Faith House on brink of insolvency

By Pat Flannery and Maureen West The Arizona Republic
May 21, 2000

Faith House, a domestic-violence shelter that is one of the Valley's oldest charities, is on the brink of insolvency because of apparent financial mismanagement.

The Glendale charity opened an elaborate $2.8 million shelter for abused women in January. But three months after it opened, the shelter ran out of money. The shelter was shut down and its longtime director was fired.

An interim director was brought in to sort out Faith House finances. What he found: an organization so poorly managed that some of its books may never be reconciled.

"This thing's been out of control," said Herb Paine, a former United Way executive who came to Faith House in February after its board asked the United Way for help.

Paine said that while he has no evidence of illegal activity, he is concerned about potential misuse of funds.

"When things are this sloppy, it opens the door to abuse," he said. "It stinks."

Over the past two years, the shelter raised more than $1 million in donations from Phoenix-area residents who were moved by appeals to help abused women and their children.

All told, $1.7 million in private donations and $855,000 in bank loans were ponied up over two years to build the 20,000-square-foot Victorian-style shelter near Glendale Community College.

Among the donations, The Arizona Republic contributed $570,000.

"People with good intentions got caught up in this, no question," Paine said. "These things have ripple effects."

Faith House's troubles won't significantly affect services to victims of domestic violence -- about 200 new beds are opening statewide. But it does raise questions about how a charity could go so long collecting so much money with so little scrutiny.

It's not an unusual story, said Paine and others associated with charitable fund-raising. Charities frequently spring from the sweat and conviction of charismatic founders only to falter when they outgrow the abilities of their founders and governing boards.

Meanwhile, donors are interested in the cause, not the details.

"You dazzle people with a cause and you make an emotional plea, and it can cover up a lot," said Cindy Silverman, executive director of another center for abused women in the Phoenix area.

Faith House is exploring a merger with Prehab of Arizona, a Mesa-based human services charity that runs the Autumn House shelter. Prehab is helping Faith House's temporary management team untangle the troubled charity's finances.

Records review

A review of financial records and interviews with Paine and others familiar with Faith House reveal problems ranging from sloppy bookkeeping to a confusing and troublesome corporate organization.

Some specifics:

It's impossible to tell how much the charity spent building the new shelter near downtown Glendale. A construction spreadsheet by Faith House's finance office shows a cost of $2,559,866, while the charity's general ledgers show $2,573,460. An audit completed last week indicates a total expense of $2.8 million.

The shelter ran operating deficits dating to 1996. Often, money was shifted between corporate entities and funds were co-mingled to cover costs.

The charity continued expanding and spending money despite signs of financial trouble.

For example, when construction on the new 80-bed shelter started in March 1999, Faith House managers and directors had information that the organization was in financial trouble and needed as much as $500,000 more to cover the full cost of construction. Neither did the charity have enough money to operate the shelter once it was built, records show.

At the same time, Faith House's board bought a new bingo facility in Surprise that was supposed to generate cash to feed the expanded Faith House. The bingo parlor opened eight months behind schedule and is operating at a loss. The board is considering shutting it down.

"They built the Taj Mahal and this big bingo facility at the same time, without the funding to finish them," said Ken Jones, former finance director for Faith House. "If you are going to build a house, you make sure you have cash in hand or financing in place before you start. You don't say, "I'm going to pray that the cash will come in later.' "

Who's to blame?

Faith House's financial plummet has spurred a debate over who pushed the popular charity over the cliff.

Some point to Betty Ryan-Della Corte, the shelter's charismatic founder and director for the past 26 years.

Others say the board of directors should have been paying closer attention, or that businesses, government agencies and organizations in the community should have asked more questions before investing in the charity.

Paine said it may have been all of those factors and more.

In 1998, Betty Bergstrom, a respected consultant for non-profits, was hired by Faith House to raise money. She told the board the shelter was outgrowing its management structure.

Faith House, she said, needed a new administrative structure in order to grow from a small charity to a large organization. The board of directors followed one of her suggestions to hire two development directors to raise $800,000 for administrative expenses.

But Ryan-Della Corte fired the directors, and Bergstrom decided to quit.

In February 1999, Jones, an accountant, was hired as finance director to take control of the shelter's fund-raising effort. The board let him go in a cost-cutting move this year.

Former board members say part of the problem was that Ryan-Della Corte insisted on keeping a tight rein on all financial decisions.

"A lot of what she wished would happen would suddenly become the objective of the people who worked around her," said Gerald Kern of Scottsdale, who left the board after a three-month stint in 1997. "If she had wished (Faith House) to be a 500-bed facility, then everyone would immediately jump on the bandwagon and say, "Let's help Betty get a 500-bed facility.' "

For her part, Ryan-Della Corte said she relied on the agency's finance committee -- made up of employees and board members -- to guide her in financial matters that were not her strong point.

And she relied on faith.

"This is not the first time anything like this has happened," she said. "We just had faith that Faith House would pull through. There was never any doubt in our minds."

Ryan-Della Corte started fund-raising for the shelter in 1997. The effort picked up steamed in 1998, when Laura Munoz, an abused Phoenix mother was killed by her husband after being turned away from full shelters. Swayed by Ryan-Della Corte and community outrage, Valley lenders and corporate donors -- including The Republic -- failed to ask rigorous financial questions.

The Republic made the largest single contribution to the new shelter, raising $570,000 through its "One Bed, One Life" series, which documented a shortage of beds for victims of domestic violence.

Glendale committed $200,000 to the new shelter, while Phoenix put up $333,000.

Even the banks, which agreed to lend or invest more than $1 million in the shelter, could have looked closer, Paine said.

"Could there have been better management, oversight, control? Yes," Faith House board Chairman Gary Mirich said. But he added that the board relied on Faith House's managers to oversee day-to-day operations.

Mirich said the board gradually realized that the financial crisis was severe and took action by cutting salaries and expenses, trying to sell properties, bringing Paine on board and firing several people, including Ryan-Della Corte.

Complicated structure

Part of the difficulty in untangling Faith House's finances lies in its complicated organizational structure.

Faith House consisted of three non-profit organizations:

Villa de Fidelis (Latin for "House of Faith") ran the original shelter in southeast Glendale, a second shelter in Prescott, and the new shelter near Glendale Community College.

A second oversaw a domestic-violence counseling arm called Faith House, the same name used for the overall organization.

The third, Valley Youth Organization, which recently closed, provided youth counseling.

For decades, all three organizations relied on bingo games at 35th Avenue and Thomas Road to supply operating cash.

It was a tidy way for the charity to exist without grabbing for government grants that Ryan-Della Corte said would force her to abandon her faith-based religious approach.

Bingo revenues allowed Faith House 20 years ago to invest $180,000 in a Prescott property that became northern Arizona's shelter for abused women. The shelter was recently closed and part of the property sold.

The charity leased bingo facilities from Phoenix National Inc., a for-profit company, until 1981 when bingo regulations changed. Phoenix National was forced to sell under a new regulation that barred private companies from running bingo parlors. Faith House partnered with another charity to buy Phoenix National for $1.5 million to keep the games going. Faith House's new for-profit arm also kept the name Phoenix National.

But over the years, bingo became less profitable.

Eventually, the other charity, a non-profit swim club, got out, and Faith House borrowed $400,000 to take over the business. Phoenix National became the financial backbone for all three of Faith House's non-profit ventures.


Paine said he is puzzled by the relationship between the for-profit corporation and the non-profit charities, each of which owns a third of Phoenix National. The agencies could have dissolved Phoenix National and simply operated the bingo games themselves, he said. Instead, Phoenix National remained an independent entity with the same leadership as the charities, including Ryan-Della Corte.

There was a practical flaw, Paine said: The finances of the for-profit and non-profits became entangled. Funds were co-mingled; staffs were shared.

Documents show that when Faith House developed cash-flow problems in 1995, Phoenix National started funding operations.

By late 1997, when the idea of a new shelter began picking up steam, Phoenix National was paying part of Ryan-Della Corte's $61,000 annual salary and had hired consultants to help make the new shelter a reality.

One fund-raiser was to be paid $1,000 a day, according to board minutes. From late 1997 to late 1999, the Faith House agencies together spent more than $300,000 on public relations and fund-raising consultants for the new shelter, financial documents show.

But as pledges and grants started rolling in, the financial fault lines were beginning to show.

The charity had money -- or at least promises of money -- for a building, but was severely short of operating cash. There wasn't enough to make the monthly payroll or mortgage payments on charity properties.

Jones said he understood the problems but felt the charity had no choice but to proceed with building a new shelter.

By this time, Faith House had entered into a complex web of lending agreements with Bank One CDC in Ohio and Bank One of Arizona. The banks would provide more than $1 million in loans and equity payments, but with some strong strings attached requiring the facility to open in January and pay back most of the loans quickly.

Bank One CDC had obtained from Faith House $977,000 in state tax credits for low-income housing providers. The credits, sold to Bank One for $752,000, required the shelter to set aside 64 of its beds as low-income transitional housing for abused women, as opposed to emergency shelter beds.

Die was cast

Had the financiers known then what they know now, they might have thought twice. The shelter closed just three months after opening when Faith House ran out of operating cash.

Government grant payments were suspended, and Bank One cannot currently claim its tax credits. Since no revenues are coming in, Faith House can't repay its loans and could be foreclosed, Paine said.

The strings attached to the tax credits nearly stopped the deal two years ago, board Chairman Mirich said. But in the end, "stopping shelter beds that were needed was not a consideration." The plan moved ahead.

Yet internal Faith House documents back Paine's assertions that charity executives and board members overlooked questionable financial practices and warning signs against taking on large new projects.

"If I had been there, I would have said, "Stop!' " Paine said.

The signs included:

Faith House was running annual operating deficits totaling $200,000 that were carried forward from 1996 to 1999.

Beginning in mid-1998, bookkeepers signaled the board that cash was drying up. Board minutes show it often discussed ways to keep creditors at bay.

Bingo revenues were way down at the agency's parlor at 35th Avenue and Thomas Road -- from $198,000 in 1996 to $122,000 by 1999. The board nevertheless bought a Prescott building in summer 1998 to operate a thrift store for the shelter there. A move also was afoot to buy a complex of buildings in Surprise that everyone hoped would become a bingo mecca for northwest Valley retirees.

In late 1998, Faith House borrowed $875,000 to buy and refurbish Riverboat Acres, 18324 W. Bell Road. The 10-acre Surprise spread includes a 10,000-square-foot building, shops, an outdoor pavilion, three houses and tennis and volleyball courts.

The board wanted to start bingo there in January 1999. Instead, it spent thousands of dollars and eight months trying to bring it up to code.

"Significant dollars were put into the new bingo facility," said Paul Reynolds, a board member from 1995 until January. "In retrospect, we shouldn't have."

"Several people questioned it, but they didn't stand in front of the train."

Full speed ahead

Fund-raising continued full tilt in 1999. Yet board minutes during the same period note that Faith House's bookkeeper "is having to use the (charity's) assets in order to meet the everyday operating expenses."

By February 1999, the operating deficit was $121,000. Bookkeepers told board members they could shift up to $50,000 from other accounts to make payroll. At a pivotal meeting in March 1999, the same month ground broke on the new shelter, the board was told that Faith House's mortgage payments were in arrears and the old bingo property was for sale.

Eventually, the Prescott shelter and thrift store were closed, and the youth counseling operation shut down.

By summer, the house of cards began to collapse. Faith House took out a one-year, $200,000 loan from Bank One to meet its construction obligations.

Jones warned the board at a July meeting that Faith House was still $90,000 short of what it needed to keep the new shelter project on track.

The board pressed ahead with efforts to open the Surprise bingo parlor. When it opened in September, Faith House had already sold the Phoenix parlor and was $79,000 over budget for the year.

In November, Ryan-Della Corte sent out a confidential letter urging supporters to help raise $108,000 to get Faith House through the end of the year.

The day after the letter went out, the board voted to curtail her duties, and she was directed to quit fund-raising.

Ryan-Della Corte now says some money raised for the new shelter was used to cover operating expenses during a critical period in 1999. She says she protested that it was unethical, but that the board "discounted" her opinion.

Jones acknowledges the use of construction funds to cover operating costs, but says they were "loans" and Ryan-Della Corte signed the checks. The loans were repaid, Jones said.

"It probably wasn't the thing to do, but we had no options -- we were broke," Jones said. "Without those loans, there would be no Faith House, no bingo hall, no shelter to open."

Extra cash needed

The new shelter will not be able to reopen without more funds, Paine said.

It will take extra cash to address safety and construction issues, plus about $90,000 a month to operate. Once the shelter opens, Bank One can claim some of its tax credits and free up money it committed to the project.

Meanwhile, Faith House is exploring a merger with Prehab, another charity that operates domestic violence shelters.

"I think there is a road to recovery here," said Mike Hughes, director of Prehab. "It's not all doom and gloom."

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This Page was updated on 27th January, 2001