By Matthew Sinclair

United Way settles complaints against former subsidiary

Charities stand to lose approximately $5.9 million in gifts that were made through failed donation processor PipeVine. That amount represents roughly one-third of the reported $17.7 million that the San Francisco organization owed nonprofits when it closed up shop in June 2003.

Of the $17.7 million that PipeVine did not pass through to charities, $9.4 million was designated for the United Way of the Bay Area (UWBA), according to a report to the Superior Court of California, San Francisco County. UWBA, which created PipeVine and spun it off separately during the late 1990s, negotiated an agreement with the court-appointed receiver, David Bradlow.

UWBA agreed to pay $3.45 million from its reserves to a court-appointed receivership trust. The United Way also filed a $3.5 million claim on the trust. Though UWBA is the largest creditor, it agreed to be the last paid. Bradlow will pursue other groups legally in an effort to recoup the nearly $6 million, according to court papers.

Reading from a prepared statement at a press conference announcing UWBA’s agreement with Bradlow, UWBA chair Bill Meehan said, “We fully support the receiver’s efforts to secure as much money as possible, as soon as possible, to fulfill the intent of donors. We believe that it is in the best interest of the thousands of charities supported by our donors for United Way of the Bay Area to fund the contribution agreement.”

UWBA had promised from the outset of the scandal to make good on all outstanding donations. The organization needed to wait through the legal process before it could make good on that pledge, said Anne Wilson, UWBA’s chief executive officer. “Our contribution to the receivership is the way we can fulfill that promise,” she said. “The receiver’s responsibility is to make sure there’s equitable distribution.”

Though UWBA retained a close relationship with PipeVine after the groups legally separated (UWBA and PipeVine were located in the same building suite), Wilson emphasized they were distinct, separate entities. “The money disappeared in the hands of PipeVine,” she said.

The receiver’s report also noted that PipeVine employees were part of a joint employer pension plan with UWBA, and the plan was underfunded by $700,000. The estate’s obligation to that plan is still to be determined. The receivership estate is also liable for unemployment benefits, which could exceed $1 million.

After the PipeVine collapse became public last spring, Wilson said UWBA took processing operations in-house. “Since then we have had stable and reliable donation processing in place,” she said.

The organization also established an advisory board on financial accounting and reporting, retained Ernst & Young to review the impact on UWBA’s financial statements, and hired accounting firm Deloitte to audit its fiscal year 2003 statements. “Deloitte will consider any issues that may impact a prior year during its audit of our financial statements for fiscal year 2003,” she said.

The negotiated agreement through the receiver, David Bradlow, “resolves all outstanding matters between PipeVine and United Way of the Bay Area,” according to Bradlow’s report.

The report noted the investigation has “found no evidence of embezzlement or improper enrichment by any individuals.”

The settlement with UWBA does not affect the California Attorney General’s ongoing civil investigation, according to spokesperson Tom Dresslar. The AG stated that any future actions to amend its complaint would be held until Bradlow completed his work.

“The receiver’s report is distressing,” stated California Attorney General Bill Lockyer. “The numbers clearly demonstrate the substantial harm caused by PipeVine’s conduct to donors, charities and the crucial services they provide our communities. The charitable organizations that have suffered financial losses must be made whole. That remains my office’s primary objective.”

The Federal Bureau of Investigation is reportedly conducting a criminal investigation in the case, though it has declined comment.

The receiver will continue to pursue other causes of action and claims against other parties, according to his report.

In a statement, Brian Gallagher, United Way of America president and chief executive officer, said, he was pleased that UWBA decided to pledge the money for distribution.

“This is a positive way for United Way of the Bay Area to honor its pledge to donors and the nonprofits impacted by PipeVine’s closure,” he stated. “PipeVine’s failure has been a painful lesson for all of us in the nonprofit sector regarding the challenge we all face to deliver on our missions, using operating systems that are both effective and efficient.”

While UWBA is claiming some level of closure, the issue is far from resolved. Bradlow has stated his group will continue to pursue other claims and other parties, which could help fill the gap.

Asked whether UWBA would step up if charities remain shorted by the eventual settlement, Wilson said. “We will not know for some time what the full recovery is. … Our payment to the receivership is the only avenue available to us to fulfill that pledge.”

Part of the challenge for UWBA is that PipeVine processed donations for some national companies based in San Francisco, so some donors were not from the Bay Area. “It will be dependent on us having the data about what that is,” Wilson said, regarding fulfilling all contributions. “We had every anticipation that we would have that kind of data. … We don’t have it now and we don’t know if we’re going to get it.”

She added, “I’m confident that if our board finds we are short to Bay Area donors, we will act on that.”

UWBA also faces a challenge of restoring donors’ faith in the organization. Though UWBA has shown a net increase of 45 workplace campaigns this year, Wilson said, it is projecting its current campaign at $35-36 million. That represents a $6-7 million decline in its annual campaign compared to the previous year. The campaign raised more than $50 million as recently as 2001, though Wilson attributed some of that year’s successes to giving to September 11-related efforts. “There’s no question that this event has had a chilling effect on people’s giving,” she said of the PipeVine collapse. “There’s been a significant drop in the campaign.”

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