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Internal Shriner Document Confirms Corruption? Updated with Timeline

Sandy Frost

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A confidential "Interim Report of the Special Investigative Committee of the Joint Boards of Shriners Hospitals for Children" describes how immediate past potentate Bernard Lemieux appointed a committee to investigate the conduct of Shriner leaders, Ralph Semb, Chairman of the Shriners Hospitals for Children Board of Trustees and Gene Bracewell, Imperial Treasurer Shriners International Imperial Divan. The report was leaked online at and can be found here.

The April 10, 2008 document describes how Lemieux appointed committee members on September 20, 2007 to "inquire whether Semb and Bracewell engaged in unethical conduct by intervening in the executive evaluation process (the so called 360 degree review) of Edgar McGonigal, Director of Development of SHC during the year 2007."

It is believed that this is the first time that an Imperial Potentate has appointed such a committee to investigate allegations that top Shriner leaders behaved unethically.

The report reveals how Semb and Bracewell pushed hard for continued contracts with one specific fund-raising company, Vantage Direct Marketing Services. Vantage raised over $46 million between 1999 and 2003 on behalf of SHC with only $2.5 million going to the hospitals.

In other words, if someone donated $100 during these campaigns, $95 was kept by Vantage with only $5 going to the hospitals.

Bracewell admitted to committee and board members that he got at least one free trip from Vantage in 2007.

The report suggests that Semb retaliated against McGonigal, who opposed Vantage contracts, by unilaterally firing him on October 31, 2006 without first consulting the joint boards or HR.

The report suggests that both Semb and Bracewell were attempting to accomplish their purpose by using subterfuge rather than by directly making their views known by "compromising the 360 degree review process in an unprecedented way." The committee reported that Semb and Bracewell contacted confidential employment reviewers in an effort to further retaliate against McGonigal by having him removed for poor job performance. This was done after executive vice president James Full allegedly violated employment confidentiality to "in part, avoid a confrontation with Mr. Semb."

The report also describes how the committee was suspended by an unrecorded action of the joint boards in executive session on November 2, 2007. After the investigation was reinstated on January 26, 2008, it was expanded to include events surrounding the resignation of controller, Willard Fawcett.

The report describes how Fawcett alleged "improper reimbursement of expenses that did not further the exempt purposes of SHC and contracts that were not in the best interests of SHC and may have involved self-interest on the part of members of the Joint Boards."

"Of greater concern," the report explains "is Mr. Fawcett's allegation (which we emphasize is unsubstantiated at this time) that the 2006 Form 990 may include improper reporting of certain items, and that the form was executed by Mr. Semb notwithstanding the identification by Mr. Fawcett of irregularities in the return."

The committee members also described how headquarters personnel worked under the threat of being fired in a culture of fear if they did not bend to the wills of leaders like Semb and Bracewell.

The committee recommended that:

* Semb and Bracewell be reprimanded for violating both SHC and AAONMS Code of Ethics.

* Deloitte and Touche be hired for forensic accounting.

* Records be reviewed to correct or recover improper reimbursements.

* The Conflict of Interest Policy and Bylaws be amended to designate a full time member of the legal department for conflict of interest compliance.

* The SHC bylaws be amended to "debar from business with SHC any entity that provides or offers any gifts, gratuities or favors to any member of the joint boards, any officer or senior executive."

* SHC provide a whistle blower hotline or other program so employees, senior executives, trustees or directors can report suspected incidents, corporate wrong doing, conflict of interest, violations of corporate policy or violations of law.

The report concluded the committee's investigation into the Semb/Bracewell/Vantage conflict of interest matter but stated that Fawcett's allegations required more investigation.

NOTE: The following timeline is based on dates and information provided in the above mentioned Interim Report of the Special Investigative Committee and was added on July 21, 2008. Some dates are based on month and year only per the report.

July 18, 1997 Joint Boards and SHC adopt conflict of interest policy.

June, 1999 Vantage Direct Marketing Services enters into fundraising contract with SHC.

October 2003 Henry Lewis and senior executives of Vantage DMS face criminal charges in Postal Service proceedings and settle after paying a fine of $4.5 million w/out admission of guilt by Vantage or its executives.

December 2003 Contract w/Vantage terminated due to “unsatisfactory business relationship” because return from the direct mail campaign was very low with Vantage raising $46,155,104 and SHC receiving only 5.4% or $2,514,694. Vantage paid fees in addition to 93.9% profit.

September, 2004 Edgar McGonigal hired as corporate Director of Development.

May, 2006 Gene Bracewell arranges meeting w/Ralph Semb and McGonigal in Boston to hear a direct marketing proposal at Vantage Travel HQ. Proposal features names of Vantage DMS and Convergence.

June 21, 2006 Convergence submits proposal to SHC for direct mail marketing services.

August, 2006 Imperial Divan retreat where Bracewell urges approval of the Convergence proposal. One of the participants raises concerns about Convergence’s relationship to Vantage Travel or DMS and raises improper relationships with Vantage. Bracewell reacts angrily and accuses McGonigal of leaking details. No minutes taken at this meeting, in violation of AAONMS and SHC by-laws.

October 31, 2006 Semb attempts to terminate McGonigal for poor performance in advance of joint board meeting.

November, 2006 Joint Boards meeting.

November 27, 2006 Semb and Bracewell meet with McGonigal for a performance review.

December, 2006 According to committee interviews, Bracewell is still in contact with representatives of both Vantage and Convergence. “Bracewell was concerned because several members of the joint boards were taking what he characterized as ‘free trips’ with Vantage Travel and that they should not be taking free trips from people they would not business with.”

April 2007 Bracewell, John Cinotto and four other members of the Joint Board take a cruise arranged by Vantage Travel. Bracewell and Cinotto attend a presentation arranged by Vantage Travel. Presentation was by MCS Direct, a direct mail solicitation firm who is pursuing a vendor relationship with SHC. Cinotto is chairman of the Development Committee.

April, 2007 Joint Boards meeting where Bracewell makes a motion to award McGonigal the raise that was denied to him in November 2006. McGonigal gets salary increase retroactive to January 1, 2007.

April 18, 2007 Conflict of Interest Policy amended to include “A conflict of interest is deemed to exist whenever any director, trustee, officer or employee accepts gifts, gratuities or other favors from any individual or entity that does or is seeking to do business with SHC…”

April 22, 2007 Semb and Bracewell execute disclosure statements in which they indicate that they were aware of no conflicts of interest within the meaning of the amended policy.

May 14, 2007 Representatives from MCS and PEP Direct make marketing presentation to Semb, Bracewell, Cinotto and McGonigal. McGonigal reports that he has discovered an apparent joint venture between MCS Direct and Vantage DMS, per the Vantage website. “Bracewell was upset by mention if this issue and terminated the conversation.”

May 15, 2007 McGonigal sends Bracewell an email that points out that MCS proposal would cost more and did not compare to current arrangement w/current vendor, Barton Cotton.

June 2007 Executive VP James Full begins the 360 degree review process for senior execs at SHC, including McGonigal.

September 7, 2007 Semb contacts Full and requests that Robert Cotner, Director of Development at Chicago SHC and William Austin, Director of Development at Tampa SHC be included as reviewers of McGonigal’s performance. Full regarded this as unusual, in that the identities of individuals providing reviews are intended to be confidential and Semb could not have known who would be designated for this purpose. Semb did not explain the reason for this request…Full acknowledged the request and did submit an evaluation form to Austin, in part to avoid confrontation with Semb.

September 20, 2007 Imperial Potentate Bernard Lemieux appoints committee to investigate Semb and Bracewell

November, 2007 Cinotto reports a meeting w/Semb in his office at SHC and learned that both Semb and Bracewell had communicated w/Lewis of Vantage DMS and that Vantage was prepared to offer whatever was necessary to buy out SHC’s obligations to Barton Cotton. Cinotto rejects idea as he believes Semb and Bracewell have a particular interest in Vantage. Semb and Bracewell deny having discussions w/Lewis other than to hear Lewis is going to make a “major gift” to SHC, but gift never materializes.

November 2, 2007 Bracewell secretly tape records his interview with Special Committee.

November 8, 2007 Investigation suspended by an unrecorded action of the Joint Boards in Executive Session.

November, 2007 Bracewell admits to members of Joint Boards that he taped his November 2 interview w/the Special Committee.

November 27, 2007 Full issues McGonigal’s performance appraisal, stating good results in fundraising results but needs to improve interpersonal skills.

January 17, 2008 Fawcett resigns

January 26, 2008 Special committee reinstated by joint boards

March 25, 2008 Semb interviewed by Special Committee and is asked about the circumstances concerning the 2006 990. Semb says he did not recollect signing the form because he signs so many. Semb denies receiving a letter from Fawcett detailing any concerns about the form and denies having a conversation w/Fawcett in which he suggested falsifying any information on the Form 990. Semb expresses view that “all of the direct marketing programs behave in unethical manners to attract business.”

March 27, 2008 Fawcett’s attorney states that his client has information concerning the following matters: failure to report benefits as income (presumably reimbursement of personal, non-business expenses that should have been reported on either Form W-2 or form 1099-MISC and Form 990) and business transactions not in the best interests of SHC (presumably involving conflict of interest or private benefit or inurement)

April 2, 2008 Bracewell interviewed by Special Committee and indicates he is unaware of any issues concerning his expenses and that he believes he has adequately documented all expenses reimbursed by SHC. He admits he “took free passage.”

April 10, 2008 Interim Report issued by Special Committee.

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