United Way Chief Orders 2 Executives to Repay Loans

The chairman of the Los Angeles-area United Way last week ordered the immediate repayment of unsecured loans that were made to two of the charity’s executives in 1982 from money donated by the public.

Since 1980, more than $300,000 of donated money has been loaned to five top employees, United Way records show, and two loans are still outstanding. More than $183,000 of the loans are unsecured and $217,000 of the money was loaned interest-free. Three of the five recipients made no payments or only token payments on the loans until last week.

Three newly hired executives received loans to relocate in Southern California. A fourth executive was already in Los Angeles but got relocation assistance anyway. The fifth loan, the only one on which timely payments were made, went to an executive who faced extraordinary medical costs.

In a series of interviews last week, United Way Chairman Roy Anderson said that upon learning of the loans from The Times and another source, whom he did not identify, he asked for an explanation from Francis X. McNamara Jr., the charity’s president and chief staff officer.

“I don’t think the (unsecured) loans should have been made and that’s why I called them (ordered them repaid),” Anderson said after speaking with McNamara.

Anderson, who is also chairman of Lockheed Corp., said that corporations and nonprofit organizations sometimes make short-term secured loans, or arrange them through banks, for key employees who are being relocated or face extraordinary expenses, such as illnesses. He added, however: “I don’t like the idea of United Way or its agencies loaning money to employees.”

Anderson said that neither the board of United Way Inc., nor its executive committee was told about the loans. He said that United Way should have a formal policy if it is to make any such loans. And he said he will propose that the 95-member board of directors consider the issue.

McNamara, the United Way president who arranged all of the loans, said Saturday he saw no need to bring the matter to his board and noted that he consulted privately with several key board members about the loans.

McNamara said that among those he spoke to were Walter Gerken of Pacific Mutual Life Insurance, who was then chairman of United Way, and George Moody, president of Security Pacific National Corp., who was chairman of United Way’s administration and finance committee at the time some of the loans were made. Neither could be reached for comment Saturday.

The loan amounts--but not the terms and conditions--are listed in United Way’s 1985 federal tax return.

Receiving the loans were:

- Alice McHugh of Santa Monica, senior vice president for planning and resource development, who got a partially interest-free, $15,000 loan in November, 1982, and made no payments on it until Friday, when she paid off the principal and the simple interest due. McHugh was charged 10% interest, but only on $10,833 of the loan. The other $4,167 was interest-free.

McHugh had already moved from Boston to Southern California when she was hired, but was loaned the money as if she had been relocated by United Way, McNamara said. McNamara said he was unaware McHugh had failed to make any loan payments.

- Gary Erickson of Oxnard, executive vice president until he resigned in February, 1985. Erickson got two loans in 1982 totaling $25,000 at 10% interest because of extraordinary medical and death expenses. Erickson made all the payments on time and paid off his balance in full last Wednesday.

Kenneth R. Wilcox of Valencia, senior vice president in charge of fund-raising, who got two loans starting in 1980 totaling $110,955 to help him relocate here from Cleveland. No payments are required on a $48,055 loan, secured by a third mortgage on his house, and he has made no payments on an unsecured second loan of $62,900 at 12%. Wilcox, who lost $30,000 in a previous house deal, said he will begin making payments on the second loan.

- Michael J. Pfaff received a $9,750 relocation loan in January, 1982, when he came here from Toronto to become executive vice president. The loan was repaid when Pfaff left nine months later. He is now a United Way executive in San Francisco.

- Kaj Sorenson of Thousand Oaks, who was an associate regional vice president when he left in April, 1985, received a series of loans beginning in 1980 to help him relocate from Columbus, Ohio, where he lost more than $100,000 on a house.

When he resigned from United Way last year, his $165,328 in loans were made interest free provided that he made timely payments.

Sorenson, who is unemployed, has made $750 in payments since he left and says he doubts that he will ever fully repay the loans. The loans are secured by second and fourth mortgages on his house.

Sorenson, who said he was “fortunate to get the loans,” said he warned United Way officials that making large loans of donated money was “a bad practice.”

McNamara said the Wilcox and Sorenson loans were made “at a time when the prime rate was 21%, when we were trying to bring the best people here from the East Coast and they got caught at the end of the housing market (boom).” He added that “sometimes you have to make a decision that is in line with what other nonprofits are doing.”

However, several consultants in nonprofit management said that while such loans are not unheard of, they are unusual and should be approved by the board of directors.

“A loan to an employee, if it’s going to be made, should be fully and thoroughly discussed with the entire board of directors and they should require extensive, I mean extensive, documentation, security, an interest rate and a repayment schedule,” said Susan Scribner of Green, Scribner and Co., a Los Angeles firm that consults on nonprofit financial management.

Erickson’s timely payments began with deductions from his paycheck. McNamara said he never suggested this to the others because “it would be inappropriate to, in effect, garnishee the wages of a professional employee.”

Largest United Way

United Way Inc., which serves Los Angeles County and western San Bernardino County, raises money through corporate gifts and donations deducted from employee paychecks on behalf of about 350 nonprofit human care agencies. This year these charities will receive about $62 million through the charity, the nation’s largest single United Way.

The organization, which raised a record $85.5 million in pledges this year, has been wracked by growing internal strife as well as pressure to admit more minority volunteers and professionals to positions of power. It is also unusual among large charities in that it does not include a financial statement in its annual report.

McNamara said he regarded the loans as “personnel matters” and thus saw no reason to bring the matter to the attention of the board of directors, which holds public meetings. Because the matter was not going before the full board, he added, he saw no reason to bring it before the board’s executive committee, which meets privately.

Anderson said he will meet with McNamara this week to discuss the loans further and the future direction of the organization.

McNamara said he is confident that the two largest loans will eventually be repaid.

He said all but $7,000 of Sorenson’s loans are secured by mortgages. But Sorenson said his Thousand Oaks house is worth $80,000 less than the mortgages on it.

An ‘Equity Participation’

McNamara said that the $48,055 interest-free loan to Wilcox, the chief of the fund-raising staff, included “an equity participation that will mean a gain for United Way whenever the house is sold.”

Wilcox, however, said he has no knowledge of any equity-sharing arrangement. “It’s $48,055 of United Way money in and $48,055 out when I sell the house,” he said, explaining that he negotiated the deal with McNamara.

A second loan to Wilcox of $62,900 was secured by a deed of trust, McNamara said. But a search of property ownership records conducted on The Times’ behalf did not uncover such a deed.

McHugh, the planning chief, was already living in Los Angeles when McNamara hired her in late 1982.

“Her statement to me was that she needed a loan even to be able to rent. . . . She was already in town, but if I had found her and had had to move her here I would have had to do this so we made the loan,” McNamara said. McHugh declined to be interviewed.

McNamara said that interest on McHugh’s unpaid balance should have been compounded. “There will have to be an additional payment to cover that,” he said.

McHugh is the most controversial member of McNamara’s inner circle. McNamara acknowledged that one of his top aides and several other professional employees have quit after complaining that her style of management is abrasive.

“Don’t tag the people who got these loans,” Anderson, the United Way chairman, said, “blame the board.”