Rick Cohen

Bless the Whistleblowers: Part III of the Leavitt Foundation Story

Bless the whistleblowers! Remember when the whistleblowers at Enron, WorldCom, and the FBI were honored as the Time Magazine 2002 Persons of the Year?

Unfortunately, among nonprofits, there is too often an understanding that whistleblowing isn't appropriate behavior, violating the omerta that allows some of the unfortunate charity scandals to fester out of control. Despite the propensity of some nonprofit trade associations to sound like shills for the U.S. Chamber of Commerce in their apocaplytic denunciations of Sarbanes-Oxley, one of the only two provisions of the Sarbanes-Oxley law that expressly apply to nonprofits is the law's whistleblower protection language.

Let's hope it protects a brave woman who in an act of civil disobedience blew the whistle on HHS Secretary Mike Leavitt's use of a Type III Supporting Organization as his preferred vehicle for charity and philanthropy. In previous posts to the DMI Blog on Leavitt's foundation and later the Leavitts' defense of their foundation, we discussed the issues involved with the Leavitt family's apparently legal but less than savory use of a Type III Supporting Organization, with activities that included spending very little for charity and philanthropy, devoting their grantmaking to charities associated with the Leavitt family for the most part, and tapping the foundation for loans for Leavitt family business interests.

On NPR's All Things Considered, in a story which we contributed to significantly, an NPR reporter found the answer to something that we had also found but couldn't explain. When the Leavitt Foundation gave grants to the Southern Utah Foundation, the Southern Utah Foundation's Form 990s listed grants that institution gave to the Leavitt Foundation, a practice called "round-tripping". Why would an organization supported by a Type III Supporting Organization, in this case the Dixie and Anne Leavitt Foundation, give some of the money back?

The answer was found in the civil disobedience of the Southern Utah Foundation's treasurer, one Rhea Tuft. The Southern Utah Foundation was repeatedly hit with Leavitt requests that it use its Leavitt grants for things that would have directly benefitted Leavitt family members, such as paying for some Leavitts (there are a lot of them--the HHS Secretary has 5 brothers) to go to Latin America to work on a water project, a request that the Southern Utah Foundation turned down.

One item the Southern Utah Foundation didn't turn down was the use of $578,500 of Leavitt Foundation contributions for a housing scholarship program at Southern Utah University in Cedar City, Utah, to pay for the housing costs of needy students. The money went entirely to pay for housing owned by Leavitt Land and Investment. In other words, the Leavitts' real estate firm was the beneficiary of the entire $578,500 charitable grant.

This obviously ticked off Ms. Tuft. Rather than listing the $578,500 as a grant to the university for the housing scholarship program, Ms. Tuft in her capacity as the Southern Utah Foundation treasurer listed the grant as going back to the Leavitt Foundation because the money, in the end, DID go back to the Leavitts, that is, their business bank account. Ms. Tuft's explanation simply confirmed everything we've said about the Leavitt family's Type III Supporting Organization: "I don't think it was illegal. I just don't think it was right."

That is the problem right there, Ms. Tuft. So far, what the Leavitts have done with their foundation may very well be legal, but it's lousy. That's why the Internal Revenue Service has included Type III Supporting Organizations on its list of the Dirty Dozen tax scams in both 2005 and 2006. That's why the Senate Finance Committee originally wanted to get rid of Type IIIs. That's why a federal cabinet officer shouldn't have chosen a Type III Supporting Organization as his family's preferred charitable vehicle.

Ms. Tuft, if they go after you, you'll have a bunch of us standing up to defend your courage in calling out the Leavitt's charitable and business round-tripping.

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Posted at 3:44 PM, Jul 29, 2006 in Government Accountability
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