting up balloon animals to put a smile on the bandaged face of a badly burned baby.

Others drive hundreds of miles transporting patients.

These 375,000 or so men meet in 191 North American temples to support their $8 billion network of 22 hospitals that provides free medical care to burned and crippled children.

They are retired business men, military vets, lawyers, doctors, politicians, bankers, sheriffs, judges and others who want to share the secrets of their success and best business practices to support their hospitals and beloved fraternity. Their fraternal bonds are first established through Freemasonry as one must first be a Master Mason before joining appendant groups like the Scottish Rite, the Knights Templar, the Shriners and their secret sub-group, the Royal Order of Jesters.

The hospitals are staffed with thousands of dedicated professionals, who may have spent the day studying for their latest certification, only to return to a kitchen destroyed by the piranha clan's latest feeding frenzy. These professionals make sure that everything is ready so they can save an incoming child's life while calming the terrified parents. They also see if the patient qualifies for clinical study because some of these hospitals conduct world class research to develop commercial burn treatments.

This is the good stuff.

Then there are those Shriners who've been kicked out, sued into silence and otherwise retaliated against for asking questions like "Why are your tax returns so messed up?" or "Where does all the money go?"

These are not those who've been investigated by the Office of Human Research Protection, the FDA, the EEOC or a first ever internal committee organized to investigate allegations that two top Shriner leaders behaved unethically. The FBI and Western New York Human Trafficking Task Force and Alliance are currently investigating the Royal Order of Jesters for sex crimes.

These investigations don't quite match the squeaky clean image carefully crafted by Shriner spin doctors because after the curtain is pulled back, we find a dark side, hidden even from their own, until now.

A list of findings includes how:

• An internal Shriner committee was organized to investigate allegations that Ralph Semb, Chairman of the SHC Board of Trustees and Imperial Treasurer Gene Bracewell behaved unethically and with conflicts of interest.

• Semb fired the hospitals' Director of Development in retaliation for not supporting his efforts to rehire of Vantage Direct Marketing after the fundraiser pocketed $43 million out of $47 million raised for the hospitals.

• Semb and Bracewell contacted confidential employment reviewers to get the same guy fired for poor job performance.

• Bracewell admitted he got a free trip from Vantage in 2007.

• Semb executed an allegedly fraudulent tax return.

• Headquarters personnel lived in a culture of fear, scared they'd be fired if they didn't bend to the wills of leaders like Semb and Bracewell.

• The Director of Temple Accounting told the Shriners' Treasurers Association to disclose the minimum to the IRS.

• 15 out of 18 temple crimes go unprosecuted to keep their names out of the newspaper. Compared to the $43 million kept by Vantage, losses ranging from 91% to 84% are apparently acceptable.

• A former CFO is currently visiting Club Fed after embezzling over $820,000 from the St. Louis SHC.

• The Shriners' East West game lost nearly $2 million over four years.

• The Cincinnati SHC was named in warning letters from both the Office of Human Research Protection and the FDA for violating clinical study rules and regulations.

• The EEOC investigated the Chicago SHC and found in favor of two Latina employees who are now suing the hospital for civil rights violations.

• The FBI is investigating the Royal Order of Jesters for interstate prostitution.

By the way, both Semb and Bracewell are also Jesters.

So, why are things so screwed up?

Maybe it's because eleven out of twelve of SHC trustees are Jesters.

Fourteen out of twenty one of those listed on the SHC 2006 tax returns are Jesters.

Nine out of fourteen of those listed on the 2006 fraternal tax return are Jesters. (1)

By the end of 2008, four key executives had "resigned" because they opposed the Vantage deal as not being in the hospital's best interests and may have personally benefitted some board members. With the hospital's executive vice president, director of corporate development, controller and senior attorney gone, those Jesters in charge were free to run things without much, if any, corporate oversight.

So, why should anyone care if the Shriners are run by members of secret sub-group with guys who coordinate prostitutes for their weekend parties?

Or according to one U.S Attorney:

"This organization maintained chapters throughout the United States, including in Western New York, and it was the custom of these chapters to host periodic meetings, usually on weekends, for their members. At most of these meetings, some members of the organization would be tasked to arrange for the presense of women at the meeting, for the specific purpose of utiizing the women to engage in sexual intercourse and other sexual activity with the organization's members in exchange for money."

So, again, why should anyone care?

Because the IRS does.

Nonprofit groups exist for any lawful purpose that provides public benefit in exchange for billions in tax considerations.

The Shriners describe their exempt purpose as:

"An international network of pediatric hospitals dedicated to providing excellent patient care, research, and education for orthopaedic conditions, burns, spinal cord injuries and cleft lip and palate. Our specialized medical care, backed by the skills and knowledge of the staff in 22 hospitals, delivers expert, family focused care at no charge."

The Royal Order of Jesters describes their exempt purpose as:

"Held annual events which were devoted to fraternalism and spreading the gospel of mirth and good cheer."

The Jesters' National 2007 tax return reports that they spent nearly $600,000 on one of their weekend parties, page 11, "Other Expenses."

That's over $12,000 an hour.

That's how much an average family of four spends a year on health insurance.

This guy tells you how to live on $12,000 a year.

So, how much do nonprofit tax considerations amount to?

According to Steven T. Miller, Commissioner of the IRS Tax Exempt section:

"The annual tax expenditure for these entities (that is, the cost to the government to forego tax) is estimated at $283 billion per year. In a word, our job at TE/GE is to insure that those who are getting this enormous benefit are the kinds of entities, engaged in the kinds of activities that Congress intended when it granted the exemption."

Miller explained one abusive situation:

"The first category concerns charities that abuse their tax-advantaged status. One example consists of charities that are established in order to benefit their donors. Typically, these involve a donor who receives a charitable contribution deduction while maintaining control over the contributed assets, often using them for personal gain." (2)

A lawsuit between fishing tour operators included a witness list of 19 Jesters, called by the defense to testify about their first hand knowledge of sex with minors while on a Brazilian fishing trip. What if these guys donated to their Jester court, deducted these donations on their personal tax returns, then had the Jesters pay for their fishing trip?

Back to the Jester controlled joint boards.

The corporate model of "Management by Mirth" could prove fatal because it's based on undisclosed conflicts of interest. It's based on deception because the Shriners have hidden this affiliation with the Royal Order of Jesters from the IRS by not listing them as an affiliated group on their tax returns.

Considering both groups' scandals, could there be a common mindset here, common to these Shriner and Jester ethical lapses? Maybe its how certain leaders act, as if they are above the law? Shriner by-laws state that "Shrine law does not include the law of the land."

These investigations are calibrating the tipping point between the public benefit provided and the public burden of us paying for these expensive, extensive investigations.

Though "Management by Mirth" may have seriously sidetracked the Shriners from their exempt purpose, oversight by law enforcement is no way to run a nonprofit group.

(1) These numbers may be off by one or two, but either way, the Jester majority still exists.

(2) Steven T. Miller, Commissioner TE/GE, SPEECH TO IRS Tax FORUMS, Houston, Texas, July 12, 2005

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