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San Diego Pride scandal raises tax compliance issues

One of San Diego’s oldest LGBT organizations, San Diego LGBT Pride, Inc. (San Diego Pride), continues to suffer from a scandal that broke Tuesday regarding an alleged misuse of the nonprofit’s funds. Details continue to emerge as the LGBT community prepares for a town hall meeting to address their concerns this Sunday.

A source close to SDGLN has indicated the California Franchise Tax Board has received 11 complaints regarding San Diego Pride since the story first broke Tuesday morning. “They will likely open an investigation,” he said.

The ongoing saga revolves around a onetime $5,000 payment to Board Chair Dr. Philip Princetta for his service since 2002. Princetta, who has since come under fire by community activists and former board members, has since stated he will return the gift. There is, however, no formal timeline set in place indicating a deadline for repayment.

On January 6 additional story details broke regarding the Board’s decision to award $12,000 in bonuses to paid staff members. Although technically legal, many feel the decision to do so was in gross violation of industry standards.

University of San Diego professor Anne Farrell who specializes in nonprofit fundraising stated, “There are some very clear guidelines from the Association of Fundraising Executives (AFP) regarding the payment of compensation outside of salaries, in particular Standard 21.”

Standard 21 of the AFP states “Members shall not accept compensation or enter into a contract that is based on a percentage of contributions; nor shall members accept finder’s fees or contingent fees. In this context, a finder's fee is defined as a fee paid for bringing a donor or a contribution to a not-for-profit organization.”

Pat Libby, Clinical Professor and Director of the Institute for Nonprofit Education and Research at the University of San Diego School of Leadership and Education Sciences, agrees.

“With regard to incentive pay for fundraising, that has been a clearly stated no-no for many years.” said Libby.

One issue, however, remains clear. Payment to a Board member needs to be well documented, and the reasoning for doing so must be thorough. Although Princetta claims the disclosure was made fully in October’s meeting minutes, Pride’s former Director of Development Ken St. Pierre told SDGLN on Tuesday that the October minutes seem to be missing.

“California law does not rule out payment for board service; however, it needs to be documented and justified just as any compensation issue,” added Libby.

SDGLN obtained a copy of San Diego Pride’s Bylaws, which state in Article 6.18 “Directors shall receive no compensation for their services as Directors but may receive reimbursement for expenses as may be fixed or determined by the Board.”

SDGLN also reached out to various LGBT nonprofits regarding their own nonprofit fiscal policies.

Mama’s Kitchen Executive Director Alberto Cortes feels conversations regarding payment of bonuses to staff members and payment of bonuses to board members are not one in the same.

“We are talking apples and orangutans here. Really, these are dramatically different matters,” said Cortes.

“Mama's Kitchen does not, and, to my knowledge, has never provided financial incentives to paid development staff or any other staff for that matter. This is not to say that the practice is inherently inappropriate. And for that reason it should not be mixed into the discussion of financial incentives for board members of a nonprofit organization.”

San Francisco Pride issued no comment. Los Angeles Pride and the HRC Foundation, a registered 501(c)3 nonprofit foundation run by the Human Rights Campaign (HRC) did not return phone calls at the time of deadline.

A town hall meeting will take place at The San Diego LGBT Community Center on Sunday, Jan. 10, at 6 p.m. to address any concerns the general public may have on this issue. Approximately a half-dozen past San Diego Pride board members plan to be present.

SDGLN Higher Education and Non-Profit Liaison Benny Cartwright contributed to this story.