Officials of United Way Cleared in Investigation of Loans

The second of two investigations into the financial dealings of the beleaguered Los Angeles-area United Way concludes that the charity’s top officials and volunteers should not be held liable for lending donated money to agency executives and for other unusual financial transactions, a source familiar with the probe said Friday.

A 138-page report detailing the results of the three-month investigation by the Los Angeles County counsel’s office is due to be released Monday. But advance copies of the report--the most detailed yet on the charity’s financial affairs--were delivered to United Way officials and members of the county Board of Supervisors late Friday.

Although the report clears United Way officials of any legal wrongdoing, sources said it criticizes some United Way practices, including expense-reporting procedures by United Way President Francis X. McNamara and the use of almost $260,000 to bail out the charity’s now-defunct credit union.

But, the report concludes, “we do not believe even those matters we found to be impermissible will likely occur in the future.”

Controversial Loans

Perhaps the most important finding was that a series of controversial loans made to five agency executives from 1980 to 1985 were, for the most part, “lawful and sufficiently in furtherance of the United Way of Los Angeles’ charitable purposes.” Investigators concluded that only $28,500 of the almost $330,000 loaned was “impermissible.”

The disclosure of the loans last summer led to the two investigations. In the first probe, an independent citizens’ panel concluded last month that top officials of the charity used flawed judgment in authorizing the loans but did not act fraudulently or dishonestly.

United Way officials were reluctant Friday to comment on the latest investigation because they wished to honor Monday’s official release date.

“I’ve accepted an obligation to embargo talking about the contents of the report,” United Way board President William Kieschnick said by phone from Vermont. He added, however, that the United Way already has modified many of the practices questioned by the county counsel’s office during its inquiry and has implemented many of the recommendations made by the citizens’ committee.

While much of the county counsel’s report focuses on the loans, it also addresses the issue of United Way salaries, benefits and other perks and the controversial credit union bail-out.

The United Way contributed almost $260,000 to save the in-house savings institution before it was dissolved in 1981.

Money Diverted

Although United Way officials made the credit union payments on the advice of legal counsel, much of the money was diverted without proper authorization of the United Way’s volunteer board of directors and was “in violation of the (charity’s) charitable purposes,” investigators said.

But while “the facts do not warrant a finding of liability against any individual . . . ,” investigators added, “Our conclusions as to those matters we found permissible does not necessarily mean we find them appropriate.”

On the issue of salaries and benefits, the report singles out United Way President McNamara for submitting expense vouchers in 1984-85 that were “more sizable, subject to fewer controls and less well-documented” than other employees.

In all, McNamara submitted expense reports for more than $65,600, including $11,250 for membership fees and entertainment expenses at the all-male California Club, $7,400 for membership and other expenses at Pasadena’s Annendale Golf Club and American Express charges totaling more than $36,000. The American Express charges covered McNamara and other United Way employees.

Vouchers for an additional $6,900 in miscellaneous expenses also were submitted, the bulk not accompanied by any receipts.

Moreover, McNamara, who receives an annual salary of $190,000, submitted his expenses without seeking the authorization of board members, investigators found. Only months after some of the vouchers were submitted did then-United Way board President Roy Anderson sign off on the claims.

Practice Modified

Kieschnick said that practice now has been modified and that McNamara submits his expense forms each month for approval.

In addition, he said, the charity no longer pays the California Club membership.

On the issue of the loans, the county counsel’s conclusions were “comforting,” Kieschnick added.

The $320,000 in loans, which were given to executives to cover relocation expenses, real estate loans and extraordinary medical expenses, were authorized by McNamara with backing, in some instances, from high-ranking volunteers and the members of a key United Way committee.

The bulk of the money lent--some of which was interest-free and unsecured--was never repaid. Because interest on the largest of the loans has continued to accrue, the two loan recipients whose debts are unpaid now owe the charity more than $320,000.

Bulk of Loans

Although county investigators concluded that the bulk of the loans, including those still unpaid, were within legal bounds, they cited the United Way for a series of three loans made to former Executive Vice President Gary Erickson to cover extraordinary medical expenses.

Erickson, who was hired in 1981 at an annual salary of $60,000, left the charity in 1985, earning more than $76,000.

Investigators said Erickson told them he could have obtained the loans elsewhere but went to United Way because it was “simpler to obtain the loan from his employer.”

Although McNamara said he had been given oral approval from then-board Chairman Walter Gerken to loan Erickson the money, investigators said they were unable to confirm that.