After about a month break, I am resuming this series.
In CEO and founder K.P. Yohannan’s recent “exclusive personal response” to the fraud lawsuit settlement involving Gospel for Asia, Yohannan traces GFA’s problems to a 2015 “confidential letter from a financial standards association we were part of, and of which we were a charter member.” That letter was from the Evangelical Council for Financial Accountability and outlined 17 potential violations of ECFA financial standards. In October 2015, ECFA evicted GFA from membership. To help donors understand the nature of the concerns ECFA had about GFA, I am posting the concerns one at a time with commentary. You can read all of the posts by clicking this link.
From that letter, here is the sixth compliance issue:
6. GFA solicits funds for narrower purposes than the eventual expenditure of the funds.
During ECFA’s review on August 12, GFA staff provided a document to demonstrate the flow of funds from GFA to field partners. ECFA learned that donor-restricted donations are appropriately tracked by particular revenue classifications. However, we also discovered, and it was confirmed by GFA staff, that the disbursement of the gifts are tracked in much broader categories. For example, donations were received and tracked for 38 different specific items including kerosene lanterns, bio sand filters, chickens, manual sewing machines, blankets, bicycle rickshaws, and others, but related expenses were only tracked as “community development.” In other words, donations were raised for 38 specific items, with the donations pooled for expenditure purposes instead of expending them specifically for the purposes raised.
ECFA did not find any evidence that donors to the 38 different giving categories had awareness that their gifts were grouped and used in a broader category than the specific categories in which the gifts were raised. ECFA’s staff raised concerns regarding GFA’s compliance with ECFA Standard 4, 7.1, and 7.2 in raising funds for a particular purpose but then failing to document the actual use of those funds by the particular donor-restricted purpose.
Subsequent to this conversation, on August 16, GFA staff indicated that GFA field partners will begin tracking expenditures by specific item accounts to provide adequate transparency as to the use of designated funds.
Our review of the board minutes did not indicate the GFA board had approved, or even been notified, that gifts solicited for very specific purposes were not being expended with the same specificity as the gifts were raised.
GFA led donors to believe their funds had been spent for specific items but there was no way to know if such intent had been followed since there was no documentation of that use. This policy had not been approved by the board. However, after this the board would have been alerted via the letter.
Francis Chan was on the GFA board by this time and had reassured people that he had sent in personal auditors to make sure funds were being spent as intended. Here is a May 15, 2015 email from his organization Crazy Love to me:
He has even gone to the lengths of sending two different auditors/accountants to research their financial practices. Both have come back with glowing reports.
His auditors/accountants missed a whole bunch of violations of ECFA standards. Chan continues to use this story. However, we know that GFA was kicked out of ECFA in October for numerous violations. GFA promised that they would reapply for ECFA membership which they have not done. GFA has not released audited financial statements. They have not disclosed to donors that their charity registration in India has been revoked.
Next: GFA’s financial statements do not appropriately report transactions with foreign partners.