foundation nearly $175,000 to settle state investigation sp.
THE FREEDOM FORUM'S trustees and its chairman, Allen H. Neuharth, will make restitution of nearly $175,000 to the foundation to settle a financial investigation by the New York state attorney general's office.
The 14 trustees will reimburse the foundation $140,000 for what the attorney general's office called "an absence of adequate cost controls," including "the selection of unnecessarily expensive custom furniture for its executive offices," during the construction and furnishing of the $15-million Arlington, Va.- based Freedom Forum World Center.
Among the items deemed "unnecessarily expensive" were a $40,000 desk for Neuharth and an $80,000 boardroom table.
Even though seven of the current trustees were not members when the expenditures in question were approved, they volunteered to share equally in the restitution as a show of support, and each will pay $10,000.
In making the settlement, the Freedom Forum made no admission of wrongdoing.
"The settlement involves nothing illegal or unethical but simply deals with matters of judgment on expenditures," said Freedom Forum president and CEO Charles L. Overby.
According to Assistant Attorney General Sean Delany of the charities bureau, New York state law has no clear, explicit standards for what constitutes excessive spending, but it does call for prudence, for behaving as others in like circumstances would, and for not using assets for one's own benefit but for the benefit of those whom the foundation is designed to help.
Penalties for the most egregious violations can include restitution and removal of trustees, Delany explained.
Neuharth's individual payment includes an additional $30,000 for expenditures in connection with the purchase and promotion of his autobiography, Confessions of an S.O.B., published in 1989.
The attorney general's office figured that the foundation lost some $20,000 when it purchased, at retail cost, 2,000 copies of Neuharth's book.
Delany explained that figure comes from the $40,000 the foundation spent for the books, which could have been purchased from the publisher for a bulk discount, which is typically 50%.
"There's nothing wrong with buying the book," Delany said. "What's wrong is the way they went about it . . . . They paid twice what they had to for these books."
The foundation admitted in 1990 that it spent about $40,000 to purchase the books, saying they were to be donated to libraries and journalism schools.
Instead of being purchased in bulk from the publisher, however, books were bought at retail by Gannett editors around the nation, some of whom purchased as many as 100 copies. They then sent the books to the Freedom Forum, which reimbursed them.
The move was seen by some as an attempt to improve the book's standing on the bestseller list, since only books purchased at retail are tallied in the bestseller sales count.
Neuharth denied that this was his intention, saying at the time, "I wish I knew how to control the New York Times bestseller list, because if I did, my book would still be on it."
According to published reports, the book stayed on the New York Times and Publishers Weekly hardcover lists for several weeks, reaching a high of number five in placement.
The attorney general's office also determined that $10,000 in foundation assets and personnel were used improperly, "to arrange book promotional events," including book signings by Neuharth "during a trip to examine the results of the foundation's grant-making."
Neuharth also will pay $3,957.50 to the foundation for a massage table and treadmill purchased for his office.
"Buying exercise equipment for my new office at foundation expense was a dumb thing to do," Neuharth said, in a statement from the foundation. "That $3,957.50 simply fell through the cracks in our fast-paced, multimillion-dollar building program. It's a mistake I've happily rectified."
Neuharth called the restitution demands on him and the other trustees "utter nonsense," and said the payments were made, "simply to avoid a long and costly court case to prove that point."
Neuharth added, "Darts and arrows like this go with the territory for any action-oriented organization. I'm proud that all of my associates let such criticism bounce off their chests and concentrate instead on our progressive policies and programs."
The primary reasons for negotiating a settlement were offered by Overby in the foundation's statement:
? The Freedom Forum already has spent nearly $500,000 in legal fees, with predictions that a court fight would cost millions and last for years.
? The foundation has been prevented from moving its legal charter from New York State to Virginia, which is now possible as a result of the agreement and has been approved by the trustees.
In 1989, the Freedom Forum, then called the Gannett Foundation, moved from Rochester, N.Y., to its current location in Arlington, Va., across the street from Gannett Co. and USA Today.
? Under terms of the agreement, the foundation can continue to enhance its financial position, which has grown by $85 million in the past four years through investment and management policies (the Freedom Forum does not accept contributions).
The Freedom Forum was known as the Gannett Foundation until it changed its name in 1991. That same year, it sold back to Gannett Co. Inc. $670 million in stock holdings in the media company and the name "Gannett Foundation."
The Gannett Foundation was established in 1935 by Frank E. Gannett with an endowment of $100,000 in Gannett Co. stock.
Freedom Forum assets are now estimated at more than $725 million.
The investigation by the New York state attorney general's charities bureau began in 1991, after attorneys there read press reports critical of the construction and lavish decoration of the Freedom Forum World Center and learned that foundation funds and personnel had been used to purchase Neuharth's book.
Delany noted that the attorney general's office earlier had been involved with the foundation when it sold the Gannett stock.
That transaction had to be approved by the charities bureau, which reviews all cases of New York foundations' sale of all or most of their holdings.
"We were dismayed to see how it was spent," he added.
Included in the settlement are strict financial policy guidelines, approved by the foundation board, which call for an emphasis on cost-consciousness.
The guidelines include a ban on first-class and chartered air travel, except in certain limited cases, and a directive to fly by the most economical rates available; no provision for travel reimbursements for spouses or other close family members unless these persons directly participate in foundation business during the trip; utilization of corporate rates for hotels and a prohibition against paying for luxury rates and suites, unless a suite is used for foundation meetings; limits and procedures for meal reimbursements; and a prohibition against the use of limousines, except in limited cases.
In addition, cost must be a primary consideration when scheduling board and committee meetings, which should not be planned at resort locations during peak periods or during major sports or other special events.
In 1993, a Washington Post report on Freedom Forum spending noted that foundation meetings were held in Puerto Vallarta, Mexico; Los Angeles, during Super Bowl week there; and New Orleans, during the NCAA basketball finals in that city.
The Mexico trip was explained as a fact-finding mission to study the Mexican media. Part of the L.A. trip was to give a $75,000 grant to establish a Freedom Forum Sports Journalism Institute. And, during the New Orleans trip, scholarships were presented to college journalists.
Overby was quoted by the Post at the time as saying, "Every single meeting has a purpose that is related to our priorities."
Also included in the settlement: The foundation must consider whether it is feasible to send a staff member or delegation rather than the entire board to a location and, conversely, whether a panel or individual can be invited to the foundation's headquarters; and agendas or itineraries should be formatted to minimize gaps in the work schedule, to further cut back expenses.
Other clauses require all outside contracts to be put in writing and to include estimated fees and completion time ? and require competitive bids for all contracts over $50,000 ? and compel trustees to disclose any relationship between themselves and a business or professional contracted to work with the foundation.
According to the attorney general's office, the latter change "was adopted after the investigation revealed that some trustees were unaware of a personal relationship between Neuharth and a design consultant who received substantial sums for work on the headquarters, pursuant to an open-ended agreement with the foundation."
That consultant, Barbara Whitney, also designed Neuharth's opulent corporate offices across the street at Gannett Co. Inc. headquarters. She and Neuharth dated prior to his marriage in 1993 to Rachel Fornes.
The investigation covered the years 1990 through 1992, which Delany said gave the attorney general's office "a good idea about their procedures. We did not see any point in going forward."
He added, however, that all of the practices detailed in the agreement were continued until about six months ago, when settlement negotiations began.
The foundation's major operating programs ? the Freedom Forum Media Studies Center at Columbia University; the Freedom Forum First Amendment Center at Vanderbilt University; and the Newseum, slated to open in 1997 in Arlington ? were not subjects of the investigation.
By: Debra Gersh Hernandez Trustees and chairman Allen Neuharth to reimburse the