Former St. Jude’s CEO authorized restricted funds ‘loans’ for other uses

An uncertain future confronts St. Jude’s Ranch for Children following the abrupt resignation of its embattled chief executive officer and the departure of all Nevada representatives from its national board.

Longtime CEO Christine Spadafor, 59, who had been with the organization that serves abused and neglected children since 2005, resigned Thursday, the same day the Review-Journal requested an interview concerning documents showing that she — not another employee as previously claimed — authorized the transfer of restricted funds for other use pending bank approval of a line of credit.

Restricted funds are earmarked for donor-specified purposes, not general expenses.

Neither Spadafor, Kate Crosby, national board chairwoman for the nonprofit that has campuses in Nevada and Texas, nor Ralph Manning, a national board member from Texas who has been a vocal supporter of Spadafor, responded to calls seeking comment.

Manning and Spadafor recently told the Review-Journal that an employee they would not name was responsible for the misuse of restricted funds.

“The board has nothing to add at this point as they have to focus on the mission,” spokeswoman Paige Candee of 10e Media, a Las Vegas public relations firm representing St. Jude’s, said in a text message.

DOCUMENTS SHOW MOVE

Documents from St. Jude’s obtained by the Review-Journal show that Spadafor authorized a “short-term loan” of an unspecified amount of restricted funds last October while waiting for approval of a $1.5 million line of credit from Bank of the West for the cash-strapped nonprofit.

In an email sent last Oct. 21 to Crosby and other board members, Spadafor explained her reasons for moving the money.

“I have not authorized the use of restricted funds for any purpose other than their intended use — and needing the funds for only an expected 24 to 48 hour period — today for the first time I authorized the ‘short-term loan’ of the funds until the line is in force later this week,” Spadafor wrote.

She also indicated that an employee was instructed to immediately reinstate funds to their restricted uses when the line of credit was approved.

The line of credit was needed to help St. Jude’s in a challenging situation “driven primarily by an $80,000 payment from (the U.S. Department of Housing and Urban Development) in process and not received, and lower than expected fundraising results in Texas,” Spadafor wrote.

On Nov. 21, with the line of credit still not approved, Spadafor emailed board members that “it was necessary for us to take a loan from the endowment again, in the amount of $125,000.” That loan was in addition to the undisclosed amount borrowed in October.

The line of credit was finally approved on Jan. 2, according to documents. Documents show that the nonprofit borrowed more than $800,000 from restricted funds.

Former controller Katie Tracy, who left the organization in January, said St. Jude’s was showing an operating cash deficit for the six months ending Dec. 31, 2014, and the nonprofit had borrowed more than $750,000 by the time she left.

St. Jude’s was operating nearly $1.69 million in the red from July through November 2014, according to financial statements obtained by the Review-Journal. That means St. Jude’s spent 79 percent more than it collected, considering it only had an operating revenue of $2.14 million.

In previous interviews with the Review-Journal, Manning and Spadafor gave accounts that differ from the email reports to the board.

Manning told of an employee using restricted funds without authorization from Spadafor, crediting her with fixing the problem as soon as she learned of it.

Spadafor said an accounting department employee told her money was transferred from one account within St. Jude’s into another, and that she told the employee to reverse the move. There were no financial irregularities, she said.

ESCALATING CONCERNS

Allegations of misuse of restricted funds at the nonprofit and concerns about Spadafor’s annual compensation were the subject of a Feb. 21 Review-Journal article. Spadafor was paid a $300,000 annual salary, a $100,000 bonus and nearly $35,000 in reimbursable expenses for regular commutes between Boston, where she resides, and cities in Nevada and Texas, where St. Jude’s has campuses.

Former employees began voicing concerns about the nonprofit’s management about six months ago, sparking escalating turmoil; internal investigations; and the resignation of four national board members, upper-management employees and on Thursday Spadafor herself.

The board responded to the mis­management allegations by hiring a law firm to investigate. No wrongdoing was found, according to St. Jude’s. However, the board won’t release the details of the investigation.

The board on Thursday night issued a statement supporting Spadafor, saying that she decided to move on because she recognized that the complaints had created a distraction that’s not in the best interest of St. Jude’s and the children it serves.

Spadafor in a statement said it was apparent the attention focused on her had become a daily distraction that threatened to compromise St. Jude’s efforts to serve the children in its care. The Harvard Law School graduate, who is president and the sole employee of Spadafor­Clay Group, Inc., said she plans to pursue consulting work with other companies.

St. Jude’s, with a budget of $9.8 million, has 130 employees at seven locations in Boulder City; Las Vegas; New Braunfels, Texas; and Bulverde, Texas. The Boulder City campus is a county-licensed therapeutic foster care agency.

CALL FOR TRANSPARENCY

St. Jude’s documents show that the executive committee of the national board approved Spadafor’s $100,000 bonus on Oct. 13, 2014, without consulting the national board’s human resources and compensation committee — an apparent violation of the process outlined in the organization’s charter.

Manning, however, said the executive committee historically has reviewed Spadafor’s performance and can award her performance bonuses.

Documents show that Spadafor had agreed half her bonus would be paid on or before Nov. 14, 2014, with the remainder on or before Dec. 5, 2014. She later deferred her entire bonus pending approval of the line of credit and the on­going monitoring of the organization’s cash position.

It’s unclear whether Spadafor’s bonus was paid before she resigned.

Manning’s comments, reported Feb. 21, have also rankled some people formerly associated with the nonprofit. He said that at least one employee failed to go through proper channels to report concerns, and that some board members “acted as irresponsible, like employees.”

Ann Nicholson, one of three board members from Nevada who resigned on Dec. 12, 2014, responded to Manning’s comments last week.

“As I am one of the board members who left,” she said, “if he was referring to me, my position is that every action that I took, every question that I asked as a board member, was fulfilling my responsibility to the kids and the ranch,” she said.

Nicholson said Manning implied that the allegations had been taken care of through the investigation conducted by a law firm hired by St. Jude’s.

“I was in the same meeting on Dec. 12 when those findings were delivered to the board by Greenberg Traurig,” she said. “My interpretation of those findings is inconsistent with Manning’s statement.”

There’s a simple solution, Nicholson said.

“While I’m bound by confidentiality and I am unable to release any findings, Kate Crosby as the chair of the national board, could resolve this in the interest of complete transparency by simply instructing Greenberg Traurig to release a certified copy of their findings to the public and let the community decide.”

Tracy DiFillipo and Mary Lynn Palenik, national board members from Nevada, resigned the same day as Nicholson. Jennifer Lewis, who also represented Nevada on St. Jude’s national board, resigned later in December. The fifth and last of Nevada’s representatives on the national board left for another position on St. Jude’s foundation oversight board.

St. Jude’s former chief financial officer John Barry, who departed in August, said he’s unsure if Manning was talking about him when speaking of employees who skirted proper channels. He said he’s not a disgruntled employee, and even though he only worked at the nonprofit for a year, he considered it a privilege.

He said he left St. Jude’s because he no longer believed in Spadafor’s mission and disagreed with her on “general matters,” but wouldn’t elaborate last week. He wouldn’t say whether he expressed concerns to the board.

“I held the position of chief financial and administrative officer,” he said. “Inherent in that position is a fiduciary obligation to serve the best interests of the organization, particularly as it relates to financial matters. I believe that I fulfilled that obligation.”

Contact Yesenia Amaro at yamaro@reviewjournal.com or 702-383-0440. Follow @YeseniaAmaro on Twitter.