News & Information
Letter from the Department of Justice regarding the investigation of Joan Steelhammer and Gary Everett, Founders of Equine Outreach, dated 10/25/2017 and received via email 10/30/2017:
Equine Outreach, Inc. (EOI) is an Oregon public-benefit corporation located in Bend, Oregon that provides rescue and care to abused or neglected horses. Equine Outreach was founded in 2004 by Joan Steelhammer and Gary Everett (the founders). EOI's operations are located on real property owned by Ric-O-Chet LLC, an entity controlled by Mr. Everett, and currently leased by EOI on a month-to-month basis.
In October 2016, the Oregon Department of Justice, Charitable Activities Section, learned that the board of EOI had resigned following a dispute with the founders. The Department issued an Order to Attend and Produce Documents to EOI seeking documents and information that should be maintained in the ordinary course of business. After granting several extensions of time to respond, counsel for the founders produced some documents to the Department. After reviewing the documents, the Department notified counsel of the deficiencies in the production by letter dated August 1, 2017. Counsel produced additional documents to the Department on September 11, 2017, and acknowledged that EOI's recordkeeping had been lacking.
During the Department's investigation, the founders recruited new board members and resigned from their positions as officers and directors of EOI. The new board of EOI and Ric-O-Chet have been unable to negotiate a new lease, and counsel for the EOI board notified the Attorney that the board had voted to dissolve EOI on October 17, 2017. The EOI board is currently in the process of assessing its assets and liabilities and seeking to rehome as many horses in EOI's care as is possible. Information about closing and dissolving a charity in Oregon is available at https://www.doj.state.or.us/charitable-activities/starting-or-closing-a-charity/closing-and-dissolving-a-charity/. I have enclosed a Closing Form to assist EOI in that regard. In light of the planned dissolution, the Department is closing its investigation without further action.
Although the Department is closing its investigative file, we remain concerned about the founders' past governance and administration. Our investigation revealed significant failures with respect to corporate recordkeeping. For instance, EOI was unable to produce complete board meeting minutes prior to 2015, never produced balance sheets or detailed transactions for balance sheet accounts, produced incomplete credit card statements, and produced incomplete accounting records for payments made to the founders. Those failures not only constituted violations of Oregon law, see ORS 65.771, but they have hindered the Department's (and the board's) ability to determine whether EOI's assets have been properly expended and whether the conflict-of-interest transactions were fair to the corporation.
The records EOI did produce reflect deficient accounting practices. EOI operated on a cash-basis accounting method, where liabilities are recorded only when satisfied, not when accrued. For example, credit card charges were not recorded until the bills were paid, leaving the board unaware of outstanding balances. In-kind contributions, valued at approximately $900,000 during the period under review, were often not recorded at all, nor were the corresponding expenses and capital improvements. Depreciation expense was also not recorded in EOI's books, resulting in assets being overstated and expenses understated. Transfers of funds between EOI's two checking accounts were incorrectly booked as revenue and expenses. Such practices resulted in financial statements that did not provide the board of directors with a true picture of the overall financial health of EOI and rendered the current board unable to effectively develop a budget and plan for EOI's financial future.
Under the founder's leadership, EOI also did not observe internal financial controls, including by causing EOI to engage in improperly documented conflict-of-interest transactions. During the period reviewed by the Department, the founders received improperly documented reimbursement for personal credit card expenses of approximately $124,000 and made over $12,000 in other undocumented payments to the founders. While these reimbursements may have related to EOI expenses, due to a lack of appropriate documentation, we are unable to conclusively determine the nature and purpose of these payments. EOI also leased property from Ric-o-Chet LLC, and EOI paid for capital improvements to the property. Again, due to inadequate recordkeeping, we are unable to determine whether those conflicted transactions were properly approved or fair and reasonable to EOI.
While the founders made personal and financial contributions that benefitted the organization in addition to receiving payments from EOI, the organization's lack of records has made it difficult to assess the net value of the transactions between the organization and the founders. The past lack of compliance with ORS 65.361, which sets forth procedures for handling conflict-of-interest transactions, may have contributed to the parties' current situation and difficulties in reaching agreement on the terms of a lease. Unfortunately, even when conflicted transactions seem initially beneficial to the organization, it is not uncommon for charities that depend heavily on business relationships with their founders to collapse or close suddenly when the founders withdraw or are unable to provide further support. Charitable fiduciaries that have business ties to the charities they oversee often fail to make appropriate succession plans or to develop alternatives arrangements to their own continued involvement. In the long run, organizations that develop and grow through relationships with unrelated parties are often stronger and in a better position to withstand changed circumstances.
We are not aware of any plans by Mr. Everett and Ms. Steelhammer to establish or serve in a fiduciary capacity for another horse rescue or other charitable organization. However, should they consider such activities in the future, we strongly encourage them to consult with legal counsel and obtain other training to ensure they understand and are able to comply with their legal responsibilities.
EOI has provided needed services to Central Oregon, and it is regrettable that the new board will not be given the opportunity to continue to provide those services. The Department urges the founders to cooperate fully with the board's efforts to wind up EOI's corporate affairs.
Heather L. Weigler
Senior Assistant Attorney General