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DNC Host Committee promised to give away leftover funds to charity

When  the host committee for the 2016 Democratic National Convention filed its articles of incorporation claiming nonprofit status, it declared that it would give any leftover funds to charity.

That declaration seems to run counter to what the committee, headed by former Gov. Ed Rendell, ultimately did with almost $1 million of a $4 million surplus. The money, with Rendell's approval, went to staff bonuses.

"That sounds problematic," said Robert Field, a professor at Drexel University's Kline School of Law with expertise in the nonprofit sector. "Generally to get federal tax exemption, you have to provide in bylaws and articles of incorporation … that any leftover funds will go to another charity."

Rendell, who served as chairman of the host committee, said the committee did just that -- gave $1.2 million to local charities and nonprofits. The bonuses, he said, were deferred compensation.

"We aren't legally dissolved yet. … There will be no money left over when we dissolve," he said.

Rendell said that when he hired the host committee staff, he wished he could pay them more and promised that if there was any money left over, it would go "toward your compensation."

On Nov. 25, 2016, four months after the convention, all 12 employees received bonus checks that ranged from $13,357 for the office manager, who was paid a $3,000 monthly salary, to $310,000 for the committee's executive director, Kevin Washo, who was paid a $13,000 monthly salary. Some, including Washo, continued to be paid months after receiving the bonuses and months after starting other full-time jobs.

After the Inquirer and Daily News reported the bonuses, Gov. Wolf and Republican legislators questioned why the leftover money was not given to the state, which gave the host committee a $10 million grant for the convention. The auditor general, in response, is conducting an audit of the grant.

Washo, who also served as the committee's treasurer, previously said that the decision to hand out bonuses was made by himself, Rendell, and chief operating officer Eliza Rose.

Field said that if the bonuses were part of a compensation package, as Rendell stated,  there should be a written record, or at least some documentation showing the board of directors approved such bonuses.

On Friday, the host committee's general counsel, Joe Sandler, said Washo's $310,000 bonus and chief financial officer Jason O'Malley's $220,000 bonus were approved solely by Rendell.

The other bonuses given to 10 staffers and 29 volunteers did not go before the host committee board, Sandler said. "Compensation was a staff decision," he said.

Patricia Mogan, standards for excellence director at the Pennsylvania Association of Nonprofit Organizations, said that as a best practice, compensation packages should go before a nonprofit's board, although there is no legal requirement.

"Nonprofits are tax-exempt, and that involves public trust," Mogan said.

Sandler said the host committee board consisted of Rendell as chairman, Washo, and Rose, who were also paid employees, and three mayoral appointees. Sandler said he could not remember the names of those appointees. Host committee spokeswoman Anna Adams-Sarthou declined to name them or provide the committee's bylaws.

For a bonus to "be legally justified, it should be part of a set compensation program," Field said, and not a distribution of surplus funds.

He said that should the host committee be audited by the IRS, the government would want to see "something more substantial" than Rendell's recounting that he promised bonuses.

"If there were an explicit understanding -- we will supplement your salary and here is how we will do that, and board approved that, and the protocol that was approved was followed -- then, seems like it would be legal," Field said. "But when it's all verbal, how do you know?"

Marcus Owens,  a Washington tax lawyer who ran the IRS tax-exempt organizations division for a decade, agreed that if there was nothing in writing about bonuses and the committee awarded them simply because there were leftover funds, it could raise a red flag.

"If you take everything in the cookie jar and divide it, it starts looking suspicious," Owens said. "If there was nothing in writing, there's cause for concern."

Owens said the IRS could try to "claw back" the tax exemption the committee received if it deemed that the bonuses were an improper distribution of assets.

The state, which also gave tax breaks to the organization based on its nonprofit status, could do the same thing, Field said.

"The attorney general might be able to sue to recover the money or direct it to a charity or … return it to the state," he said. "They are getting the benefit of a tax break. ... Assets should go to the public good, not private benefit."