Audit Of California Avocado Commission Raises Questions Of Use Of Funds And Governance Policies
Jim Prevor’s Perishable Pundit, January 13, 2009
The last few days have not been filled with great publicity for the avocado industry. The New York Times ran a piece entitled, Report Outlines a High Life for Advocates of Avocadoes, which gave this report:
Luxury suites. Shopping sprees. Four-star hotels. Such was life in the high-flying world of the California Avocado Commission.
That, at least, is the image presented by a blistering report released last week by the California Department of Food and Agriculture, which painted the commission, a state-established trade group financed by growers, as a kind of free-spending, avocado-gone-wild farm party….
… an internal audit had uncovered about $300,000 in dubious expenses, and the state report outlines scores of charges including some $39,000 spent by commission employees at upscale clothiers like Ann Taylor and Nordstrom.
The audit also found $17,000 improperly spent on home improvements, including a garage renovation, for an unidentified commission employee who also charged the commission for the purchase of an iPod, a satellite radio, a plasma television and a vacuum cleaner. Those charges were later reimbursed.
The Los Angeles Times headlined its piece, Audit of California Avocado Commission Uncovers At Least $1.5 million in Questionable Spending, and also focused on the “high-life’ angle:
Something has been rotten at the state agency behind a splashy $7-million annual marketing blitz on television, billboards and in food magazines to promote California-grown avocados, a new state audit indicates.
Employees and board members at the obscure, Irvine-based California Avocado Commission enjoyed lavish perks and benefited from as much as $2 million in questionable spending in the last three years, the audit concluded.
Among the benefits to staff members cited by the auditors were home remodeling projects, tickets to sporting events, gym memberships and vitamins, regularly delivered restaurant meals, clothing from high-end retailers described as uniforms, generous auto allowances and $850 hotel rooms at four-star resorts.
During the three-year audit period, the commission’s 18 employees used commission credit cards to run up more than $1.5 million in charges for “a significant amount of discretionary expenses that appeared questionable at best and even personal at times,” the report said.
About $17,000 was spent on gifts, meals and flowers to celebrate employees’ birthdays, employment anniversaries and other special occasions, the report said. An additional $39,000 purchased clothes at Nordstrom, Talbots, Ann Taylor and other stores that the commission dubbed “uniforms” after spending $8,700 to embroider the commission’s name and logo onto them.
Commission board members, their spouses, guests and employees spent thousands of dollars on “massages, nail service, facials and body treatments” during meetings at the Ritz-Carlton Laguna Niguel and at luxury spas in La Jolla and Del Mar in San Diego County….
[Rick] Shade, the commission board’s chairman, said no employees had been fired for the spending cited in the audit. He noted that the commission’s former president, however, resigned from his $300,000-plus-a year job last May after 20 years so he could “devote more time to his church.”
Shade also said that it was the home of Mark Affleck, the former president of the commission, that was mentioned in the audit where $17,000 was spent on permanent improvements and listed on the commission books as “home office expenses.”
The board currently is negotiating with Affleck to repay the commission money, he said.
Affleck, reached at his home in Mission Viejo, said he could not comment because he was unfamiliar with the audit findings.
The San Francisco Chronicle focused its piece, Audit: Calif. Avocado Commission Misspent Money, more directly on Mark Affleck:
The former head of the California Avocado Commission misspent tens of thousands of dollars in farmers’ contributions to remodel his home office and purchase an iPod, plasma TV and other personal items, according to a state audit released Friday.
The California Department of Food and Agriculture audit claims that 18 employees, including Mark Affleck, who resigned abruptly last year after 20 years as the trade group’s chief, misused funds. They bought groceries, designer clothing, restaurant meals and other items.
Affleck, who now directs a global humanitarian ministry for the Rev. Rick Warren’s Saddleback Church, declined to comment Friday.
The commission chairman said Affleck has already repaid some of the expenses but the board is trying to secure more.
A spokesman for Warren, author of the best-selling “The Purpose Driven Life,” who will give the invocation at President-elect Barack Obama’s inauguration, said Affleck is a longtime parishioner “in good standing,” whose contract work with the church “has nothing to do with avocados or accounting.”
… The 89-page audit paints a picture of a freespending organization whose employees dipped regularly at the trough, charging up birthday gifts and flowers for colleagues, running personal mail through FedEx accounts and regularly charging lunches for the entire staff.
It says employees racked up more than $1.5 million on commission-issued credit cards from 2005-2008, the three fiscal years covered in the audit. Some of those charges were called “questionable at best and even personal at times.”
Seven executives received $9,500 a month car allowances, plus $750 a month to pay for gas and oil changes, the report said, adding the steep payments do not “seem to be in the best interest of the state.”
Rick Shade, a Santa Barbara avocado farmer and the organization’s current board chairman, said he believes a final tally will show staff misspent more than $300,000.
“I don’t expect the growers who are barely getting by to be happy with this at all,” Shade said. “Some things were outright wrong, and some an abuse of discretion.”
The board is negotiating with Affleck to pay back more than $17,000 he spent to build, paint and install air conditioning in a new home office in his garage, Shade said. The audit says Affleck — who Shade confirmed was “Employee A” named in the audit — also spent more than $24,000 on about 50 pieces of equipment including a plasma TV, an iPod and Bose headphones for use at home. Some items have been returned to the commission.
Affleck also approved cash bonuses for select employees, gave certain staffers $10,000 to buy cars and authorized senior staff to be paid as much as $3,000 to join gyms and spend on workout clothing, the audit said.
Between 2005 and 2008, commission staff also spent about $123,000 on season tickets for the Los Angeles Angels and Anaheim Mighty Ducks, and Affleck set aside “large amounts of tickets for his own use,” the audit said.
Affleck already has repaid “several tens of thousands of dollars” in questionable expenses, and the commission’s lawyer plans to report the cash bonuses to the Internal Revenue Service, Shade said.
… The trade group’s $17 million annual budget is funded by avocado growers, who are obligated to contribute 3 percent of their sales. When Affleck resigned in May, he was getting an annual $400,000 salary.
After Shade became commission chair in November 2007, he said new board members noticed a few accounting anomalies and decided to take a closer look at spending. Another commissioner then asked agriculture officials to move the Avocado Commission audit to the head of the line, and auditors arrived in May, just as the board revised expense policies and started yanking back staffers’ credit cards.
“You feel a sense of betrayal,” said Carol Steed, a San Diego grower spared by the wildfires that ravaged other farmers in the region.
Affleck took the reins of the commission when avocado prices were 23 cents a pound and the fruit had a reputation for being fatty and unhealthy. Today the price tops $1 a pound, bolstered by commission studies and marketing plans that tout that fat in avocados as contributing to healthy cholesterol levels.
“He was, in a lot of ways, an incredible leader,” Steed said. “It’s sad he could be potentially remembered for something like this.”
The report has been forwarded to the California State Department of Justice, and they will be looking for cause to bring charges.
Right now all the information isn’t out there and, so far, nobody has actually been charged with any crime. In fact, nobody has even been fired.
It is all very titillating but our take in reading the reports is that if 18 people in an organization the size of the California Avocado Commission were charging all these things on company credit cards, then it was almost surely authorized behavior. One person end-runs the rules, 18 people execute a policy.
So it seems highly likely that Mark Affleck decided to run an organization that offered what most private companies would consider rather lavish benefits.
If at the Pundit we tell our employees they are allowed to watch a movie in the hotel room and bill the Pundit, movies get watched. If we said that we would pay for a daily massage to deal with stress, there would be many more massages taken.
Of course, this still leaves three open questions:
1. Was the proper IRS policy followed? In other words, a company is allowed to give people a non-accountable car allowance and let them charge clothes at Nordstrom. It is just required to file a 1099. It seems not to have done so.
2. Were the policies either authorized by the board or within the scope of authority delegated to the CEO by the board? Our impression in reading the material is that these extra payments were attempts to end-run grower frustration over what the growers perceive to be high salaries. As well as to deal with a salary freeze imposed after a bad crop.
3. How much did Mark Affleck take personally in these benefits, and was he simply piggybacking on the organizational policies that applied to all executives? Or did he do extra things for himself without getting approval of the board or compensation committee?In a case such as this, careful attention has to be paid to what is the correct question, or people’s reputations will be unfairly sullied. If the CEO of the organization tells the executives it is OK to buy a new suit at Nordstrom for PMA, that employer may be generous and the organization may have an obligation to report it to the IRS. But the employee who gets the memo and buys the outfit is not prima facie doing anything wrong.
The real sadness of all this is that growers all over the country will be more skeptical that their commodity promotion boards are acting with their best interest at heart. They will assume there is fat to be cut and what is already an often substantial cultural breech between growers and association executives will loom larger.
So even if Mark Affleck acted with the best of motives, he violated a cardinal rule of business by doing things that would cause embarrassment if they were on the front page of The New York Times.
There is a little irony to Mark Affleck getting caught in this web. At one stage of his life Mark Affleck wanted to be a public speaker and consultant, so he did what is recommended all such people do… he wrote a book. The name of the book is Radarscan Issues Management, and the publisher describes it this way:
Early action is the theme of this book by Mark Affleck, who writes, “If an organization waits until all the issues and forces reveal themselves and then acts, it’s always too late. RadarScan Issues Management helps you develop a culture that not only accepts, but looks for harbingers that may signal a new trend or threat even when it seems implausible.” Affleck shows how to anticipate issues, paint scenarios, generate intelligence on strategic issues, and plot issue trajectories….
Yet, is it really possible that he never saw this one coming?
You can find the book here.