Sloppy Bookkeeping: More Ways the Trump Foundation Ran Afoul of Nonprofit Law

photo: Stock-Asso/shutterstock

photo: Stock-Asso/shutterstock

Editor's Note: This article is a third in a series looking at the lawsuit against the Trump Foundation, brought by the New York State Attorney General. See the previous posts here and here

According to the "Factual Background" section of the lawsuit against the Trump Foundation, Donald Trump was the sole signatory on the foundation’s bank accounts and he approved all grants and other disbursements from the foundation. The accounting staff at the Trump Corporation, the back office service center for many of the Trump companies, merely prepared the checks based on Trump’s approval and submitted them to him for his signature.

The suit charged that the board of the foundation permitted the staff of the Trump Corporation to administer the foundation’s charitable assets without supervision or training and to issue checks (for Mr. Trump’s signature) without confirming that the board approved the disbursement. This is seen as a failure to institute sufficient procedures and controls to ensure that the foundation was making appropriate expenditures.

The AG’s investigation found that the foundation failed to adopt a conflict of interest policy even though such a policy is required by section 715-A of the New York Not-for-Profit Corporation Law. As mentioned in an earlier blog, private foundations are subject to all of the state laws applicable to all not-for-profit charitable organizations.

These conditions coupled with the fact that the Trump Corporation was also handling the accounting function for numerous other Trump-related businesses resulted in some incorrect payments on the part of the foundation. Because there was no formal disbursement approval process with an indication of what the disbursement was for, it was up to the Trump Corporation accounting staff to determine whether a disbursement was to be made from the foundation or another Trump legal entity. This was entirely inappropriate.

One such error was a 2013 contribution to a committee supporting the re-election of Pam Bondi for Florida Attorney General. A $25,000 check was cut from the Trump Foundation to an organization named And Justice for All. The accounting staff at the Trump Corporation wrote the check from the foundation because And Justice for All appeared to be a charitable organization—the kind of organization usually supported by the Trump Foundation. Mr. Trump signed the check, failing to notice it was drawn from the wrong account. This expenditure should not have been made from the foundation.

Trump reimbursed the foundation and paid a fine. This transaction does, however, support the AG’s claim that the Foundation lacked basic disbursement controls. Although Trump claimed this was an understandable error given the large volume of transactions handled by Trump Corporation, the very purpose of policies, procedures and basic controls is to enable large volumes of transactions to be processed properly. Those with foundations should take appropriate steps to assure that your private foundation is not a victim of sloppy bookkeeping.

Another charge in the lawsuit is that the Trump Foundation did not have an investment policy as required by section 552(f) of the New York Not-for-Profit Corporation Law. Yet another failure to comply with the law applicable to all charitable organizations in New York. Investment management was left to the staff at the Trump Corporation and they merely kept the foundation assets in a money market account earning negligible interest.

As with all decisions affecting the business of private foundations, documentation of the decision-making process is essential. Failure to document results in a failure to effectively assert that a process was followed. Defending against a charge that decisions are arbitrary and self-serving is extremely difficult in such a situation.