Donald Munro

Fresno Grand Opera reports financial misconduct to state attorney general

“Pirates of Penzance,” at the Saroyan Theater, was among Fresno Grand Opera’s productions in 2011.
“Pirates of Penzance,” at the Saroyan Theater, was among Fresno Grand Opera’s productions in 2011. Fresno Bee file

The Fresno Grand Opera charged Thursday that former key employees were involved in financial irregularities, conflicts of interest and improper corporate governance.

The opera company, led since December 2014 by a new board and general director Matthew Buckman, delivered a ream of documents, a scathing internal report covering 2009-14 and a list of allegations to the state attorney general’s office on May 16. As part of the self-reporting process, the company says it will amend and refile its Form 990 tax filings for the period covering 2010-14. The attorney general’s office is the enforcement mechanism for keeping the state’s nonprofit organizations (also called community benefit organizations) in legal compliance.

“It was very disturbing to discover these issues upon my arrival to the company,” Buckman said. “Our goal here is only to establish trust and credibility in our community.”

The allegations are directed at Ronald D. Eichman, the opera’s former general director; and Thi Nguyen, the former associate director. Eichman said the opera company “operated appropriately” during his tenure.

It is uncommon for an organization to “self-report” to the attorney general, said Don R. Simmons, a Fresno State professor and expert in in philanthropy and community benefit organization governance.

The attorney general’s office does not have a policy specific to self-reporting and would neither confirm nor deny receipt of the report. “We review complaints and information provided to our office but cannot comment on potential or ongoing reviews or investigations, in order to protect the integrity of any investigation,” a spokesperson said.

The current board and Buckman worked with a tax attorney and certified public accountant after a general investigation of the company’s books raised questions. The company posted a news release 1 p.m. Thursday on its website summarizing the allegations.

Among the issues raised in the internal report and documents delivered to the attorney general’s office, copies of which were shared with The Fresno Bee, are alleged falsification of tax forms, an alleged failure to disclose an outside business relationship with a for-profit company owned by key employees, alleged improper accounting methods misrepresenting the organization’s true financial health, and allegations that board minutes were created several years after meeting dates.

The internal report and supporting documentation can be read at the Fresno Grand Opera office by making an appointment, Buckman said.

There is no evidence that the Fresno Grand Opera board in place from 2010-14 was aware of the financial irregularities, Buckman said. The report states that when one board member questioned why the board was not provided with regular financial reports, the response was that an “environment of trust” and informality was part of the company’s corporate culture.

When reached Thursday for a response, Eichman said he would not comment on individual allegations because he hadn’t yet read them, and he declined to listen to them read over the phone. But he offered a general response: “It’s been nearly two years since my departure from the company, and during my 16-year tenure we operated appropriately, transparently and within all parameters of nonprofit corporate regulation. We have operated with independent audits, all available transparently for disclosure.”

Eichman added that it is his understanding that the company has transitioned its programming significantly from the type it once offered.

“I am aware they have struggled significantly with ticket revenue. I’m sure the current administration and board of directors are operating within the context of what they think and feel is appropriate for the community, but that programming and selection related to it must be consistent with the preferences of audiences in the Central Valley.”

Nguyen, reached by phone Thursday, said he concurred with Eichman’s response and did not want to comment further at this time.

Eichman and Nguyen left the organization in 2014 as part of a leadership and board transition that aligned Fresno Grand Opera with Modesto’s Townsend Opera. Under the partnership, Buckman works for both companies, which share programming but retain separate budgets and boards of directors.

“As a community organization that relies on the generosity of patrons and donors, the FGO Board of Directors feels obligated to publicly disclose the issues we’ve discovered and the corrective actions we’re taking with the attorney general’s office,” said current board president Richard Jennings in the news release. “We are working actively with them to address their concerns, and look forward to moving on to the important work of securing our company’s place in the community.”

In a follow-up interview, he added: “It has to be done because we need to clear the air as an organization and get on with what we were called to do.”

Jennings was the only member of the old board to remain after the leadership transition. He joined the board in 2013. Other current board members are Desiree Castro, Rebecca McGregor, Gerald Palladino, John Shore and Colleen Tudman.

Two members of the old board, Edward L. Fanucchi and Jane Bedrosian, declined to comment when reached Thursday by The Bee.

The report depicts an organization that has consistently been in debt between $200,000 and $365,000 since the end of the 2009-10 fiscal year.

With a current budget deficit of $250,000 out of an annual budget of $500,000, Fresno Grand Opera still faces major financial challenges. Buckman said he has not been paid for 15 months. He has forgiven that debt so it is no longer on the company’s books.

At the same time, the company has had some major artistic successes, including top-notch productions of “A Streetcar Named Desire” and “Dead Man Walking” and an expanded calendar of smaller concerts and events. Plans are moving ahead for next season, including auditions in July. One advantage is that because of shared expenses with Townsend Opera, production costs are about 50 percent less than going it alone.

“We are operationally sustainable but are struggling with rumors and innuendo about past practices that have diminished our credibility in the philanthropy community,” Buckman said.

Key findings in the internal report include:

▪  Eichman and Nguyen ran a for-profit concert promotion company, New Win Productions, established in 2010, using Fresno Grand Opera’s administrative staff, insurance coverage, office facilities and established name on the concert circuit to finance a series of risky, big-name events, according to the report. “By commingling with the funds and operations of FGO, New Win Productions gained a significant benefit to their business,” the report states. “Beginning in December 2010, FGO began dealing with New Win Productions on concert promotion without the apparent knowledge or approval of the board of directors.”

▪  Official tax filings for three years were falsified, “failing to disclose the outside business relationship with an entity owned by key employees,” the report said.

▪  Fresno Grand Opera changed its programming philosophy in 2010 to a “high-risk, high-reward strategy” of big-name concert promotions and away from its mission statement of providing full-scale opera productions to the central San Joaquin Valley, according to the report. “Producing concerts by popular artists was not part of the mission of FGO until the formation of New Win Productions by key FGO employees Ron Eichman and Thi Nguyen, who then shifted the focus of FGO to align with their business interest,” the report said.

▪  In the 2011-12 season, concerts featuring Johnny Mathis in Bakersfield and Sacramento, Audra McDonald in Fresno, and Jackie Evancho in Fresno, San Francisco and Sacramento, were presented by Fresno Grand Opera. An unsigned contract on the opera company’s server “indicates New Win Productions and Fresno Grand Opera will co-produce and be equally responsible for any profits and losses” for the concerts, the report said. All those concerts made money, according to profit-and-loss statements in the report, with Evancho’s Fresno concert making the most at nearly $31,000. (The 2012 Renee Fleming concert, which coincided with a strike by musicians, had no connection to New Win Productions, Buckman said. It lost $86,352.54.)

▪  In the 2012-13 season, the report states that Fresno Grand Opera funds were used for four concert events contracted and presented by New Win Productions. The report states “an ‘agreement between the two companies, dated Sept. 1, 2012, was placed into the records of the company’ that made Fresno Grand Opera liable for any losses” on the concerts. This stipulation altered the previous relationship of equal partners. Five weeks later, a Kristin Chenoweth concert in Costa Mesa lost $14,868.94, and two days later a Chenoweth concert in Sacramento lost $54,230.93, which Fresno Grand Opera absorbed, the report states.

▪  The report states that Word document metadata indicates the board meeting notes dated Sept. 12, 2012, were created in November 2014, and the contract changing the profit-loss arrangement between Fresno Grand Opera and New Win Productions was created April 25, 2014. “This suggests they were created after the fact to alter the previous arrangement between FGO and New Win Productions, assigning responsibility for all losses to FGO,” the report states.

▪  In the 2011-12 fiscal year, the opera paid New Win Productions $40,000 in “production management” fees for services that would traditionally be considered within the scope of responsibility for the positions held by Eichman and Nguyen, the report states. According to payroll records from the 2011-12 fiscal year, Eichman received his $102,000 salary and Nguyen was compensated $68,750, so the payments made to New Win Productions would have been in addition to full salaries paid by Fresno Grand Opera, the report states.

▪  The company was left in a precarious financial situation after the leadership transition in 2014, the report states. Funds that should have gone toward the 2014-15 season were instead used to pay past debt, the report states. “Of the approximately $300,000 in debt paid prior to the transition, nearly one-third was paid to departing company leadership with little supporting documentation or reflection of debt owed,” the report states. “This left the company in a dire financial position from which it is still attempting to recover.”

▪  Eichman and Nguyen are involved with a new nonprofit corporation: Fresno Performing Arts. The organization’s 2015 990 IRS filing lists Avnell Daniels as chairperson, Nguyen as secretary and Eichman as treasurer. According to the Fresno Grand Opera report, there is a first reference to this organization on a board agenda in 2011 to a plan to take over Warnors Theatre. The plan focused on “raising money from current FGO donors,” the report states.

The documents provided to the attorney general paint a picture of an organization that was on a wild financial ride for years.

At the beginning of the 2013-14 season, for example, facing a $210,000 deficit, an enormous production of “Les Miserables” was planned, “the profits from which would eliminate the debt of the company,” the report states. That plan backfired. Following the January 2014 run of “Les Miserables,” key staff reported to the board of directors that the company required nearly $400,000 to pay off existing liabilities, the report states. At that point, plans were considered to pay down debt and close the company, but then the idea to partner with Townsend Opera was put into place.

Buckman said he was misled as to the financial state of the organization when he joined the company midseason and was provided with an impossibly optimistic budget for the remainder of the season.

A group of donors continued to bankroll the company through years of large budget deficits, the report states.

After the leadership transition, money from those donors dried up, Buckman said: “It’s been very challenging for me to engage with many of the past donors to the organization because they feel burned by or disrespected by or used by the organization.”

The company has been working with the attorney general’s office to remedy past practices, Buckman said. Monthly financial statements are approved by the board, and other revisions and safeguards to corporate governance have been put in place.

For its own investigation, the attorney general’s office asked for more documentation from the company, which was provided, Buckman said. “And they have asked us to inform them if we seek any kind of civil action,” he said. The board is still undecided on that option.

Because the attorney general’s office does not comment on ongoing investigations, it is not known if criminal charges will be filed.

Simmons, the Fresno State philanthropy expert, did not comment on the Fresno Grand Opera case specifically, but in general terms said the buck stops with a board of directors, not hired employees.

“The board has the ultimate fiscal and legal responsibility for the organization,” he said.

He has seen many examples of local boards that don’t have a firm grip on their organizations: “It can be sloppy and messy, and there’s not a lot of self-regulating,” he said.