A D.C. nonprofit that receives millions of taxpayer dollars each year is bankrupt and will be dissolved to cover debts from exorbitant spending on and by staff, including the misuse of organization credit cards, officials say.
The DC Trust, long known as the DC Children and Youth Investment Trust Corp., is supposed to keep afloat more than 70 after-school and other programs to help at-risk youths and to control gang violence in the nation’s capital.
But the nonprofit lacks funds this year to pay millions in promised grants as well as its own operating costs. As a result, its board voted in private to shutter the fund, directing remaining cash to after-school and other programs for five more months, according to its chairman, Marie C. Johns and another board member, William Treanor.
“This is painful for me, I love this community,” said Johns. “But I also believe in accountability, and we couldn’t continue in a reckless way.”
The trust emailed dozens of nonprofits Tuesday saying their funding would continue through the end of the city’s fiscal year in September, but it is unclear how that will happen.
Treanor offered additional details about the trust’s financial troubles. His account was supported by three other board members, who declined to be identified because they are appointed by the mayor and the D.C. Council, and neither had been briefed on the situation.
The board held an emergency meeting Tuesday to begin the shutdown process, including agreeing to lay off most of the trust’s 18 employees, officials said.
D.C. Mayor Muriel E. Bowser (D), who controls four seats on the board, directed nearly $700,000 in extra money to the trust last year to fund violence-prevention programs in the wake of a 53 percent spike in homicides during her first year in office. Two board members said the mayor’s office was still trying to determine which of those grants have been funded.
Brenda Donald, Bowser’s deputy mayor for health and human services and a member of the trust’s board, said “the administration is working to minimize disruptions to ongoing youth programming.”
Treanor, who is also a former treasurer of the trust, said he expressed at the board meeting Friday that he was “deeply ashamed” by the outcome. Trust leaders have also scheduled a meeting this week to brief D.C. Attorney General Karl A. Racine.
Two officials familiar with the trust’s troubled finances said the mayor’s office alerted the Office of the Inspector General about discrepancies in January. As is its practice, the inspector general’s office declined to say whether it is investigating. An email to a spokesman for the inspector general was not immediately returned.
Several board members said the organization received a clean audit from an outside firm less than a year ago.
The sudden demise of the trust marks an ignominious end for the long-troubled organization. At an embarrassing low point, the trust was used by then-D.C. Council member Harry Thomas Jr. to embezzle over $350,000 earmarked for youth baseball programs beginning in 2007. Thomas was sentenced to 38 months in federal prison for using the money to buy a luxury SUV and to pay for clothes and personal travel expenses.
At another troubling point in 2013, the trust was criticized by congressional investigators for lacking nearly all controls to properly administer a $20 million-a-year school voucher program paid for with federal tax money.
Now it was mismanagement by officials hired to restore credibility to the trust that caused its downfall, Treanor said.
In a series of revelations that began in January, the board learned that former executive director Ed Davies and senior financial officer Earl Hamilton had used taxpayer funds to pay tens of thousands of dollars’ worth of credit-card charges, including some for personal use. Some of the expenses charged by Davies included meals and travel costs for his family members.
Davies, who resigned in January on the same day that board members discovered the credit-card expenses, said in an interview that he was being made “the fall guy for years and years of mismanagement that predated me.”
Bowser’s administration intensified financial pressures on the trust by underfunding it, he said.
Davies said he informed the board about the trust’s perilous financial condition and had begun cutting staff and reducing costs before he resigned.
“The amount of money that the trust was getting each year was not enough money to sustain the operations or the grants that go out. That was something we were always wrestling with,” Davies said in a phone interview from Chicago, where he is now chief executive of another nonprofit, MHA Labs. “I offer this to balance the narrative that we ran this organization into the ground. It was actually, sort of, like we were trying to pilot a sinking, crashing plane and try to coast it down to the ground.”
Davies said that he used the trust’s credit cards to cover some personal expenses, including meals and an airline ticket, but that he reimbursed the trust.
“Every penny, every charge that was counted as not being official were paid back,” he said.
Asked about Davies’s allegation that the mayor squeezed the trust financially, Bowser spokesman Michael Czin said, “Ed Davies will have his day in court when he can try to justify his actions, his misuse of funds.”
Hamilton also reimbursed the trust but resigned several weeks later, according to two board members.
Reached Tuesday, Hamilton said the trust’s financial distress was news to him. “I wouldn’t know anything about that,” he said. Asked about personal use of a trust’s credit card, Hamilton said he could not speak to the issue and referred questions to the trust before hanging up.
“There’s a whole story in those credit-card statements. They were using the money for whatever they wanted,” Treanor said.
After the departure of Davies and Hamilton, Johns moved quickly to hire a Philadelphia-based consultant to audit the organization’s financial records, Treanor said. The audit found that an unusually large share was used for overhead, he said.
The trust had also been commingling 17 bank accounts for grants and operational costs, one of the board members said.
Among leading nonprofits, a best practice is to devote no more than 10 percent of funds to administrative costs.
But at the DC Trust, more than $2 million of the $5 million allocated last year by Bowser and the D.C. Council was not used for grants but to pay office rent at $26,000 per month, six-figure salaries, and convention and other travel for trust executives, according to two board members.
The trust was created by former mayor Anthony A. Williams in 1999 as a mechanism to leverage public funds to raise private dollars for youth services. It was successful early on, winning an $8 million grant from the Wallace Foundation.
But after the Thomas scandal, the trust struggled to generate private investment and overcome a perception that it had devolved into a slush fund for D.C. politicians.
Rather than close the trust, however, the D.C. Council and mayors Adrian Fenty and Vincent C. Gray continued to support it, using it to expand neighborhood and after-school programs, administer the D.C. Opportunity Scholarship Program voucher initiative, as well as execute mayoral priorities such as evaluations of summer youth programs.
In 2012 under Gray, the trust hired Davies as executive director. Davies had been an assistant director at the trust and executive director of the Baltimore Educational Scholarship Trust, and had spent four years as the manager of education and youth initiatives at the Fannie Mae Foundation.
But Treanor said the trust was flawed from the outset, because it was run by political appointees and not experts in nonprofit management or finance.
“The city is going to try to make this look like they had one bad apple when, in fact, the city government has messed this up from the beginning,” Treanor said.
Council member Yvette M. Alexander (D-Ward 7) on Tuesday canceled a budget oversight hearing of the trust scheduled for Thursday, saying there was no use discussing future funding for the organization since it will be dissolved. She said Donald, the deputy mayor for health and human services, would field questions at another hearing that day about how the administration will move forward.
“We will work together to make sure that definitely all the providers do not have to worry about their funding and all the children and families do not have to worry about programming,” she said.
Jennifer Jenkins contributed to this article.