GPS Fraud, Waste & Abuse Report #12: Prohibited GEF Electioneering

As a 501(c)(3) tax-exempt organization, Gilbert Education Foundation has some specific laws to obey. Consequences of failure to fulfill statutory requirements to be organized and operated exclusively for exempt purposes include revoking GEF’s tax-exempt status. That will be a gigantic mess for Gilbert businesses and civic-minded citizens who believed they were supporting an organization dedicated to “the kids.” Worse, PERSONAL liability for taxes and penalties accrue to GEF directors as a result of those violations should GEF lose its tax-exempt status. What a mess!

There are five basic components to qualifying and maintaining tax-exempt status under Section 501(c)(3):

(1) an organization must be organized exclusively for charitable purposes,
(2) it must be operated exclusively for charitable purposes,
(3) no part of its net earnings may inure to the benefit of any private shareholder or individual,
(4) it may not conduct more than an insubstantial amount of lobbying activities, and
(5) it may not intervene in a political campaign.

GEF photos posted on social media show that the 2014 GEF Gala appears to have been nothing more than an exclusive social event where selected GPS employees and “community leaders” could mingle. An additional bonus for preferred candidates for the November 2014 election for two seats on the GPS governing board: two candidates, seated board member Jill Humpherys and candidate Charles Santa Cruz, were feted by gala attendees. Other candidates that were not favored by GEF and/or the GPS administration did not attend.

Red flag of election fraud: 2014 GEF Gala political activist involvement. The first-ever GEF Gala on October 25, 2014 was timed for the run-up to the November 4, 2014 elections and appears to have been used to advance two candidates. According to his Political Action Committee Report through October 23, 2014, Dr. Charles Santa Cruz used campaign funds in the amount of $228.00 to pay for his tickets to the Gala.

A serious concern is the cozy relationship between GEF and the Gilbert Chamber of Commerce and their prohibited involvement in local elections. The Chamber of Commerce is a non-profit organization whose activities also merit close scrutiny. It was well known throughout the community that GPS and GEF supporters had their favorite candidates in 2014; it was just as well known that those supporters strongly opposed two candidates: Ron Bellus and Dawn Brimhall.  The Gilbert Chamber of Commerce allowed four of the five GPS governing board candidates to use the Chamber’s website to advance their campaigns, but Dawn Brimhall, one of the candidates, was denied that opportunity. In fact, the Gilbert Chamber of Commerce *endorsed* their two favorites, Jill Humpherys and Charles Santa Cruz.

GEF Engages in Express Advocacy for Political Candidates.  The Chamber designated three candidates as **Endorsed by the Gilbert Chamber of Commerce** on the Chamber website in 2016. There was no daylight between GPS, GEF and the Chamber when it came to favoring certain candidates in local elections. The problem for GEF and perhaps the Chamber: Section 501(c)(3) of the IRC provides federal tax exemption to a charitable organization so long as it “does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.” The prohibition on supporting or opposing candidates for public office is strict: even a de minimus (minimal) amount of campaign intervention violates IRC Section 501(c)(3).

GEF and the Gilbert Chamber became even more brazen during the 2016 election for three open seats on the GPS governing board. Sitting board member Jill Humpherys spilled the beans on her Facebook page: “I am supporting those candidates endorsed by the Gilbert Chamber of Commerce, Gilbert Education Foundation and Unite for Education—Lily, Sheila and Reed.” The Gilbert Chamber of Commerce echoed the endorsements.

Anything flowing from an organization’s activities other than public, charitable benefits may be serving private interests and therefore a nonexempt purpose. Examples include excessive compensation paid to employees, certain payments to outsiders for goods or services, or steering business to a for-profit company. Oh snap, more trouble for GEF and GPS!

Successful political intervention in 2014 reaped rewards: GPS contract for vehicles was convoluted, but ended with an award to the major 2014 GEF Gala sponsor. At the January 13, 2015 board organizational meeting, Humpherys was reelected to the board and became clerk; Santa Cruz was elected; Tram became board president. An override and a new bond were approved by voters. Flush with the prospects of more money in the coming year, there was great urgency to awarding some new GPS contracts. That process took some unusual twists and turns: San Tan Ford, the featured sponsor of the 2014 Gala, won a contract with GPS in what appears to be a circumvention of Arizona Procurement Code in order to benefit private interests. The GPS Business Services staff prepared a Board Agenda Submission Form for the January 27, 2015 board meeting for the purchase of eight Ford 10-passenger vans using a state contract. Kishimoto and Tram set the agenda for the January 27, 2015 meeting, but the van contract proposal never made it on the agenda. If it had, the state contract would have been awarded to Sanderson Ford. Instead, GPS went out for a bid. Apparently they needed five responsive bids to put a fig leaf on an ersatz procurement process that appears to have had one predetermined outcome: award the contract to a GEF featured sponsor, San Tan Ford, instead of Sanderson Ford, through the state contract. This required knowing, intentional action on the part of Kishimoto and Tram to veto the Business Services recommendation. And veto they did, setting in place a procurement process that would benefit San Tan Ford. Top 2014 GEF Gala sponsor San Tan Ford won the GPS vehicle contract with the lowest bid: $219,744.00, underbidding the next lowest bid by $719.04, or $89.88 per van procured.

Red flag of gambling law violations: raffle tickets restricted to purchasers of Gala tickets. It appears that only people who bought or were given tickets to the Gala were allowed to participate in the GEF raffle. It also appears that raffle tickets were exclusively sold at the GEF Gala, meaning the raffle was never open to the public. Lay people call that sweet situation “Pay to Play.” This is a violation independent of prohibited gambling operations described in our previous FW&A report about illegal gambling at the 2014 GEF Gala. BTW, since Christina Kishimoto became superintendent, GPS appears to have looked the other way when organizations other than GEF used gambling as fundraisers, such as poker tournaments for Mesquite High School athletic teams. You can bet that Westie has the flyers for these events.

Other indications that this illegitimate relationship between GPS and GEF was set up to flout state and federal laws intentionally: GEF did not report the income from gaming on their 2014 IRS Form 990. GEF did not list any gross income from fundraising events, and did not file Schedule G listing income from fundraising and gaming activities.

More tax fraud indicators: GEF intentionally failed to report the value of public support received from GPS on annual IRS Forms 990. Christina Kishimoto and her top administrative staff used the GPS resources to benefit GEF and preparations for the Gala. Both Kishimoto and Executive Director of Secondary Education Brian Jaeger sent emails to remind employees of the Gala and urge them to attend. GPS *vendor* Carole Bartholomeaux submitted a public relations consulting invoice for August 19, 2014 that included “researching information for GEF Gala event.” GPS paid that invoice. Until the 2016 MOU was signed, GEF held many events in GPS buildings, apparently without maintaining the minimum insurance liability required to use district facilities. The MOU was intended to illegally “bring GEF under the umbrella” of insurance procured by GPS with taxpayer funds.

We’ll close with a comment about that $90,000.00 that the 2015 GEF Gala raised. The 2015 IRS Form 990  shows that expenses exceeded income for that year (see page 14 of the linked IRS Form 990). Does the community feel bamboozled? You bet!

GEF could lose its tax-exempt status as a 501(c)(3) tax-exempt organization as a result of organizational wrongdoing. 

The Fine Print: Westie’s Fraud, Waste & Abuse Reports chronicle deliberate misuse of authority and public funds, abuse of authority, gifts of public funds and intentional violations of Arizona statutes and administrative rules by Gilbert Public Schools top-level administrators at the behest of superintendent Christina Kishimoto. Participating in those schemes could result in serious consequences for those who put themselves and their organizations at risk of losing their tax exempt status. Everything in the FW&A Reports has already been reported to state and federal elected officials and enforcement agencies.

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