Posted By Norman Gasbarro on March 18, 2016
In the post of 14 March 2016, the By-Laws of the Gratz Historical Society were discussed in relation to Annual Meetings to show how Lois Schoffstall and Charles Schoffstall took control of the Gratz Historical Society by: (1) not holding legally required Annual Meetings; (2) by carefully selecting Officers and Board members and then presenting those names as a fait accompli; and (3) by presenting themselves as the unchallenged “Museum Curator” and Treasurer of the Society.
In today’s post, the financial requirements of the By-Laws will be discussed in relation to how Charles Schoffstall has performed as the self-appointed Treasurer of the Society. In particular, one of the two Society funds, the Endowment Fund, will be looked at in detail. Evidence is presented in this post that more than $30,000 is missing from that account while Charles Schoffstall continues to insist that none of the endowment money has been used. The statement made previously on this blog, that annual financial reports were falsified, is supported by the 19 official year-end reports that were analyzed.
In the analysis given in this blog post, “Red Flags” that should have been noticed in each year’s Financial Reports, are identified. If the Society treasury had been properly monitored and annual audits conducted by a qualified individual, these and other problems would have been detected and corrected. The most obvious problem is that there is a cumulative loss to the Endowment Fund over the years mainly due to using Endowment Fund revenue for Operating Fund expenses. There are many other problems. Some of these problems are noted in a “Red Flag” section which follows an analysis of each year’s Report.
It is not the purpose of this post to judge whether Charles Schoffstall intentionally “cooked the books” or whether he is incompetent. But several things are very clear:
(1) he is not legally serving as Treasurer – he was not elected by the membership at an Annual Meeting; but, acting as treasurer he keeps the Society books, collects and disburses money on behalf of the Society, does the Society banking, and provides regular reports including the Annual Financial Statement of the corporation;
(2) every time he has been challenged on anything related to the treasury, both he and Lois Schoffstall double-down on the challenger; in 2013, “complainers” were removed as volunteers when they questioned the Society finances;
(3) most receipt transactions are in cash and some receipts are in unrecorded accounts that are not itemized in the Financial Statements; examples of these unrecorded accounts include fund raisers where only the profit is reported;
(4) thousands of dollars in transactions do not appear on the annual statements – some of those transactions are noted in the analysis, but not all of them;
(5) tens of thousands of dollars in sales were made without collecting required Pennsylvania Sales Tax; Charles Schoffstall has refused to collect and submit the tax, erroneously claiming the Society is tax exempt. No statement has been seen from the Pennsylvania Department of Revenue indicating that the Society is not required to collect this tax on eligible transactions, such as sales of books by the Society; he has also insisted that the Society does not need a license to conduct raffles (games of chance);
(6) he has stated that the Society has 501(c)3 status, when it does not; no required annual tax returns have been submitted to the I.R.S.; when asked to show the I.R.S. “Letter of Determination,” he has not complied;
(7) there is no record that the books have been audited until recently when two very superficial audits were conducted by the Gratz Bank;
(8) he has repeatedly stated that none of the Endowment Funds have ever been used, but the record shows otherwise; in nearly every year not all the required revenue for the Fund has been deposited to the Fund and in several cases large amounts of money have disappeared with no reasonable explanation (specifically in 2004 and 2014).
(9) in the 19 years he has acted as treasurer, he has consistently co-mingled funds which should have been dedicated to the Endowment Fund with funds that were used for the Operating Fund; as a result, he has hidden the fact that the Society has been operating at a deficit.
(10) there are so many irregularities in the annual financial statements that it would take a forensic audit to detect all of them and determine whether criminal charges could be brought against anyone involved, and whether it is possible for the Society to recover any missing money.
All of the Annual Financial Reports of the Gratz Historical Society from 1997 through 2015 have now been upload to this blog site. Click here. These reports were obtained from the January quarterly newsletters, Die Tseiding, of the Society which were readily available to all members, and because they were required to be submitted to the state each year, they are public information. Note: by clicking on the “Year” title of each of the sections below, the appropriate year’s Financial Report will open in a new window.
From those newsletters, it appears that with the exception of 1997 through 1998, Charles Schoffstall was the only person identified as Treasurer of the Society. He shared those duties with another member in 1998. That member is now deceased.
It is worth mentioning some of the history of the Society before analyzing the Financial Reports.
In 1997, the Gratz Historical Society published A Comprehensive History of the Town of Gratz Pennsylvania, a.k.a., the Gratz Book. This book was the major project of the Society up to the time of its publication. More than 50 members, non-members, and family associations contributed pictures, genealogies, stories, and graphics to this more-than-900 page volume. The book was “hand set” for the printer on a word processor by Society members – to save printing costs. The book was also “hand indexed” (the old fashioned way) by a committee of many members, and according to Becci Stine Hoover, completed pages, prior to publication, had to be proof-read by at least three people who knew the families and/or history being presented. The sales price was set at $75 per book. With paid advertising, pre-paid sales of at least 300 copies (“cash in hand”), the book went to press. While it has never been officially confirmed, the print and binding order was said to be at least double the number of pre-paid copies. Thus, the remaining unsold books, estimated at 300 copies, could be sold at “pure profit.” If all of these 300 copies could be sold at the original price of $75 each, these remainders would provide a “cash cow profit” ($22,500) for the Society for the years ahead.
Several persons at the Society, including Dr. John Romberger and Ned Weaver (both now deceased), proposed that a “Perpetual Maintenance Fund” for the Society be established with the profit from the book sales. In the 1997 Financial Report (published in January 1998), the profits were separated from the regular expenses of the Society in a line item called “Profit from Book Sales.” The stated total in this line item, which also was tagged as “Perpetual Maintenance.” was $10,114.57, which was deposited in two accounts -a “Book Savings Account” and a “2-year CD.”
In January 1999, one year after the establishment of the “Perpetual Maintenance Fund,” an amendment was approved to the Society By-Laws establishing the Preservation Endowment Fund (Article XVII). Specific requirements for this fund were:
All proceeds from the sales of the Gratz Book were required to be placed in this fund. (Paragraph 2). Hereafter, in this post, this will be referred to as Source 1 revenue for the Endowment Fund.
Donations specifically made to the Endowment Fund (in memory of, etc.), were also required to be placed in this Fund. (Paragraph 3). Hereafter, in this post, this will be referred to as Source 2 revenue for the Endowment Fund.
Donations specifically made for Preservation were required to be placed in this Fund. (Paragraph 2). Hereafter, in this post, this will be referred to as Source 3 revenue for the Endowment Fund.
“Additional monies” received also are supposed to be deposited to this Fund, but “additional monies” was not defined in the By-Laws. (Paragraph 3). Hereafter, in this post, this will be referred to as Source 4 revenue for the Endowment Fund. Over the years, sometimes this “additional money” was placed into the Endowment Fund. It is not known if “Life Memberships” were required to be deposited as “additional monies,” but it in some of the early years, these funds were deposited into the Endowment Fund; in later years they were not.
The principal of this Endowment Fund must always remain intact – unless the Society is dissolved. Any money deposited into the Endowment Fund is considered principal and therefore must remain in the fund.
The accumulating interest from this Endowment Fund could be used – but only for the specific purposes of upkeep, maintenance and preservation. (Paragraph 4). Hereafter in this post, this interest will be referred to as Source 5.
If there are withdrawals of accumulated interest, two very specific conditions must be met:
An elected Board of Directors must convene to approve the withdrawal.
Three signatures must be used to acquire the funds.
The Endowment Fund had to remain separate from other Society funds. (Paragraph 2).
The Endowment Fund had to be secure (non-risk). (Paragraph 2). Certificates of Deposit (CD’s) were suggested as a way to keep the funds secure.
On the 1998 Financial Report, there is a line item in the “Revenue and Support” part of the Report, “Endowment Fund Income,” which is given as $13, 118.19. There is no indication from which source(s) the income was obtained in 1998. Referencing the 1997 total of $10,114.57 in the “Perpetual Maintenance Fund,” the total assets in the Endowment Fund were reported as $23,232.76. This can be considered the “start” amount for the Endowment Fund, but because the source(s) of the revenue in 1998 were not given, there is no way to tell from the 1998 Report, how much of the total assets of the Fund was “accumulated interest income.”
Since the “Preservation Endowment Fund” was established in early 1999, and since there was no indication as to how much of the “start asset” of the Fund was “accumulated interest,” a reasonable person could conclude that the start amount of $23,232.76 was principal in its entirety. This base principal, according to the terms of the By-Laws, can never be used, unless the Society is dissolved.
From 1999 forward, the income to the Fund should have been categorized by source, using the specific or similar categories to those in the By-Laws (stated above as Sources 1-5). In particular, the failure to report the amount of “accumulated interest” as a specific line item in every year’s financial report since 1999, has made it extremely difficult for members to determine how much of the total amount of the Fund is principal (which can never be used) and how much is interest (which can be withdrawn and used, but only under specific conditions).
There is also a problem with “inventory control.” Since the Gratz Book profits (Source 1) must be placed into the Endowment Fund, the exact number of available books should have been stated at the outset in 1999 (as an asset) and adjusted accordingly as sales proceeded through the years. It is not known if this was done internally, but not reported to membership. Charles Schoffstall was repeatedly asked the question by members as to how many of these books remained in stock, and he consistently evaded the question.
RED FLAG: This “inventory control” problem should have been the first “red flag” to anyone charged with auditing the Society books.
In the Financial Reports of 1999 through 2007, the “Year End Summaries” properly report the Endowment Fund as separate from the normal Operating Fund of the Society. From 1999 through 2006, for each of these two funds, the location of the funds was separately reported – as checking account, savings account, CDs, etc. The intermediary fund for depositing Endowment Funds until 2006 was an Endowment Fund Savings Account. Thus, until a sufficient amount of money could accumulate in order to invest in a CD, a bank account (or ledger account) was available to keep newly acquired principal from Sources 1 through 4, within the Endowment Fund. That changed in 2008, when Charles Schoffstall discontinued the separate Endowment Fund Savings Account, and reported the Endowment Fund only as CD’s.
RED FLAG: This should have been the second red flag to any auditors examining the Society books. The Endowment never should have been co-mingled with regular Society funds (Operating Fund).
Also, within the Financial Reports from 1999 through 2007, there is an inconsistent reporting of the source of the Endowment Fund income.
In the 1999 Report, the Endowment Fund income is reported in the aggregate as “Endowment Fund Donations and Interest (includes sale of 40 books, History of Gratz)…. $10,799.39. Other than knowing that the sale of 40 books at $75 each brought in $3000, the remainder of the interest, including interest on the $23,232.76, was not specified in the report. However, for the Operating Fund, interest income was separately reported as $696.22. “Contributions” are also reported as separate income, but aggregated in the Membership Dues Category.
RED FLAG: Inconsistency in category names from year to year and co-mingling of unrelated items is a pattern evident from the early reports. Also, fund raisers generally are reported only as income or profit with no regard to any associated expenses – a pattern which continues almost to the present.
This reporting pattern continues in the 2000 Report, with minor variation, but in the 2001 Report, revenue to the Endowment Fund is not reported in any category. And, while there is an increase of nearly $14,000 in the Endowment Fund from 1999 to 2000, there is no indication of how the fund grew to that amount.
RED FLAG: Inconsistency in category names from year to year and co-mingling of unrelated items is a pattern evident from the early reports. Also, fund raisers generally are reported only as income or profit with no regard to any associated expenses – a pattern which continues almost to the present. An example in the 2000 Report is “bus trips” which produced revenue of $159.00, but there were no related expenses.
In the 2002 Report, the revenue portion identifies three line items with an asterisk. Those asterisked proceeds were deposited in the Endowment Fund.
Gratz Fair Award, 1st Prize — $175.00. This is a Source 4 item, not required to be placed in the Endowment Fund. Nevertheless, it was placed there as principal. Once placed in the Endowment Fund as principal, it cannot be removed unless the Society is dissolved. Note: In later Financial Reports, “Gratz Fair Award” is not always deposited in the Endowment Fund.
Sale of Confederate Civil War Drum — $7000. This is also a Source 4 item, not required to be placed in the Endowment Fund. Nevertheless, it was placed there as principal. Once placed in the Endowment Fund as principal, it cannot be removed unless the Society is dissolved.
CD, Interest, Book Sales (14), Donations. This line item co-mingles principal and accumulated interest. Presumably, the sale of 14 books brought in $1050 in revenue. Once again, by reporting these items in a single category, it is not possible to determine from the report how much of this revenue item was interest (Source 5) and how much was donations (Source 2 or Source 3).
RED FLAG: Co-mingling of unrelated items. Unable to determine the difference between principal and interest in the Endowment Fund.
In the 2003 Report, there are five asterisked categories of revenue. However, in this report, there are no aggregated categories. A new Source 4 items appears, that of Life Memberships. The interest on the CD’s in the Endowment Fund is reported as $2250.00 (total CD’s valued at $77,091.76), but no interest is reported on the Endowment Fund Savings Account (valued at $5000). At year’s end, the total value of the Endowment Fund was reported as $85,691.76, and the total of the asterisked revenue categories for 2003 ($10,332.50), is the correct difference between the 2002 dollar value of the Endowment Fund and the 2003 dollar value of the Endowment Fund.
In the 2004 Report, there are four asterisked categories of revenue. The asterisk is again defined as “Deposited in Endowment Fund.” Those four categories total $9204.75 which according to the 2004 Report, should have been deposited in the Endowment Fund.
RED FLAG: However, the total of the Endowment Fund at year’s end is said to be $84,200. This represents an unexplained LOSS of $1491.76 to the Endowment Fund over the total given in 2003. Add to that amount the claim by Charles Schoffstall that the $9204.75 of revenue that he claimed was added in 2004, the Endowment Fund total at the end of 2004 should have been $96,388.27 — in other words, $10,696.51 less than Charles Schoffstall said should be in the Fund.
In the 2005 Report, there are no asterisked categories of revenue. The total in the Endowment Fund at year’s end is reported as $102,871.18, an increase of $18,671.18 over the previous year. Of the required categories for deposit as Endowment Fund principal which amount to $6147.27 the difference seems to have come from a variety of fund raising activities which are reported as revenue totaling $12,022.06. However, the numbers don’t add up to the increase of $18,671.18, and if this amount is removed from Operating Revenue, the Operating Expenses of $4441.94 are not covered by Operating Revenue.
RED FLAG: The fund raising activities, which include an amount raised by “raffle”, were primarily cash transactions. There are no corresponding fund raising expenses, although from the activities/items noted, there were definitely expenses! This may be similar to the 2000 Report where large amounts of revenue were not reported on the annual statement.
The 2006 Report continues the pattern started in 2005 of no asterisked categories of revenue. Source 1 funds of $300.00, Source 2 funds of $335.00, Source 4 funds of $450, and Source 5 funds of $6500.00 should be added to the 2005 Endowment Fund totals. This amount totals $7585.00. The Endowment Fund total at the end of 2006 was $111,463.64. This represents $3875.64 in unreported revenue.
RED FLAG: From this 2006 Report, the Society Operating Fund had a deficit. And, there are no corresponding fund raising expenses reported. This report may be similar to the 2000 Report and the 2006 Report where large amounts of revenue were not reported on the annual statement.
The 2007 Report also has no asterisked categories of revenue. Also, the Endowment Fund no longer reports a savings account – only CDs. And, a stock category of $4500 in the Endowment Fund has also disappeared, with no mention of what happened to the stock. The Endowment Fund total at the end of 2007 was $119,118.10. This represents an increase of $7654.46 over 2006.
RED FLAG: Since the categories of revenue for the Endowment Fund are not identified, it is not fully known how the Endowment Fund increased. Large amounts of revenue were probably not reported on the annual statement. Also, a note on the Operating Fund Savings Account states, that this account “includes $375.00 donated to future Leonard Reedy Famous Gunsmith Memorial,” with no corresponding item in the revenue portion of the report.
The 2008 Report was presented in a slightly different format, which, for the first time, included the following statement:
The Endowment Funds are restricted for preservation of our Historical Society. The funds have grown steadily over the past few years through member’s contributions, fund raisers, book sales and interest through conservative investments in CD’s. Long term goals are to use the interest only from this account for preservation of the Society, if required. Up to the time period, we have not used any of this money to support the Society. Our thanks to all of you, which have made this ENDOWMENT FUND possible.
This statement appears on all Financial Statements from 2008 through 2015.
The Endowment Fund at the end of 2008 was $124,659.08, all in CD’s. This represented an increase of $5540.00 over 2007. However, the revenue reported by Charles Schoffstall,which should have been included in this increase was: Source 4 — $610.00. Source 1 — $750.00. Sources 2 and 3 — $610.00. Source 5 — $5572.16. The total of this reported revenue which should have been included was $7532.16. There is a shortfall of $1992.16.
RED FLAG: The shortfall to the Endowment Fund was $1992.16. Fund raising activities were again listed only as revenue, with no corresponding expenses.
According to the 2009 Report, the Endowment Fund increased $5557.06 over the 2008 total, to reach the sum of $130,216.14.
RED FLAG: A total of $6869.19 was reported in revenue categories from sources which should have added to the Endowment Fund. This represents a shortfall of $1312.13 to the Endowment Fund. Also, an additional line item appears in Revenue: “Glenn Hepler Memorial Fund,” — $300.00, and then disappears in future reports. Fund raising activities were again listed only as “profit” in the Revenue category, with no corresponding expenses.
The 2010 Report contains a statement of an item that is not reported either in the Revenue or Expenses categories:
Support Comment: The Society received a member donation in 2010 to purchase a top of the line Computer System (IGB) with Scanner and Printer and current Software and Hardware. Thank You.
The contribution was made by two checks in an amount far exceeding the dollar amount in any Revenue category. The purchase of the computer system was supposedly made by the Gratz Historical Society and supposedly shipped to the Gratz Historical Society, but does not appear in the Expenses category.
The Endowment Fund increased to$134,891.12 by the end of 2010. This represented an increase of $4674.98 over the end of 2009. However, from the revenue sources that should have been added to the Endowment Fund, that total $7015.37, there is a shorting to the Endowment Fund of $2340.39.
RED FLAG: The non-reported computer donation and purchase. Endowment Fund shortage of $2340.39. Fund raising activities were again listed only as “profit” in the Revenue category, with no corresponding expenses.
The 2011 Report shows an Endowment Fund balance of $137, 144.76, an increase of $2253.64 over 2010. In 2011, there were no reported donations to the Endowment Fund (according to the Financial Report), which is hard to believe considering all the statements made about the Endowment Fund and the number of people who were named in the Society newsletter who were said to have contributed to the Fund in 2011! However, the Endowment Fund should have increased by $3197.30 based on other sources of revenue, not including Source 2 donations. But, the Endowment Fund was shorted $843.66 in 2011.
The total Revenue for the Society for 2011 was reported as $7972.26. However, the column adds up to $7523.27.
The total Expenses for the Society for 2011 was reported as $5644.32. However, the column adds up to $5644.42.
The Society had a Pay Pal account in 2011 through which web sales were made. This account was set up by Charles Schoffstall in consultation with the Gratz Bank. Fees were charged to the Society on transactions made through this account. This account does not appear on the Financial Statement.
RED FLAG: No reported donations to Endowment Fund in the Financial Report for 2011, but many people named in the Society newsletter as having contributed to the Endowment Fund. Endowment Fund shortage of $833.66 not explained. Inaccurately added columns in Revenue and Expenses. Pay Pal account not mentioned.
The 2012 Report shows an Endowment Fund balance of $139,393.53, an increase of $2248.77 over 2011. However, the Endowment Fund should have increased by $5328.80 based on sources of revenue. The Endowment Fund was shorted $3080.03 in 2012.
The total Expenses for the Society for 2011 was reported as $8318.41. However, the column adds up to $8226.41.
The Society had a Pay Pal account in 2012 through which web sales were made. Fees were charged to the Society on transactions made through this account. This account does not appear on the Financial Statement.
RED FLAG: Endowment Fund shortage of $3080 not reported. Inaccurately added Expenses column. Pay Pal account not mentioned.
The 2013 Report shows an Endowment Fund balance of $141,299.69, an increase of $1906.16 over 2012. However, the Endowment Fund should have increased by $2720.30 based on sources of revenue. The Endowment Fund was shorted $814.15 in 2013. Also, in 2013, the Gratz Historical Society received $1000 from the dissolution of the Lions Club of Elizabethville. This money was used for Operating Revenue.
The total Revenue for the Society for 2013 was reported as $9161.95. However, the column adds up to $7886.95.
The total Expenses for the Society for 2013 was reported as $4694.85. However, the column adds up to $5694.85. The Expenses category is mislabeled “Expenditures – 2012”
The summary column is mislabeled “Year End – 2012 – Summary.”
The Society had a Pay Pal account in 2013 through which web sales were made. Fees were charged to the Society on transactions made through this account. This account does not appear on the Financial Statement. At the end of October 2013, the web site was terminated, but this account was still usable independent of the web site. Charles Schoffstall alone had access to this account.
RED FLAG: Lions Club Dissolution money was spent to meet operating expenses rather than being considered as a Source 4 revenue item for the Endowment Fund. Endowment Fund shortage of $814.15 not reported. Inaccurately added columns in Revenue and Expenses. Pay Pal account not mentioned.
The 2014 Report shows an Endowment Fund balance of $121,468.61, a significant DECREASE of $19,831.08 from 2013. There is no explanation for this decrease! According to the revenue categories, the Endowment Fund should have increased $2102.26. The Endowment Fund shortage for 2014 is $21,933.34. In the Revenue category, the amount of $9247.00 is in a line item called “Transfer Funds to Checking from Savings – Painting Buildings”. However, there is no record of how that money got into the savings account. If it was taken from the Endowment Fund, then there is a contradiction with the statement at the bottom of the report:
The Funds have grown steadily over the past few years… Up to this time period, we have not used any of this ENDOWMENT money to support the Society.
Also noted in this 2014 Report is a line item expense, “Annual Society Audit (CS/GB) — $50.00.” The initials probably represent Charles Schoffstall and Gratz Bank.
The Pay Pal account is not mentioned.
RED FLAG: A $50.00 superficial audit could not possibly detect all the aforementioned problems that have occurred with this treasury in 2014 and unless the audit referenced the By-Law requirements for the Endowment Fund and covered the entire period that Charles Schoffstall was treasurer, it was a waste of money. At the very least, the significant decrease in the Endowment Fund of $21,933 in 2014 should have been referenced against the legal documents of the Society, to see if the appropriate revenue was deposited into the Endowment Fund in 2015, to determine an accurate amount of money that was supposed to be in the Endowment Fund since its inception in 1999, and to categorize the money in the Fund as principal and accumulated interest. Pay Pal account is not mentioned.
The 2015 Report shows an Endowment Fund balance of $124,143 an increase of $2674.72 over 2014. The interest earned on the Endowment Fund is not reported as Revenue. Required revenue for the Endowment Fund is $2261.00, which if properly deposited into the Endowment Fund means that the unexplained difference in Endowment Fund revenue is $413.72. If this is correct, then the 2015 interest on more than $124,000 invested in a CD, was only $413.72. Once again, the statement appears at the bottom of the Report that the Society “has not used any of this Endowment money to support the Society.” And, the Society again paid Charles Schoffstall and the Gratz Bank $50.00 for an audit, which if not done to the conditions specified above, was a waste of money. The Pay Pal account is not mentioned.
RED FLAG: All of the above!