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Management mania

"Management mania" Continued...

Issue: "Coat of many dollars," May 3, 2014

BATTLE CRY: Evangelical teens rally in Times Square.
Richard B. Levine/Newscom
BATTLE CRY: Evangelical teens rally in Times Square.
Several nonprofit and accounting experts criticize Teen Mania’s 2005 purchase of a 50 percent share in Creation Festivals, an annual Christian music festival, for $4.5 million—financed by the owner and a $2 million loan against Teen Mania’s since-foreclosed property. After the acquisition lost half its value, Teen Mania sold it in 2010 to His Work Ministries, which Ron Luce founded and operates. His Work Ministries (HWM) still owes Teen Mania an undisclosed amount of money.

This gets complicated, but here are the basics: Repayment is contingent upon profitability, and Ron Luce says Creation Festivals has “struggled.” The Creation Fest website says its two events together draw over 100,000 attendees annually who purchase tickets for between $48 and $120 each. It’s hard to make a detailed assessment because HWM has never filed the required IRS Form 990, and Luce says he didn’t know he needed to file one for the organization. The IRS revoked HWM’s tax-exempt status in 2012.

Luce told supporters His Work Ministries has “nothing to do with Teen Mania,” but a comprehensive third-party audit conducted in 2011—and obtained by WORLD—repeatedly cited the “unusual transaction” as problematic. It also cited a donor in 2008 who withdrew a $6 million pledge “due to his dissatisfaction with the investment decision.” Daniel Williams, the former board chairman, said Paul Nelson—who through the ECFA declined to comment for this story—raised ethical and legal concerns about the transaction, but they were resolved. Luce told me no one raised any concerns.

The cumulative result was a sea of red ink: Teen Mania Ministries had total net assets of negative $4.1 million at the end of fiscal 2011, a statistic that makes it the sixth-most insolvent charity in the nation, according to Charity Navigators. The 2011 audit says: “A discerning donor will quickly see TMM is technically bankrupt—this is a matter that demands an explanation.”

Accounting expert Albert Meyer, the president of Bastiat Capital who identified irregular accounting practices at Enron, Tyco, and elsewhere, reviewed Teen Mania’s recent IRS 990s and told me he saw a variety of red flags, including high debt load and overspending: “Cutting a $1.37 million shortfall by $220K is how they do business in Washington.”

HOW COULD ALL THIS go largely unnoticed for so long? Bill Josephson, former assistant attorney general-in-charge of the New York Charities Bureau, said it appears Teen Mania is an example of “Red Cross governance”—using designated funds for other purposes. The Red Cross has a board of governors willing and able to remove its president, as it has done—yet Teen Mania board members and staff who clash with Luce have ended up leaving the organization.

For example, on March 15, 2012, Ron and Katie Luce met with board members Daniel Williams and Paul Nelson, CFO Jonathan Hasz, and vice president of operations David Hasz, to discuss concerns and the organizational audit that Teen Mania received in January. Within six months, the Luces were the only ones standing: Williams, Nelson, Tom Muccio (another top board member), and the Hasz brothers all were gone.

According to the Teen Mania bylaws, also obtained by WORLD, Luce can only be removed by a unanimous vote—a virtual impossibility since Katie Luce sits on the eight-member board. The audit recommended removing or revising Ron Luce’s almost unlimited presidential powers and replacing Katie Luce as a voting board member, but neither happened.

Numerous former employees said they were hesitant to speak out because they believe Teen Mania is doing good work—a common reason for not holding Christian nonprofits accountable. “The fruit has been incredible,” David Hasz told me. He said many concerned parties used the Matthew 18 approach of problem-solving with Luce: “I wanted that ministry to continue into the future, but I and others expressed serious concern that our financial model wouldn’t work.”

Teen Mania remained a member in good standing of the Evangelical Council for Financial Accountability since 1996—a claim Teen Mania continued to make on its website as of April 15, even though ECFA revoked its membership on March 10 for “failure to provide complete renewal information.” ECFA president Dan Busby points out his organization is a pass/fail accrediting agency for 1,850 members, not a watchdog group. Luce assured me Teen Mania is simply late with its audit and will be reinstated soon: “We’re running a semi down the road at 70 miles an hour, and we’re changing the tires while we’re moving.”

According to Busby, the ECFA, which is supported by member dues, only revokes membership two or three times per year. Albert Meyer said many Christians likely put too much faith in ECFA membership and noted it’s very difficult—”almost impossible”—to have an effective third-party watchdog organization. But he did point to one criterion the ECFA should require: posting financial statements online. Meyer said it’s alarming that Teen Mania does not do so: “If I can get it by writing a letter, why can’t they just post it on the website?”

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