United Way Hails County Counsel Report : Cleared of Liability, Agency Declares Its Integrity Is Sustained

Top United Way officials said Monday their “integrity has been sustained” by a Los Angeles County counsel’s investigation that clears the charity of any liability in a series of controversial financial dealings that included lending donated money to agency executives.

“Nobody said there weren’t some problems in administration,” United Way volunteer board chairman William Kieschnick said. “The good news is they weren’t ethical and moral problems.”

Although the investigative report absolves officials of any legal wrongdoing, it criticizes some management practices, including procedures used in connection with authorizing and monitoring the loans, the use of almost $260,000 in donated funds to bail out the charity’s now defunct credit union and lax expense reporting methods used by the agency’s president, Francis X. McNamara.

Kieschnick said many of the practices questioned by the county counsel’s investigators already have been modified and plans are being completed to have a consortium of “15 long-term committed supporters . . . wipe those residuals (of unpaid employee loans) off the books.”

“Those things won’t continue to be an issue to preoccupy anyone,” he added.

While the investigators found that the series of loans made to five agency executives from 1980 to 1985 were, for the most part, “lawful,” they concluded that $28,500 of the almost $330,000 lent was “impermissible.”

Insufficient Authorization

Moreover, they said, authorization to lend much of the money was insufficient and few steps were taken to ensure that pay-back schedules were followed.

The disclosure of the loans last summer led to the county counsel’s investigation as well as a probe concluded last month by an independent citizens panel. That group found that top officials of the charity used poor judgment in authorizing the loans but did not act dishonestly. The panel suggested a series of reforms that ranged from diluting the power of the president to stiffening rules governing personnel matters and accounting practices.

Drawing heavily on the conclusions reached by the citizens committee and seconding its recommendations, the county probe concluded that some United Way transactions may have been improper but that officials acted in “good faith.”

State law recognizes that people who sit on charity boards “are picked for lots of reasons, most of them which don’t relate to managerial ability,” said Frederick R. Bennett, principal deputy county counsel who headed the four-month investigation.

“Because of that, very broad defenses are given . . .” Bennett explained. Among other things, he added, such key charity officials “are entitled to a defense of good faith.”

Although investigators found that the use of almost $260,000 to save the United Way’s credit union was in “violation” of charitable purposes, they said officials authorizing the transaction acted in “reasonable reliance upon advice of counsel and others.” The report recommends against seeking recovery of the money.

“You’ve got to keep in mind that we didn’t find anybody who received anything of personal gain or acted in anything other than good faith,” Bennett said. “Given those facts, it would have required fairly compelling evidence to have warranted a filing of a lawsuit for recovery.”

Welcome News

The county counsel’s report is welcome news at a time when the United Way is struggling to overcome the controversy over its finances enough to mount an effective fund-raising drive. Despite being two months behind schedule and short of momentum, United Way officials will attempt to raise a record $90 million this year.

“We’re getting off to a late start,” Kieschnick acknowledged. “It’s just human nature for people to move more slowly until they get all the news. Our challenge now is to play catch-up. . . . The mood is ‘Let’s get back to the campaign now.’ ”