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Should Citizens Alliance continue paying Ruth Arnao's legal bills?
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Karen Heller: Nonprofit spends to defend director's deeds

Dear friends, it's time for another installment of the continuing soap opera Other People's Money.

Please remember at all times that those Other People would be You.

As it turns out, when people who believe in OPM get in trouble they turn to the same source to fund their legal bills: You.

Indeed, they can be more generous with your money paying criminal-defense lawyers than making charitable donations.

Citizens Alliance for Better Neighborhoods - a pet project of recurring OPM matinee idol Vince Fumo - spent $1.5 million on lawyers while its executive director, Ruth Arnao, was being investigated by the FBI and IRS for misuse of funds, according to its 2005 and 2006 tax returns recently made public.

In 2006, with assets of $24 million, the Alliance granted $208,000 to local charities, slightly more than a quarter of what it spent on lawyers.

Arnao was paid $100,000 that year - nearly half the amount dispensed on charity, and quite a comedown from the almost $153,000 she earned in 2005.

Then again, she resigned in early June, due to the criminal investigation. Arnao was formally indicted in February 2007 on 45 counts, including fraud and obstruction of justice.

The indictment charges that Fumo and Arnao defrauded the charity and "persistently used funds and employees of Citizens Alliance for their personal and political benefit," and "caused a loss substantially in excess of $1 million."

Expenditures included such essentials as tiki torches, $100-a-gallon white paint, and 17 Oreck vacuum cleaners.

 

An Alliance of Citizens

When Fumo served as a commissioner of the Delaware River Port Authority, a drama in itself, he diverted $10 million of "economic development" funds to economically develop his charity. And as a ranking member of the State Senate, he obtained $17 million from Peco for Citizens Alliance.

You are the citizens behind his alliance.

Those bridge tolls and electric bills you paid allegedly went to making the lives of Fumo & Friends so much better, according to the federal indictment.

Of the 267-page indictment, the Washington Post raved: "It's a deliciously entertaining document that should be read by every political-science student in America."

It's not so delicious or entertaining when it's your money.

Is it legal for a charity to spend money on lawyers defending its director against charges of allegedly misusing that money?

Depends on the expert.

"Absolutely. A Pennsylvania statute provides for it. It's in their right to pay the legal bills for people who are being sued because of activities in connection to the charities," says Philadelphia lawyer Donald W. Kramer, an expert on nonprofit issues.

"This sounds like another misappropriation," says Marcus S. Owens, a lawyer, authority on nonprofits, and a former head of the tax-exempt division of the IRS.

"To me, there's a difference between paying for some suit that's in one's service to the organization that has been approved by the board, and another in paying legal bills due to the unilateral taking of the assets."

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