Child Welfare CEO Bills Agency for Pricey Extras : Finances: Spending spurs rift in Children’s Home Society. Nonprofit group denies any impropriety.
When the president of California’s oldest nonprofit child welfare agency entertained his employees, he took them to Fleur de Lys, Chez Panisse and other fine restaurants in the San Francisco Bay Area.
When James T. Spradley Jr. traveled from his home in San Francisco to Los Angeles, he often flew first class and had a car at his disposal. He bought meals for his staff at L’Orangerie and other pricey restaurants, sometimes stayed at the Biltmore Hotel and threw a staff Christmas party at the Rangoon Racquet Club in Beverly Hills.
These bills were paid by the Los Angeles-based Children’s Home Society of California, as were purchases of tuxedo shoes, tennis balls, a briefcase and luggage for Spradley. The agency also paid for some of his dry cleaning and toiletries.
One of the most generously compensated executives in his field, Spradley made more than $183,000 last year in salary and fringe benefits as chief executive officer--nearly double what he was paid four years ago.
Over the past several years, he also collected at least $155,000 for meals, entertainment, travel, lodging and other expenses--after approving his own expense reports. And CHS paid for his membership in two athletic clubs.
“He was living like the head of a Fortune 500 company, and he’s the head of a nonprofit agency,” said a former employee who spoke on condition of anonymity.
During this period, CHS--one of the nation’s largest private children’s services organizations--scaled back its staff by more than half, cut spending on programs by $3 million and raised adoption fees.
In the wake of the changes, a controversy over Spradley’s spending practices and management style has created deep divisions within the organization.
Last spring, a group of current and former employees sent an anonymous letter to the board of directors accusing the 47-year-old Spradley of “fiscal improprieties and mistreatment of staff,” including alleged sexual harassment of a female employee. Other employees and board members came to his defense.
Spradley refused requests for an interview. But attorney Richard J. Simmons, who represents CHS, said the allegations are false and that an “exhaustive” audit conducted by an independent accounting firm concluded that neither Spradley nor any of his top aides committed any “improprieties or blameworthy acts.”
“Everything of a negative nature was unfounded,” Simmons said. He declined to confirm or discuss specific allegations or release the confidential report by CHS’ customary auditors, Coopers & Lybrand.
A copy of the June 8 audit was obtained by The Times. Among its findings:
- Spradley and his top three aides spent $303,000 on meals, entertainment, travel and other expenses from July 1, 1988, through March 31, 1992.
- Most of the $80,000 spent on meals and entertainment was for CHS staff--rather than potential donors--and the audit concluded that it was “difficult to determine the necessity or business purpose of these staff meal and entertainment expenses.”
- The agency settled a sexual harassment claim in 1988. Sources said the settlement involved $6,500 in payments to a woman employee who alleged that Spradley had made unwanted sexual advances.
- A CHS employee who had embezzled an unspecified sum from CHS resigned from the agency and repaid only a portion of the money--$6,000--in a financial settlement. Auditors said the relatively “minor” theft and the settlement were not reported to the CHS board.
- Two of Spradley’s chief aides--Amelia Nunez-Wells and Katherine Neworth--received $1,000 bonuses that were not properly reported to the IRS, possibly exposing the agency to unpaid taxes and penalties. Nunez-Wells and Neworth declined comment through the CHS attorney.
Agency Under Fire
Interviews with more than 50 CHS current and former employees and board members depicted an embattled $20-million-a-year agency run by a former social worker with a reputation for efficiency, iron-fisted control and expensive tastes.
Now 101 years old, CHS remains a respected organization that provides adoption, foster care and other services for more than 10,000 children statewide. State and county officials who monitor CHS contracts say they are satisfied with the agency’s performance.
But CHS is split over whether Spradley should continue to head the agency.
Officials said more than 85% of employees have signed letters in support of Spradley, saying the allegations are “an attempt to discredit the executive staff (and) to destroy a fine organization.”
Others have declined to sign, and one group of employees in Oakland wrote an alternative letter, endorsing the agency but omitting any mention of Spradley.
When some CHS volunteers and donors have raised questions about the allegations, they have been denied access to the audit findings. Not even board members were allowed to keep a copy of the audit--and several told The Times they never saw it.
The audit, which recommends tighter spending controls, said Spradley accounted for $155,056 in expenses--almost a third of it for food, liquor and entertainment. On 100 occasions, auditors said, he spent at least $100 on CHS executives and other staff. Expenses of less than $100 were not examined.
The auditors warned that non-business expenditures could violate spending rules of private and public agencies that provide funds to Children’s Home Society.
A copy of Spradley’s CHS credit card report for 1989 and 1990, obtained by The Times, shows that he paid $483 for a meal at the Fleur de Lys and $222 at Etrusca in San Francisco. He also spent $264 at L’Orangerie and $281 at the 7th Street Bistro in Los Angeles, which is now closed. The statement does not indicate the number of diners.
One former CHS employee told The Times she dined alone several times in Los Angeles with Spradley over the last few years and that those agency-paid meals mainly were social functions, with drinking and non-business conversation. “It used to astonish me that we would have expensive lunches on a regular basis,” she said.
A former CHS worker in Northern California said Spradley would take her and other employees to “swank” restaurants at agency expense. “They were usually top-of-the-line, expensive restaurants,” she said.
Like many other former employees, they spoke on condition of anonymity because they work in the child welfare field or fear that speaking out could hurt their careers.
CHS attorney Simmons refused to address the allegations but said that the anonymous critics were out to destroy the agency. “I tell you from the bottom of my heart that these people should burn in hell for telling lies about this agency,” he said.
Travel Expenses
In addition to his meals and entertainment expenses, Spradley spent more than $67,500 on air fares, transportation and hotels over the four-year period, the report said, and the agency’s three other top executives spent more than $113,500. The overnight hotel stays for the four executives ranged from $75 to about $350 each.
Spradley, according to his 1989-1990 credit card summary, paid for lodging at hotels such as the Biltmore and Sheraton Grande in Los Angeles, and the Campton Place Hotel in San Francisco.
He also charged $988 at the Ritz-Carlton in Laguna Niguel, $513 for a staff Christmas party at the Rangoon Racquet Club in Beverly Hills, $233 at a Los Feliz wine shop and $746 at a San Francisco liquor store.
The purposes of the expenditures were not clear. CHS officials refused to discuss them.
Nonprofit organizations across the nation have been particularly sensitive about allegations of wasteful spending since a major United Way scandal. William Aramony resigned in February as national president amid allegations that United Way funds fueled his lavish lifestyle, including overseas trips, limousine service and an expensive condominium.
In the case of United Way, the agency’s board was criticized for not exercising enough oversight of expenditures. A similar issue was raised during the controversy over Spradley.
Spradley Defended
CHS executive board members refused interview requests but said in a statement that they unanimously support Spradley and his staff. “In the face of adversity, we have united in a strong alliance and faithfulness to CHS,” said Chairman John F. Branton and the five members of the executive committee.
“Each of us believes that we have fully and fairly fulfilled our responsibilities as directors to investigate all of the allegations that were made,” said the board, calling the allegations “simply shameless.”
In an earlier statement, the agency said that the audit “has verified the fairness and appropriateness of CHS’ practices.”
The criticisms of Spradley have circulated among other children’s service organizations throughout the state.
“These are serious allegations,” said Tim Fitzharris, executive director of the California Services for Children, a statewide association that includes CHS among its 65 members. But he said the association’s peer review committee decided not to investigate after CHS officials said the allegations were unfounded.
Similar assurances were given to several United Way chapters--which contribute a total of $700,000 annually to CHS--after they received anonymous letters criticizing Spradley and CHS. Some United Way officials plan to meet with CHS officials to discuss the issues.
“Because the allegations are so serious, we treat it seriously,” said Irene Kudarauskas, a vice president with the United Way chapter in San Francisco. “(The letter) is very specific. It questions the organization, not just the executive director, but how the board of directors handled it.”
Officials with national organizations that scrutinize nonprofit groups said board members are ultimately responsible for any inappropriate spending.
Kenneth Albrecht, president of the National Charities Information Bureau in New York, said: “A charity exists to provide services or advocate social change. As long as you carry out that purpose, you are carrying out your mission. I don’t know a lot of charities whose mission is to provide entertainment for their own staff.”
Bob Bothwell, executive director of the National Committee for Responsive Philanthropy in Washington, said: “If (CHS employees) are going out to some of the more exclusive restaurants in the area, that’s ridiculous and that goes over the line.”
Harassment Alleged
Among the most serious allegations is that CHS funds were used to settle an employee’s sexual harassment complaint. Sources said Spradley was accused in 1988 of harassing Valerie Lynn Reilly, who worked for nearly a year as the agency’s assistant director of development.
Reilly declined to comment. Her former supervisor, Patricia Needham, who left the agency last year, said she was aware of the allegations but would not discuss details.
However, The Times has learned that Reilly gave the following account to CHS officials:
Spradley invited her to lunch while she was being considered for a $28,000-a-year job. Later, after she had been offered the post, Spradley took her out for a congratulatory dinner and allegedly made physical and verbal advances, which were rebuffed, sources said.
After Spradley apologized, Reilly accepted another dinner invitation and he allegedly made more overtures. When she angrily left the restaurant, he allegedly followed her home.
Reilly, then 37, alleged that similar acts of harassment continued sporadically. In September, 1988, Reilly announced her intention to resign, telling her supervisor that she felt “too much pressure at CHS,” according to an agency executive’s written account.
Less than two weeks later, Reilly informed CHS officials that she was considering filing a sexual harassment complaint with the state, the executive said.
Within a week, CHS and Reilly had arrived at a settlement that paid her $6,500 in three monthly installments. Under the settlement, CHS admitted no wrongdoing. Reilly agreed not to file any action against the agency and not to publicly discuss the settlement. She then returned to her job and left CHS in 1989 to work at another child welfare agency.
Simmons declined to confirm the settlement. He would not discuss the allegation except to say it was “absolutely ludicrous” and “categorically unfounded.”
It is unclear whether the CHS board approved the settlement.
However, auditors concluded that the board had not been informed of another problem the same year--the embezzlement of CHS funds by an employee.
Although a portion of the money was repaid, the agency still had a “missing funds expense” of about $6,000, the report noted. Auditors recommended that such “sensitive matters” be reported to the board.
Spradley’s predecessor, Richard Pancost, said that in the past it had been the agency’s policy to inform the board of any serious incident such as embezzlement. “The amount (of money) doesn’t matter,” he said.
Pancost declined to comment on Spradley or his spending practices. But he said that he, as head of CHS, sought out the most economical lodging and avoided expensive restaurants.
Spradley was serving as the agency’s Northern California director when he was selected in 1985 to replace Pancost, who left to work as a consultant for the Child Welfare League of America.
Inside the Agency
Even Spradley’s detractors acknowledge that he helped put the agency on firmer financial footing. CHS officials said the agency’s fiscal reserves increased dramatically, but the amount of money spent on programs declined about $3 million from 1989 to 1991. The staff dropped from about 700 employees to 300 in the last five years.
State officials who monitor CHS contracts said they are satisfied with the agency’s programs. “They are clean as a whistle as far as we can tell,” said Mario Muniz of the state Department of Education, which oversees $4.3 million in funding to CHS.
In Los Angeles County, CHS also has adequately performed its $300,000 in service contracts, said officials at the county’s Department of Children’s Services.
In the meantime, Spradley’s spending and managerial style have prompted controversy inside his agency. Some employees have called the allegations against him outrageous. Others agreed with the criticisms in the anonymous letter that he sometimes mistreated subordinates and questioned their loyalty to him.
People who fell into disfavor with Spradley would suddenly find themselves excluded from staff meetings or office mailing lists, said Gail Howard, a development administrator who helps raise money for CHS as a Los Angeles employee. “It’s just a very bizarre environment,” she said.
Jo Ann Burton left the agency in 1987 after nearly eight years as an employee. She said that when she was mailed a copy of the anonymous letter last June, it reminded her of the “environment of fear” she had experienced at CHS.
When she approached the CHS board to offer corroboration, the chairman invited her to address the members. However, she said she never heard from the board.
Instead, she said, the CHS attorney called, demanding that she turn over her copy of the anonymous letter and threatening legal action if she did not comply. She did so.
Perks and Expenses
In their anonymous letter, employees and former employees also complained about Spradley’s perquisites, including his memberships in the Los Angeles Athletic Club and the Oakland Athletic Club.
Although the CHS headquarters are in Los Angeles, Spradley has lived in San Francisco during his seven-year tenure. Until February, he had use of a company car in each city.
CHS also provided Spradley with a $1,200-a-month living allowance for Los Angeles housing until September, 1990, auditors said. Then, sources said, the living allowance was added to Spradley’s base salary for tax reasons.
In addition, Spradley was provided with a gasoline credit card and two bank credit cards.
The audit said the executive had billed CHS since 1989 for $619 worth of personal items--including $136 tuxedo shoes, $158 in men’s sportswear and a $250 ring. The auditors said Spradley “inadvertently included” the items on his personal expense accounts, which he routinely approved.
The audit did not examine other expenditures for Spradley’s personal needs. Records show that his personal secretary made numerous purchases for Spradley and was reimbursed by CHS for everything from 89-cent sticks of lip balm to more than $1,000 in luggage.
The agency also spent $208 to reframe Spradley’s diplomas, $77 for an umbrella and $54 on a wallet for Spradley, said Char Falkenstein, who served as Spradley’s secretary until late 1991. “He instructed me to make those purchases, and I did,” she said, adding that Spradley approved the expenses.
According to Falkenstein and other former staff members, Spradley had employees in Los Angeles take his clothes to the laundry--and records show at least some bills were paid by CHS. Falkenstein also said she often upgraded Spradley’s airline tickets so he could fly first class.
Salary Hikes
Spradley is one of the highest-paid heads of a nonprofit child welfare agency, state records and private surveys show.
His 1991 salary of $167,536 plus $16,040 in fringe benefits is nearly double the $92,317 he was paid in 1988. CHS has declined to comment on Spradley’s current salary.
His total compensation of $183,576 is much higher than the $113,000 paid in salary and benefits to the director of the prominent Hathaway Children’s Services of Los Angeles and the $128,000 paid to the top executive of Guadalupe Homes, a statewide child welfare organization with a $20-million budget.
The annual median salary for chief executives of agencies with budgets of $25 million or more is $120,000, according to Steven Langer, head of an Illinois-based consulting firm that surveys salaries of nonprofit agencies.
CHS’s other top executives received similar pay hikes, according to CHS documents submitted to the state.
The salary and fringe benefits for Amelia Nunez-Wells, an associate chief executive officer, went from $69,028 in 1988 to $94,846 in 1991. As assistant CEO, Jeffery Johnson was paid $49,434 in 1988. In 1991, after his promotion to associate CEO, he made $93,689.
Meanwhile, the agency’s service contracts declined by $3.7 million, in part because CHS lost a major shelter care program with the San Francisco Department of Social Services. In an effort to streamline the agency, officials later cut its program budget by nearly $2 million, closed eight foster homes and sliced staff positions by more than half. During the 1991 fiscal year, CHS spent $17 million--including $13.6 million on programs--and added $2.7 million to its reserves.
Also in 1991, the agency twice asked state officials to approve fee increases in its adoption program because of escalating costs, according to state records. CHS said it needed to charge families more for adoptions so the agency could “come close to a balanced operating budget.”
The state Department of Social Services approved the increases, but the chief of the adoptions branch added in a memorandum: “While we believe that the Children’s Home Society, as well as other adoption agencies, are establishing high fees, we have no fee-setting methodology, criteria or expertise upon which to base any objections.”
When asked about Spradley’s personal financial package, his supporters said he was well compensated because he had steered the agency through some rough economic times and that his salary was reviewed and approved by the board of directors.
But CHS sources said some board members had little or no idea how much Spradley was making. One individual, who was at a board meeting when a salary increase was approved, said the executive committee approved the financial arrangement and asked board members to ratify it.
“When a board member asked for the exact figures, she was told . . .that the information was privileged and confidential,” said the source. The board approved the salary increase.
CHS officials refused a Times request for copies of board minutes and would not discuss the salaries of Spradley and other executives.
Spending Practices Under Fire
The Children’s Home Society of California, one of the oldest and largest nonprofit child welfare agencies in the nation, provides services for 10,000 children. Over the past several years, the amount of money spent on programs has declined, but executives’ salaries have risen and their spending practices have come under scrutiny. In response to an anonymous letter from current and former employees, the CHS board commissioned an audit, which questioned a number of expenditures and recommended tighter controls.
*
James T. Spradley’s expense accounts over four years totaled $155,056. Here is a breakdown:
1989 1990 1991 1992 Travel and lodging $16,169 $16,316 $21,972 $13,070 Meals and entertainment $11,160 $16,958 $15,231 $5,343 Living allowance $13,200 $14,638 **$1,234 **0 Other*** $2,238 $1,878 $4,867 $781 Annual total $42,767 $49,790 $43,304 $19,195
* Through March 31, 1992
* After 1990, Spradley’s $1,200 monthly living allowance was included in his salary, sources said.
** Includes flowers, gifts, supplies.
*
Here is a portion of the credit card statement for a CHS account used by Spradley for expenses. The statement shows some of the purchases by Spradley for 1989, including a series of meals at restaurants, hotels and resorts from the San Francisco Bay Area to San Diego.
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Here are the salary and benefits paid to the three top CHS executives as of June 30, 1988, and June 30, 1991.
1988 1991 James T. Spradley $92,317 $183,576 President, CEO Amelia Nunez-Wells $69,028 $94,846 Associate CEO Jeffrey Johnson $49,434 $93,689 Assistant CEO
Sources: Internal Revenue Service, California Registry of Charitable Trusts
*
These are budget figures for the society, and the amount of that total spend on program services over four fiscal years.
1988 1989 1990 1991 Total Budget $19,553,700 $20,963,700 $17,157,100 $16,564,900 Program Services $15,017,500 $16,649,600 $13,537,900 $13,304,700
