DOJ releases findings from Evergreen investigation
Nonprofit/for-profit Evergreen Air and Space Museum officials remain optimistic despite the call for an IRS investigation, findings of commingled funds with for-profit Evergreen International Aviation
After a year the Oregon Department of Justice has released findings from an investigation into the practices of Evergreen International Aviation (EIA) and the Evergreen Aviation and Space Museum.
Although a statement released by the museum was optimistic, the DOJ findings were less so, as Attorney General Ellen Rosenblum has asked the Internal Revenue Service to look into the museums operations and determine if they are consistent with its tax exempt status.
Charities are subsidized by taxpayers and depend on public trust, Rosenblum said in a press release. That trust is shaken when nonprofits stray from their charitable purposes, and when charitable assets are used to benefit affiliated for-profit companies.
The investigation started after an unnamed whistleblower reported concerns that the museum had transferred more than $700,000 to the for-profit EIA. The investigation determined that the claim was valid.
According to a release from the DOJ, former financial director Olga Mery was contacted by John Irwin, president of EIA and the museums treasurer, and asked about museum funds. With about $750,000 in the museums bank account, Mery told Irwin the funds were needed by the nonprofit. The next day, Irwin requested the balance again and informed Mery that EIA didnt need all of the funds and would repay the debt in three days. When she refused to transfer the funds, Irwin took it upon himself to obtain the cash.
As a result on Oct. 3, (2012) Mr. Irwin and Ms. (Blythe) Berselli, both Evergreen executive and museum board members, who also had signing authority on museum accounts, went to the bank themselves and wired $725,000 from the museums account to Evergreen, according to the report.
But this mismanagement of funds wasnt all the DOJ discovered. There was another questionable interaction between the nonprofit and for-profit entities. Mike Hines, then president of Evergreen Trade, presented Larry Wood, museum director, with a $500,000 contract to purchase a DC-9 airplane and a Boeing 747 cutaway from EIA to use in the museum.
When presented with the Airplane contract, Mr. Wood indicated that $500,000 was a significant amount of money and that the museum did not have the funds. Mr. Wood reported he was told by the Evergreen executive(s) that he need not worry about the figure because the museum was not going to pay anything on the contract anyway, according to the DOJ investigation. He asked for clarification and was just told the museum would not have to pay it. Mr. Wood felt he had no real choice but to sign the contract under the circumstances.
Mery reported that she had heard rumors that Hines had purchased some DC-9s for Evergreen at $5,000 or $7,000 a piece, but never received the value appraisal she asked for concerning the places involved in the contract.
It was later found that EIA obtained $250,000 from the museum, despite the claim that no funds would switch hands. This transaction occurred during the active DOJ investigation, and when the transaction was rescinded, the museum was not repaid but given an unsecure promissory note. That repayment was due by Dec. 31, 2013, but Evergreen acknowledged it would be unable to repay that debt and filed for bankruptcy soon after.
The investigation concluded there were many issues with Evergreen management and conflicts of interest, which led to the issues found. As a result, the DOJ enacted a few changes within the management structure. A new governance committee was formed and requires three members who are not employed or financially affiliated with Evergreen. The executive committee must also have nine members, five of which must be independent. The four affiliated members remain as Berselli, Irwin, Hines and Evergreen founder and CEO Del Smith.
The DOJ directive was also written to require that no Evergreen employee, director or officer shall be an authorized signer on museum accounts.
The museums financial situation is unusual in a number of respects. While the physical facilities of the museum are massive compared to organizations such as OMSI and the Portland Art Museum, its yearly revenue has generally been less than half that of those organizations, according to the report.
A statement issued by the museums marketing department said they were pleased with the results of the DOJ review.
We are pleased that the DOJ will not be taking legal action and concludes that no commingling of funds occurred, the statement said. We are additionally encouraged that the DOJ feels that the museums board has taken appropriate and definitive action to improve governance and that the DOJ believes the current board of directors is the appropriate board to move the museum forward.
To view the full DOJ report, visit www.doj.state.or.us/releases/pdf/final_evergreen_report_3-20-14.pdf.