In addition, monies were raised and paid out of the organization in the amount of $64,900 for the benefit of a community member outside the scope of the organization’s charitable purpose.”
Traverse City Film Festival FY 2017 Form 990
In its 2017 annual financial report (“Return of Organization Exempt From Income Tax”), made publicly available by the IRS, the Traverse City Film Festival declared a significant diversion of its assets, information previously kept under wraps: a $262,920 loss the TCFF attributed to “an employee”.
Why did the TCFF report the information in its 2017 report?
It's a federal requirement.
As of 2008, the IRS implemented regulations that require tax-exempt organizations with gross receipts greater than or equal to $200,000 or whose assets are greater than or equal to $500,000 to report “any unauthorized conversion or use of the organization’s assets other than for the organization’s authorized purposes, including but not limited to embezzlement or theft.”
As a result, those organizations (like the Traverse City Film Festival) are now required to publicly disclose any embezzlement or theft that is a “significant” diversion of assets, defined as “if the gross value of all diversions (not counting restitution, insurance, or similar recoveries) exceeds $250,000, 5% of the organization’s gross receipts, or 5% of its total assets.”
Donors to a nonprofit organization may designate or “restrict” the use of their donations to a particular purpose or project.
In the Supplemental Information filed with its 2017 report, the TCFF revealed additional details presumably linked to the sudden departure of its former Executive Director, Deb Lake, in late December 2017:
“In December 2017, the organization learned that an employee directed the use of $198,020 of temporarily restricted funds without board authorization or approval.
In addition, monies were raised and paid out of the organization in the amount of $64,900 for the benefit of a community member outside the scope of the organization’s charitable purpose.
This fundraising and funds dispersal was also done without the authorization from or approval of the board of directors.
The involved employee was terminated from the organization. The fundraising activity for the community member has been terminated.
The organization has strengthened internal financial controls and an independent forensic investigation is underway.
The organization has contacted the county prosecutor and is sharing information with him as it becomes available.”
During last year's festival, founder Michael Moore answered questions from an audience during a two-hour, no-holds-barred Q&A at the Old Town Playhouse.
Moore, whose reboot of his docu-series “TV Nation” was recently scrapped by TBS, disclosed that the TCFF board had “terminated” Lake in December 2017.
As reported in the Traverse City Ticker, Moore professed additional details surrounding Lake's sudden departure after nearly 13 years:
“We (terminated Lake) because of our ethical obligations, our legal obligations,” Moore said, hinting there were also “fiduciary” factors related to Lake’s termination. “We made an informed decision that was…what any group like this had to do when faced with the situation that we were faced with. We had a responsibility to this institution and its longevity so that it exists long beyond us, and so that decision had to be made.”
In addition to the revelation of what could be a significant financial misappropriation, the TCFF's 2017 report revealed its deficit increased by 6.6% over the previous year.
The 2016 deficit was -$456,196 and grew to -$486,356 in the fiscal year ending December 31, 2017.
An “independent audit” and “quarterly financial statements”, which Moore promised during that August 2018 Q&A to deliver by December 2018, were incomplete at the time the Traverse City Film Festival filed the 2017 report.
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