Nonprofit, for-profit interplay

Government regulators responsible for the oversight of nonprofit organizations said that, although there is potential cause for concern, there is nothing illegal “per se” regarding the nonprofit structure of the Aurora and Greater Detroit hospitals and their financial relationships with for-profit companies affiliated with Dr. Soon K. Kim.

According to Mike Bagley, a nonprofit specialist in Detroit’s office of the Internal Revenue Service, the key word regarding financial dealings of this sort is “excessive.”

“If somebody is in a position to influence the affairs of an exempt (nonprofit) organization, that person cannot receive benefit in excess of fair-market value.”

Kim said fees paid to his companies were based on “market rates.”

Likewise, William Stone, chairman of Aurora’s board, defended the scope of business the nonprofit conducted with Kim-related companies. Metro Times found that five companies affiliated with Kim received at least $23 million from Aurora between April 1997 and May 2001.

“They earned that money,” said Stone.

However, Barbara Clark, the former chief executive officer at Aurora, raised concern about the amount of money going from Aurora to Kim-related for-profit businesses. Linda Carroll, her counterpart at Greater Detroit Hospital, testified that she believed Kim was attempting to bankrupt that facility. Both were fired; Kim said the dismissals were both related to poor performance on the part of the administrators.

“To the extent that the executive of a nonprofit had some concern, that indicates the possibility something may be amiss,” said Bagley. “There is a potential problem, but it depends on the specifics of the relationship.”

Marion Gorton, administrator for the charitable trust section of the Michigan Attorney General’s Office, agreed.

“There is a potential for a problem, but not a problem per se,” said Gorton. “There are always red flags, or at least yellow flags, when someone is involved” in multiple transactions with a nonprofit.

If a person is found to have benefited excessively from financial relationships with a nonprofit, they will be required to refund the excess to the nonprofit, said Bagley. In extreme cases, a nonprofit could lose its tax-exempt status.

A recent investigation by the publication The Chronicle of Philanthropy found that the IRS rarely “cracks down” on officials who reap undue financial benefits from the nonprofits they are associated with.

According to the Chonicle’s report, federal law was changed more than six years ago to make it easier for the IRS to catch people inappropriately benefiting from their connections to nonprofits. As of November of last year, the publication found, the IRS had pursued only four nonprofit organizations since the law was revised in 1996. Among reasons cited for the lack of action was the IRS’ lack of “sufficient manpower or sophisticated enough computer-tracking systems to enforce the law fully.”

Curt Guyette is the Metro Times news editor. E-mail [email protected]
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