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
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
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
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.
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
The charity continued expanding and spending money despite signs of
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
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
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
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
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
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
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
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
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
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
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
"Several people questioned it, but they didn't stand in front of the
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
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
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 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
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
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
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