Disclosure at Chimes puts donors in the dark

By Jay Hancock Sun Reporter

October 22, 2003

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The Chimes, a highly respected, Baltimore-based nonprofit group that provides jobs and care for the disabled, paid three top executives $2.44 million over three years that it failed to disclose in Internal Revenue Service filings of Chimes Inc. and its main subsidiaries.

Chimes also failed to report business relationships with several members of its boards, as required by the IRS, experts say.

Former IRS officials and other experts sharply criticized Chimes' disclosure practices, saying potential donors were left in the dark about significant aspects of its operations.

The undisclosed compensation amounted to 75 percent of the $3.25 million total pay and benefits received from 2000 through 2002 by the managers - Terry A. Perl, chief executive; Albert Bussone, chief operating officer; and Martin Lampner, chief financial officer - who oversee an array of Chimes operating units.

The payments, including $1.07 million for Perl, came from a nonprofit corporation with just four employees, called Chimes Delaware, that derived most of its revenue from the main Chimes group.

The government requires nonprofit groups to disclose annually, in publicly available IRS forms, "aggregate compensation of more than $100,000 from your organization and all related organizations" paid to executives or directors.

Independent nonprofit specialists who studied the Chimes returns said that, based on their analysis, the payments from Chimes Delaware should have been included on the IRS reports for Chimes Inc. and its main subsidiaries so the public could see the executives' entire pay package.

"It certainly is a large amount of money passing through the organization to individuals - individuals with multiple positions in multiple entities seemingly making a very handsome income," said Marcus S. Owens, former director of the Exempt Organizations Division of the Internal Revenue Service, who examined Chimes' returns.

"It would appear there should have been a schedule consolidating that on each of the [returns]," which are often the public's main source of information about charities, said Owens, now an attorney for Caplin & Drysdale, a law firm in Washington.

Chimes, which has obtained tens of millions of dollars in government contracts set aside to employ the retarded and other disabled people in janitorial and other service jobs, should also have disclosed the business it did with its board members, experts said.

Form 990, which nonprofit groups must file with the Internal Revenue Service and make available to the public, directs the organizations to report whether, "directly or indirectly," they did business with directors, trustees or major contributors.

"The failure to disclose is simply wrong," said Daniel L. Kurtz, a lawyer in New York, former charity regulator and author of Managing Conflicts of Interest: A Guide for Nonprofit Boards.

Chimes staunchly defended its reporting and said it has built a strong record of integrity.

"This is an organization that is a valuable community resource. We've done nothing wrong," said Perl, Chimes chief executive. "We're not playing games."

The nonprofit group, which recorded revenue of $107.5 million in fiscal year 2002, mostly from government programs and contracts, said it reported Chimes Delaware executive pay on that organization's IRS reports and was not required to disclose the pay on returns for the other Chimes organizations. Chimes Delaware was a separate trade association, they contended.

A recent move to close Chimes Delaware will cause all executive income to be reported to the IRS on the Form 990s of Chimes Inc. and main subsidiaries for fiscal 2003 and in the future, the organization's leaders said.

Chimes officials also said the organization was not obligated to reveal board member transactions on its 990 forms.

"We've done this according to what we felt were very strong, professional and ethical standards," said Douglas M. Schmidt, chief executive of Chesapeake Capital Consultants Inc. and a board member at the affiliated Chimes Foundation. "There are no skeletons here in terms of self-dealing or anything like that."

Known as a well-organized, can-do group that attracts hundreds of thousands of dollars in annual donations, Chimes revealed some details of its operations, including audited financial statements for the main Chimes group and IRS returns for Chimes Delaware, in meetings and e-mail exchanges with The Sun.

But independent specialists in nonprofit governance said Chimes' executive pay information should have been directly available to donors and the public on the returns of Chimes Inc. and its core affiliates.