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No Dishonesty Found in Loans by United Way

September 09, 1986|ROXANE ARNOLD | Times Staff Writer

Top United Way officials and volunteers, including president Francis X. McNamara, used flawed judgment in lending donated money to executives of the charity, but the agency did not act dishonestly or fraudulently in authorizing the transactions, an independent citizens panel probing the finances of the Los Angeles-area United Way said Monday.

Reacting quickly to the committee's findings, United Way officials announced that the beleaguered McNamara, who had been on a paid leave of absence since the disclosures about the controversial loans were made public this summer, will return to his post to spearhead the charity's upcoming fund-raising campaign, already six weeks behind schedule.

McNamara said, however, that he will take an early retirement next summer, saying that the months of scrutiny have been "a very difficult period of time."

In announcing the findings of its two-month investigation into the agency's internal workings, the 11-member committee released a 57-page report that focused on the series of controversial loans made to five agency executives from 1980 to 1985, as well as other unusual uses of donated money. The report was released simultaneously to the press and to United Way officials.

Specifically, the panel criticized the charity for turning over almost $260,000 in donated money to bail out the now-defunct United Way credit union and for lending $150,000 to an East Los Angeles human services agency--a loan that remains unpaid.

Calling such actions "improper," the panel recommended broad changes in the charity's administration, including diluting the power of McNamara--who, as president, authorized the loans--and stiffening rules governing everything from personnel matters and financial planning to procuring goods and services.

Focus on Functions

"It's their functioning," committee chairman Robert R. Dockson said. "They have to look at their functions. We do not excuse Mr. McNamara, but we made up our minds we were not going to castigate Mr. McNamara."

In detailing the panel's findings, a clearly sympathetic Dockson said he and other committee members were convinced that all of the loans and other financial dealings were made in good faith.

"The good faith of these individuals involved . . . is a good defense of what took place," Dockson said. "We found nothing indicative of dishonesty or flagrant misrepresentation.

Echoing Dockson, committee member Anelise Mosich, said, "With the benefit of hindsight, it is very easy to question and conclude poor judgment was used."

But, added Mosich, a USC accounting professor, "We were convinced the people thought they were doing the right thing at the right time. . . . Things just didn't work out."

First Order of Business

In response, United Way volunteer board chairman William Kieschnick pledged to immediately implement most of the committee's recommendations and review others. The charity's first order of business, he said, will be "to take the United Way completely out of these employee loans."

Kieschnick said arrangements now are being finalized to have the First Interstate Bancorp and a consortium of individuals and corporations known as "Friends of United Way" repay the United Way and assume the debt from the employee loans that are still outstanding.

He would not disclose what corporations and individuals are involved, but said the agreement will not diminish the donations those parties would normally make to the United Way.

The $320,000 in loans, which were given to the executives to cover relocation expenses, real estate loans and extraordinary medical expenses, were authorized by McNamara with backing, in some instances, from high-ranking volunteers and the members of a key United Way committee.

The largest of the loans were assumed from First Interstate Bank at the bank's request after it became clear the United Way employees were unable to pay them off.

Most Never Repaid

The bulk of the money lent--some of which was interest-free and unsecured--was never repaid. Because interest on the largest of the loans has continued to accrue, the two loan recipients whose debts are unpaid now owe the charity more than $320,000.

In reviewing the loans, Dockson and his committee cited "deficiencies" in United Way's record-keeping and loan-monitoring procedures.

"Believe me," he said, "records are not abundantly clear and available at the United Way. . . . If I were Bill Kieschnick I would immediately have a very careful evaluation of all the top people of this organization. . . . Management procedures were not the best."

Addressing the two other problem areas--the credit union bail-out and the loan to the El Centro Human Services Corp.--Dockson and the committee called for a review of lending procedures and a prohibition against involvement in business affairs that involve special expertise.

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