Has GBCS been faithful to the provisions of trust document?
The General Board of Church and Society (GBCS) is awaiting a decision from The Superior Court of the District of Columbia as to whether or not that agency can continue to use income, from an Endowment Fund established in a 1965 Declaration of Trust for the purpose of addressing problems associated with the use of alcohol, for programs other than alcohol and temperance as it has for the last 30-35 years. When an agency of the church assumes control of assets under terms of a trust document that agency is charged with carefully carrying out the provisions of that trust. There are hundreds of trusts and endowment funds throughout the organizations of The United Methodist Church of which the church usually does a wonderful job carrying out their provisions.
Background
In February 2007 GBCS filed a legal request in the Superior Court of the District of Columbia: Count I) asking the court to bless the expanded use of trust assets and rule on the ambiguity of the language of the Methodist Building Endowment Trust; Count II) requesting approval of the court for GBCS to continue to operate the trust as it has for the last 30-35 years; Count III) asking the court to release the restrictions if the court could not rule in GBCS’s favor in the first two requests. Shortly after filing its request, GBCS withdrew Count III at the insistence of the General Council on Finance and Administration (GCFA), the financial agency of the general church, because if the court ruled against GBCS the church should not request the court change the expressed will of the persons that created the trust. In other words, GCFA was stating that a program agency of the church should obey the terms of the trust and “live within the trustee’s fiduciary responsibility.”
In a Summary Judgment issued on January 18, 2008 the Superior Court rejected GBCS’s Count I and ruled that the trust agreement restricts usage of income generated by the trust to “abstinence from alcohol – a commonly understood meaning of temperance – and to other alcohol problems”. GBCS’s position as stated in its 2007 Financial Statement (Note 2, page 9) was that “management believes the work it performs in all (emphasis added) core programs of the Board meet the ‘public morals’ and ‘general welfare’ descriptions… “. Meaning, GBCS has been spending trust assets and income for just about anything the agency does rather than solely for matters related to temperance and alcohol.
GBCS has not even been accounting for trust assets, income or expenditures over the past 30 years. They have treated and spent millions of dollars of all trust income and assets as being without any restrictions. However, the trust agreement clearly restricts funds for “work in the area of temperance and alcohol problems”. There is a huge difference in the specific wording of the trust and how things have been handled by the agency.
Motive
GBCS is petitioning the court to allow them to alter the explicit provisions the agency agreed to when it took control of the Methodist building and approximately $1,000,000 in stocks and bonds in 1965. This should have done 30 years ago instead of paying the agency’s corporate counsel for a legal opinion that clearly was not what the trust agreement provided. Why they did not do this earlier becomes clear when looking at the money involved. Why risk being told, “No”? The 2006 rental income of the Methodist Building was $1,739,255, expenses were $979,032, producing a net income of $760,223. From 2000 through 2006 the net income generated from the building has been approximately $5,000,000, which GBCS has used without any restrictions as if no trust existed. Over the years there were periodic calls for restricted spending of trust funds by concerned church members. Those calls were simply dismissed.
The restrictions of the trust according to the Superior Court Summary Judgment are “not ambiguous”. Management simply spent huge amounts of money without any regard to the trust. Unfortunately, for many years prior to 2004 board members and trustees were not informed that a trust existed much less given a copy of it. There was no accounting to anyone.
Audit
The United Methodist Church’s Committee on Audit and Review (A&R) is charged with examining all annual financial statements of organizations receiving World Service funds. A&R brought this matter to light in 2003 when it examined the 2002 financial statements of GBCS which contained disclosures required by new accounting standards. Two footnotes of those statements contradicted each other: one said there were no restrictions on trust income and another that GBCS was treating part of the trust assets as restricted. A&R asked for a copy of the 1965 trust agreement and discovered very strongly worded restrictions on every aspect of trust assets and income. A&R refused to accept the GBCS financial statements as written. GBCS then shopped around for a legal opinion that would support its unrestricted treatment of the income of the trust. That opinion was not strong enough to support their claim and over the next three years A&R pressed for clear documentation of the financial statement positions being taken by management.
Subsequently, GBCS filed its request that a federal judge authorize the continued use of trust income and assets for a wide array of agency programs rather than being restricted to “work in the area of temperance and alcohol” as clearly stated thirteen times in the trust agreement.
Court case
Once GBCS filed its request in Superior Court, the Attorney General (AG) of the District of Columbia was charged with representing the people. Generally, if the AG does not file objection, the judge will rule in favor of the petitioner (GBCS). It is imperative for the AG to have full knowledge and background of all the facts and circumstances. When dealing with a forty year old trust discovery can be very time consuming. Several present and past GBCS board members felt a responsibility to the church. Those persons (called “Intervenors” in the court) requested to be heard and the judge ruled (over GBCS objections) that the Intervenors could assist the AG by presenting arguments and facts opposing what GBCS was requesting. The Intervenors did not initiate the court action, are not official parties of the case and do not represent the opposition – the Attorney General of the District of Columbia is the opposition to GBCS. After reviewing the facts the AG filed motions asking the judge to rule against GBCS on both counts and the judge issued a strongly worded Summary Judgment on Count I.
The Intervenors, highly esteemed delegates to past General and jurisdictional conferences are properly carrying out the responsibilities delegated to them as duly elected directors of the agency, are not to blame for this court case. GBCS executives created this unfortunate situation by ignoring the clear wording of the trust agreement.
Now what?
The 2008 General Conference was assured by the chair of the GBCS Trustees that the agency would abide by the decision. If the judge clearly rules against GBCS continuing to operate as it has, it will become a matter of Christian ethics and accountability as to whether the trust should be “made whole” for the misuse of its funds in the past, meaning the agency should repay those funds to the trust. GBCS has no one to blame other than the management of the agency for the past 40 years. A&R did not ignore the trust provisions. GCFA did not accept the assets and then use funds for unauthorized purposes. The Intervenors did not bring the legal action. The fact that there are people who wish to hold a United Methodist agency accountable to its commitments is not bad for the church.
Since they were not aware of the trust, the directors and trustees of GBCS should not be blamed for the misuse of trust funds. Had they been given a copy of the agreement to read, they would have easily seen as problematic the lack of accountability to the provisions. No organization is compelled to accept assets. However, provisions of a trust or endowment should be carried out by the church once the assets are accepted. Anytime an organization feels it cannot carry out those provisions the organization has an ethical, moral and Christian obligation to refuse the assets or turn them over to another trustee. What’s at stake here is whether the United Methodist Church can be counted on to carry out its trust and endowment agreements.
Joe Whittemore, a retired CPA, is a member of Hartwell First and has been active in general church work for the past twenty years and former member of the United Methodist Church’s Committee on Audit and Review.
