PipeVine Inc., the San Francisco company that handled more than $100 million a year in donations before running out of cash this week, acknowledged Wednesday that it had spent some of the money earmarked for charities on its own salaries and other operating expenses, in violation of donors' wishes.
In addition, PipeVine said that an internal investigation had uncovered serious accounting problems dating back at least two years that "masked a serious shortfall in revenue" until it was too late to avert a shutdown.
It's still unclear how much money PipeVine owes charities, but sources said it was at least $100,000 and could well reach into the millions of dollars.
Though PipeVine's name isn't well known, it handled employee donations for the United Way of the Bay Area and several Fortune 500 companies.
The local United Way, PipeVine's biggest customer, relied on the nonprofit corporation to handle more than $40 million in donations collected from employees at 600 companies to support 6,000 charities.
PipeVine also processed donations for McKesson, Clorox, ChevronTexaco and other companies as well as other United Way affiliates and Network for Good, a San Francisco Web site set up by Cisco, AOL and Yahoo to let users give to thousands of charities.
California Attorney General Bill Lockyer may recommend a process to sort through PipeVine's accounts.
Some charities haven't been paid in months or received only some of the money they were due.
The Korean War Project, for example, hasn't received $1,300 it was expecting over the past few months.
Indeed, because of the problems, the Dallas nonprofit has scuttled plans to take a tribute to Korean War veterans on the road this summer to commemorate the 50th anniversary of the end of the conflict in July 1953.
"This is a total disaster for us," said project founder Hal Barker, a carpenter and son of a Korean War veteran who modeled the monument after the Vietnam Memorial. "Our Traveling Memorial is now dead, since we are going to have to announce that three or more months of credit card donations are suspect."
Other nonprofits weren't sure how much money they were owed, saying they received sporadic checks from PipeVine but had no way of knowing how much donors actually gave.
'DIFFICULT TO TRACK'
"The documents that they send us make it difficult for us to track the donations, especially when donors want to remain anonymous," said Paul Ash, executive director for the San Francisco Food Bank, which received $68,000 from PipeVine last year.
Some local nonprofits pointed out that they received only a small percentage of their revenue via PipeVine.
The Alameda Community Food Bank, for instance, received less than $1,000 a month from PipeVine. Its annual budget tops $14 million.
The United Way of the Bay Area, however, has offered to use its nearly $5 million in reserves to cover any donations collected in its fund-raising drives. And some other organizations, such as Clorox and Network for Good, have also offered to make sure that any missing donations are replaced.
In addition to nonprofits, the quick shutdown of PipeVine also affected employees, who complained they weren't given severance pay, sick pay or warning of the closing.
"Employees are very angry," said Melissa Villa, a former data analyst at the firm. "As far as I am concerned, PipeVine is the Enron of nonprofits."
Still, PipeVine said it had uncovered no evidence or theft or fraud so far and said board members had first learned about a possible accounting problem in February.
Initially, PipeVine said its auditor, Grant Thornton, hadn't found any major problems. But then PipeVine hired a second firm, Hood & Strong, to conduct a more thorough review in March.
After several weeks, Hood & Strong found PipeVine's financial statements "did not reflect the full amount owed to charitable organizations and in addition overstated its revenue."
Hood & Strong advised PipeVine that it needed further analysis to calculate the correct financial figures.
Regardless, PipeVine said one of the biggest problems it found was that it was spending more than it thought.
Typically, PipeVine pocketed about 7 cents of every $1 in donations as a processing fee. But PipeVine said it belatedly realized it needed 8 to 9 cents to cover its costs.
But observers said they were also stunned to learn that PipeVine used the same fund to pay charities and employees, instead of storing donations in a separate account.
"That's a no-no," said Daniel Borochoff, president of the American Institute of Philanthropy in Chicago.
Anne Wilson, chief executive of the United Way in the Bay Area, said she had no idea PipeVine was using the same account to house donations and pay its employees.
"It violates good sense," Wilson said. "There was no indication that this was how they were operating."
THE PIPELINE OF MONEY TO PIPEVINE
How PipeVine worked with companies and charities:
1 ChevronTexaco, Macy's West, McKesson, AT&T and several other companies signed contracts with PipeVine Inc. in San Francisco to handle their employee contributions to nonprofits.
2 The United Way worked with companies to create employee pledge forms, or companies came up with forms on their own. They distributed the forms to employees.
3 Companies collected the pledge forms and sent them to PipeVine. In some cases, charities were told about the pledge. In other cases, they weren't.
In other cases, the United Way regional affiliates agreed to run the employee fund-raising campaign at the companies. In turn, the United Way signed deals with PipeVine to process the pledge forms and money.
4 Companies would deduct money from employee pay and send the money to PipeVine quarterly or monthly.
5 PipeVine matched the money with the pledge forms, and forwarded the money to the right charities. In the case of the United Way, PipeVine pocketed about 7 cents of every $1 (for small gifts) as a commission.
6 In some cases, donors designated a United Way fund, such as one focused on education, as the recipient. In those cases, PipeVine would send a check to the United Way, which in turn would divide the money among nonprofits.
7 Thousands of nonprofits received checks from PipeVine. But there is concern that some of the donations never reached them.
Source: Chronicle research
Chronicle staff writers Carrie Kirby and Verne Kopytoff contributed to this report. / E-mail Todd Wallack at email@example.com.
©2003 San Francisco Chronicle