Hershey School's board, despite orders to be frugal, runs up big expense bills

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Some Hershey trustees used limousines when they flew into the Philadelphia or Baltimore airports and needed rides to Hershey.

The directors of the Hershey School oversee an educational facility in central Pennsylvania for impoverished children, but you might not know it from their expense reports.

Eight directors ran up an $18,000 tab for a weekend board meeting last June at New York's Waldorf-Astoria hotel, according to internal records obtained by the Inquirer.

All 10 spent $362,000 in travel, meals and hotels over the last 21/2 years, including at least 60 limousine rides, often from the Philadelphia and Baltimore airports.

Then there was the $6.9 million that board members were paid for their service over the last three years, an unusually lucrative perk for a board overseeing a school for poor children.

Lavish spending - a concern at the super-rich trust - is being sharply questioned again by regulators at the Pennsylvania attorney general's office who tried to curb directors' compensation and expenses in a 2013 agreement between the $12 billion Hershey Trust and the state agency.

Mark Pacella, the chief deputy attorney general who oversees nonprofits, has warned trust officials that the charity may have violated the 2013 agreement. Pacella also questioned the legitimacy of limo rides, airfare and board compensation, internal trust memos show, and is asking directors to return compensation deemed excessive.

Board members could not be reached for comment or referred questions to trust spokesman Kent Jarrell, who said that the trust had followed the rules it agreed to.

"Policies concerning compensation, travel, and expenses, as defined in the 2013 agreement with the Attorney General's Office, have been scrupulously followed by the boards," Jarrell said in a statement. "And since the agreement went into effect, no directors have been reimbursed for first-class travel."

The trust, which has been negotiating with Pacella since January, expects "to resolve outstanding concerns," Jarrell added.

Pacella declined to be interviewed.

The expense documents obtained by the Inquirer describe hotel stays, limo and cab rides, flights, and meals, and represent the first public airing of the trust board's expenses. The 36 pages include more than 1,000 entries starting right after the agreement with the attorney general was signed in May 2013 and extending to last September.

The Hershey Trust, say experts who have followed it for years, has become too rich for its narrow mission of educating poor children in rural Hershey, leading to temptation for directors.

The trust controls the publicly traded chocolate company, the state-chartered Hershey Trust Co. bank, and the Hersheypark attraction.

The 2,000-student Hershey School itself is on a 10,000-acre trust-owned property in the Hershey area, established by Milton and Kitty Hershey in 1909.

"It looks from a distance like the [Hershey Trust] needs a real housecleaning in the board room," said Randall Roth, a trust law expert at the University of Hawaii's William S. Richardson School of Law.

Roth, a national expert on trust law, said some Hershey directors seem to be treating the trust fund for poor children as a "cookie jar" for their own benefit.

"These piecemeal reforms aren't getting it to where it needs to be," said Jonathan Klick, a professor at the University of Pennsylvania Law School who has written on the Hershey Trust. "The whole set-up is bad from top to bottom."

Klick said he believes that the trust should be dissolved or the organization restructured.

Besides an attorney general probe on spending and board infighting, the Hershey School is facing many challenges. Eleven former Hershey students have begun lawsuits over the actions of a gun-toting employee who was caught spying on male seniors in the shower with a hidden camera. In May, a Hershey School house father was charged by local law enforcement with inappropriately touching an 11-year-old student in his care, the second such case in two years.

The Justice Department also is investigating whether the school expels students with mental-health problems and fails to enroll physically disabled children.

Students live in more than 150 school-owned homes staffed by employees on the Hershey property. Critics say the decentralized setting holds too much potential for abuse.

About a quarter of the students are from Dauphin, Lebanon and Lancaster Counties, and nearly half come from other parts of Pennsylvania, including Philadelphia. The remainder come from other states.

The trust's 2013 agreement with the attorney general set retainers and fees per meeting among board members in a bid to hold down payments.

But pay increased after the agreement was put into effect with the addition of two board members for at least part of the year. Board members earned $1.8 million in fiscal 2013, the year before the agreement, and $1.9 million the first year afterward, tax returns show.

The highest-paid were Philadelphia-area money manager James Nevels, who received $1.7 million over the last three years, and Robert Cavanaugh, a former trust board chairman and a Los Angeles resident, who earned slightly more than $1 million.

Directors such as Nevels and Cavanaugh earned such compensation because they sat on the Hershey Co. chocolate company's board as well as that of the trust's bank.

The trust controls the Hershey Co. chocolate giant through a super-voting class of stock and can replace the board for poor performance. But the trust exercises no direct management over the chocolate company, which has its own board of directors and executive team.

The trust does receive Hershey Co.'s dividends, propelling the trust's assets to $12 billion, about 10 times the endowment of Phillips Exeter Academy. The trust's sole purpose is to fund the Hershey School.

Disputes over expenses were supposed to have been resolved by the 2013 attorney general agreement. Directors agreed to heed a state-mandated travel expense and reimbursement policy.

Directors travel to attend six Hershey Trust board meetings, most often lodging at the trust-owned luxury Hershey Hotel. The board also holds an annual retreat and other events such as the one at the Waldorf in New York.

Records show that the trust paid about $650 a night and two of the board members stayed four nights at the Waldorf, running up tabs of almost $2,600 each.

Trust spokesman Jarrell said the Waldorf was "an appropriate location because New York City was a convenient place for traveling board members to come together, and we were able to get a competitive and reasonable rate."

Four directors who lived outside Pennsylvania or New York - former chairman Cavanaugh; Joseph Senser, of Minneapolis; and Joan Steel and Robert Heist, both of the Chicago area - accounted for nearly all the airfare expenses.

They billed the charity about $113,000 in airline tickets and change-seat fees over 2½ years, including 40 airline seat upgrades or choice seats in 2014. The records describe flights with the notation "air" and do not say whether those tickets were first-class.

Limos were a favored mode of transportation for directors who flew into the Philadelphia or Baltimore airports and needed rides to Hershey. Records show that limo costs ranged from $250 to $500 a trip, and the total bill for limos came to about $20,000.

Cavanaugh, who helped his son obtain a $13,000 summer internship in 2015 with one of the trust's asset managers, had the highest expenses over the period: $82,520.

Jarrell said Cavanaugh's expenses were "consistent with the fact that he lives on the West Coast."

Senser, a former player with the National Football League's Minnesota Vikings who lives in Minneapolis, was the second-biggest expense account user, at $74,670.

Senser, Cavanaugh, and Heist are Hershey School alumni, and they charged a total of about $9,840 for attendance at homecoming in 2013 and 2014, a perk unavailable to other alums.

A fourth alum, retired Marine Lt. Gen. Richard Zilmer, was a trust board member who lives in Pennsylvania. He did not file expense reports for homecoming costs. Zilmer resigned his trust position amid board infighting in 2015.

Trust board members are asked to attend homecoming and other school events to expose them to school operations, Jarrell said.

Board members with the smallest expenses included Drexel University president John Fry, who was reimbursed $7,942 for travel. Fry even itemized $6 for a phone call and paid the trust back.

David Saltzman, the head of the poverty-fighting Robin Hood Foundation in New York, joined the trust board in January 2015. He was reimbursed $4,699 for travel expenses, the least of any board member. He was on the board for the shortest time. He mostly traveled between New York and Hershey on Amtrak, but also took a limo twice for that trip.

"I took a car service because there were no trains that would get me in early enough to make it to the meeting on time," Saltzman said by email. "I far prefer the train because it is cheaper."

Staff writer Dylan Purcell contributed to this article.

bfernandez@phillynews.com215-854-5897@bobfernandez1

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