LAST FEB. 24 National Public Radio, with the approval of its board of directors, bought a $10,763 Honda Accord for the use of its $80,000-a-year president, Frank Mankiewicz.
Two days later, NPR Executive Vice President Tom Warnock broke the news to Mankiewicz that the company was $3 million in debt. Mankiewicz slashed programs and fired more than 40 employes, but it was too late. The shortfall grew to $6 million and beyond. Two weeks ago, the network received a $9.1 million federal loan necessary to avoid bankruptcy.
Mankiewicz's car has since become a symbol for congressional investigators of the excessive spending and mismanagement that reigned at NPR. Ronald Bornstein, who heads the emergency team that took over the network on May 9 after Mankiewicz resigned under pressure, characterized the company as "a great world of expansionism and dream, a Camelot society."
Interviews with participants in the crisis, an examination of independent audit reports, and NPR financial documents obtained by The Washington Post seem to bear out the Camelot analogy. The $9.1 million shortfall developed because, starting at the beginning of the 1983 fiscal year last Oct. 1, NPR was spending at a $30 million annual rate while income was arriving at a rate of roughly $20 million, according to congressional testimony. This was the same year that NPR's federal subsidy was reduced by $3.2 million.
In the face of these circumstances, Mankiewicz, regarded as a strong leader who took NPR from obscurity to national prominence in five years, vastly expanded operations while hoping to fill the revenue gap with private contributions that didn't materialize. In the critical months last winter and this spring, NPR management:
* Hired 64 full-time and 17 part-time employes--a 17 percent staff increase.
Gave 250 merit raises of from 5 to 12 percent after company financial officers last December gave a written warning to Warnock, Mankiewicz's second-in-command, that there were "serious cash flow problems . . . Now may not be the time for [pay] increases."
* Launched an expensive program called "NPR Plus" and poured startup funds into a subsidiary, NPR Ventures, designed to solve long-term money problems but not expected to return a profit for years.
Rep. John D. Dingell (D-Mich.), chairman of the House Energy and Commerce Committee, which controls federal funding for public broadcasting, said in an interview that he has doubts about NPR's management and has ordered congressional investigators to determine if Mankiewicz, among others, can be held personally liable for any debts.
Dingell had just committed himself to increasing federal funds for public broadcasting in the face of Reagan administration budget cuts when the NPR crisis derailed his efforts. NPR, a private corporation set up in 1970 with federal funds, provides news and cultural programs to 281 public radio stations with 8 million listeners.
While formally accepting responsibility for the disaster, Mankiewicz, formerly Robert Kennedy's press secretary and George McGovern's campaign manager, said in an interview that he was a victim of circumstance and denied that he had mismanaged the network. "We ran a goddamn tight ship," he said. "There's no $9 million" debt, he added. "That's an accounting figure."
According to testimony before Congress by George Miles, a member of the emergency management team, the $9.1 million was "a real cash shortfall . . . It has nothing to do with accounting or anything. That is the cash that we will need." Bornstein said in an interview that when he arrived at NPR, staff members "believed the financial problem was imaginary and not real . . . and that there were just magic solutions. There weren't."
Miles and others testified before Congress that spending was out of control at NPR. "You can just walk around that network and you see every single secretary has a word processor at her desk," Miles said. Fifteen employes have home computers paid for by NPR, said Senior Vice President Clyde Robinson in an interview.
Robinson said he has at home a $1,500 Apple computer bought by NPR. "I take a day and just stay home and work and put the recorder on the phone and not be bothered in the meantime and get stuff out," he said. Asked if he used the computer for personal business, Robinson said, "There's not a lot of personal use for most people, including me, at home."
NPR provided 110 employes with American Express cards billed directly to the company. Auditors found that the bills were paid by NPR even when employes failed to turn in corresponding expense accounts. About $85,000 of "totally unsupported expenses" was paid, they reported.
Barbara Cohen, who headed the network's prize-winning news operation, said in an interview that she thought passing out credit cards unusual. "I thought, 'This is weird,' " she said. Nevertheless, she authorized cards for employes, many of whom were "young people, single people who wouldn't have credit cards" of their own.
When Bornstein took over, he froze salaries and hiring, fired 84 more employes, held off creditors and negotiated with the Corporation for Public Broadcasting, created by Congress to funnel federal money to public broadcasters while protecting them from political influence, to obtain the $9.1 million bailout loan.
Although CPB had established NPR and its television twin, the Public Broadcasting System, both have remained independent while receiving federal money through the parent corporation. NPR is owned by its member stations. Mankiewicz was successful in lobbying Congress to limit CPB's influence, leading to what CPB president Edward J. Pfister in an interview called "testy" relations.
One result was a long and difficult negotiation over the bailout loan, as CPB chairman Sharon Percy Rockefeller and others, who said they had previously been concerned about the rapid expansion of the radio network, sought assurance that what Rockefeller called "gross mismanagement" at NPR would cease. Said Mankiewicz: "We'd probably won one victory too many."
Although Mankiewicz failed to get on top of NPR's cash hemorrhage before it brought him down, he was considered a forward-thinking leader devoted to nurturing NPR's premiere programs like "Morning Edition," "All Things Considered" and "Jazz Alive!" Cohen described the atmosphere Mankiewicz created as "very exciting . . . just a lot of ideas, the whole sense of no holds barred. We were going to get that story!"
Robert Siegel, who replaced Cohen as news chief when she clashed with the new management and left the network, said Mankiewicz "had a record for doing things that in the beginning you couldn't justify . . . I went to London in 1979 as an NPR correspondent , it being unclear how this would be paid for. In two months we got a grant."
Mankiewicz said a key reason he was unable to get on top of the crisis was that NPR's financial accounting system depended on a new computer that was not functioning properly. He said adequate reports on the financial status of the company, including the rate of expenditures and revenues, were not being delivered to top management.
"The killer was four or five months in which things went bad and we didn't know it," he said. "Things could have gone bad and, if we had known it, we could have righted them." Coopers & Lybrand, auditors for the emergency management team, confirmed that the financial computer system was "incapable of producing timely and accurate reports."
Coopers & Lybrand also reported that budgets were "not subject to rigorous review by the NPR chief financial officer or by the president. It is our judgment that the absence of such a rigorous review contributed to the forecasting of unrealistic revenue estimates."
Mankiewicz said "absolutely" the first he knew of NPR's deep financial problem was in his Feb. 26 meeting with Warnock. He said the regular annual outside audit of NPR's books for the 1982 fiscal year, which ended last Sept. 30, showed "a modest surplus" of revenues over expenses and was accompanied by a standard written audit report, called a management letter, designed to spot trouble areas, which in this case noted only "very minor deficiencies." The audit was conducted by Deloitte, Haskins & Sells, which, like Coopers & Lybrand, is one of the nation's leading auditing firms.
Cheered by this report, and lacking adequate financial information from his own computers, Mankiewicz said, he went ahead with the expansion of NPR.
However, while the Deloitte, Haskins & Sells audit shows a small surplus of revenues over expenses, it also shows a working capital deficit of $1.5 million--the critical number that by spring had become a projected $9.1 million working capital deficit for fiscal 1983.
A working capital deficit, as explained by auditors in an NPR press conference announcing the disaster, is a shortfall of current assets measured against current liabilities that must be paid within a year. The $9.1 million figure, according to Coopers & Lybrand in a June report, meant NPR "may be unable to continue in existence."
Contrary to Mankiewicz's optimistic reading of the Deloitte, Haskins & Sells audit, dated Dec. 8, 1982, the auditor's management letter specifically mentions the $1.5 million working capital deficit and warns that: "The officers of NPR should evaluate the financial condition of the company in order to assure that adequate working capital of the corporation is maintained."
At the same time NPR's finance department was sending memos to top management warning of serious problems. A Nov. 5 memo to Warnock from chief financial officer Art Roberts warned that the company faced "a stringent cash flow problem." Roberts recommended a contingency plan be developed "just in case we do not meet our income expectations."
Later in the month Roberts sent similar memos to all the officers, directors and managers of the company and prepared documents for an officers' meeting the first week of December showing a $476,000 cash flow shortage for October and November. The documents warned that NPR was "spending far more than cash available."
"I remember Art very well making the point that we were having a very tough cash flow problem," Mankiewicz said. "That's what that was. It had nothing to do with budget projections. It had nothing to do with deficits." Mankiewicz said cash flow problems developed at the end of each year at NPR as the company awaited payments from its member stations for services, and that most companies have similar problems.
"That's cash flow," he said. "That's what that is. And that problem was solved by the end of December."
Next: Operation Independence