National Music Foundation
OCTOBER 5, 1999 · Read the full official report (PDF) ↗
Published OCTOBER 5, 1999 Under A. Joseph DeNucci · 1987–2011
source
“Our audit disclosed that the NMF was not in compliance with a number of provisions of its grant agreements.”
Read the plain-English breakdown
This is a 1999 Massachusetts State Auditor report about public money given to the National Music Foundation for a planned music center in Lenox.
“The National Music Foundation, Inc., (NMF) is a private, nonprofit corporation originally incorporated in the state of Florida in 1987.”
The Auditor looked into the foundation after receiving concerns about how a $2.5 million state grant was being used and whether grant rules were being followed.
“The Office of the State Auditor received correspondence expressing concerns about both the use of the $2.5 million in state grant funds as well as whether other stipulations of the grant were being met.”
As a taxpayer, the key issue is whether public money was protected and whether the Commonwealth should get it back.
“In order to protect the Commonwealth’s interests, EOAF, on behalf of itself and the other funding agencies, should review this matter and consider seeking repayment of the grant funds totaling $3,660,000 from the NMF as a result of its sale of the property, as well as $280,785 of lost potential interest income.”
The Auditor recommended recovering $3.66 million in grants and $280,785 in possible lost interest.
“Grant Funds Totaling More Than $3.6 Million Plus Interest of $280,785 Should Be Reimbursed to the Commonwealth and Other Funding Agencies”
The report says state officials should review the sale, seek repayment, and protect the public’s interest before the property sale goes through.
“Pending resolution of this matter, the Office of the Attorney General, working with the Executive Office for Administration and Finance, should place a lien on the property or take other necessary action to protect the Commonwealth’s interest.”
The report is significant because it questions whether a nonprofit that received millions in public support had the finances, oversight, and compliance needed to justify keeping that money.
“The NMF’s demonstrated failure to accomplish its mission objectives, abuse and misuse of funds, and noncompliance with its contract agreements, coupled with the fact that the NMF property was improved largely with government funds, justify that all proceeds should be proportionally divided by state, federal, and local funding sources, and, at a minimum, these agencies should be fully reimbursed $3,940,785 for the principal grant amounts plus interest for the lost use of the funds, as shown below:”
A grant agreement is the rulebook for public funding. Here, the report says the foundation broke several rules, including how money was deposited and what it could be used for.
“Grant funds received from EOAF pursuant to this Agreement shall be deposited in an interest-bearing bank account and kept separate and distinct from all other accounts associated with the Center.”
16 figure(s) pending source verification - not shown
What the Auditor checked
- Did not comply Did the National Music Foundation implement effective management controls over grant program operations and resources?
- Did not comply Did the National Music Foundation comply with applicable laws, rules, regulations, internal practices, procedures, and grant requirements?
What the Auditor found
Why it matters: The state could not be assured grant conditions were met before funds were disbursed, and grant funds were used for unallowable administrative costs.
Standard: Executive Office for Administration and Finance grant provisions 2.1, 2.4, 2.5[a], 2.6[i], and 2.6[j] ( Grant provision 2.1; Provision 2.4 of the grant; Section 2.5[a] of the grant agreement; Section 2.6 [i] of the grant agreement; Section 2.6 [j] of the grant agreement )
1 recommendation
- EOAF should ensure grant recipients comply with grant terms before disbursing state funds.
Why it matters: Grant funds were not deposited as required, were not fully protected, and interest income that should be returned remained with the foundation.
Standard: Section 2.2 of the grant agreement ( Section 2.2 of the grant agreement )
2 recommendations
- The NMF should develop a formal cash management process for grant funds and return grant-generated interest to the Commonwealth.
- EOAF should require budgets, plans, and closer monitoring before making additional grant installments.
Why it matters: EOAF could not fairly assess whether the foundation was meeting its fundraising obligations under the grant agreement.
Standard: Section 2.5 of the grant agreement ( Section 2.5 of the grant agreement )
1 recommendation
- The NMF should report fundraising in a way that lets EOAF fairly assess compliance with fundraising obligations.
Agency response & Auditor reply
Agency: "NMF officials stated that EOAF allowed them to report income amounts from the prior period."
Auditor: "We might agree with reporting the gross revenues if the associated expenses were relatively insignificant, but, as shown in our analysis, the annualized expenses were not only material, but significantly reduce the NMF’s gross revenue."
Why it matters: The Commonwealth and other funding sources lacked assurance that assets were safeguarded, expenditures were efficient, and the foundation was achieving its mission and grant conditions.
Standard: Sound business practices ( 808 Code of Massachusetts Regulations (CMR) 1.05, Unallowable Costs )
1 recommendation
- The board should remedy management practices that allowed the deficiencies, and oversight agencies should consider unallowable and questionable costs when determining recovery.
Why it matters: Limited board participation weakened independent oversight of the President/CEO and the foundation's operations.
Standard: Office of the Attorney General guidelines for nonprofit board duties of care and loyalty ( Office of the Attorney General nonprofit board guidelines )
1 recommendation
- The NMF should amend its bylaws to return governing authority to the Board of Directors, expand board involvement, and consider removing the President/CEO from the board.
Why it matters: There was a strong likelihood that the foundation would not be able to pay its debts.
1 recommendation
- NMF officials should review fundraising strategies and determine whether payment deferrals are necessary.
Why it matters: The foundation could realize a gain generated largely by taxpayer-funded improvements while failing to meet its mission, fundraising, and grant obligations.
Standard: Section 5.6 of the EOAF grant agreement and Ready Resource Grant repayment provisions ( Section 5.6 of the agreement; Community Development Block Grant [CDBG] )
1 recommendation
- EOAF should seek repayment of grant funds and lost interest and the Attorney General should protect the Commonwealth's interest pending resolution.
Agency response & Auditor reply
Agency: "Lastly, the NMF’s President/CEO informed us that, as far as she is concerned, the NMF has done remarkably well in fundraising."
Auditor: "We strongly disagree with the contention of the President/CEO regarding her fundraising efforts and responsibilities for the following reasons:"