(Bloomberg) -- The California charity at the center of the college-admissions scandal listed no employees, had questionable documentation, and didn’t live up to its promises for years before it was exposed as a conduit for bribes to officials at elite universities.
And it apparently never attracted attention from the IRS.
Key Worldwide Foundation told potential donors that its aim was to provide educational opportunities to underprivileged kids. But the foundation, headed by William Singer, also helped celebrities, executives and other wealthy people bribe test monitors, school officials and coaches so their kids would be admitted to top universities, according to the FBI.
“Many things were off, odd,” said Lloyd Mayer, a professor at Notre Dame Law School who focuses on nonprofits and charities and who has read the filings. “These are all yellow flags.”
The foundation was spotlighted as the FBI conducted what it dubbed "Operation Varsity Blues," ensnaring key players from Hollywood, Wall Street and the sports world in a scandal that has laid bare the class distinctions in the college admissions process. The parents and coaches involved face criminal charges and some have lost their jobs.
Despite taking in more than $7 million in funds over four years and claiming to run an intern development program, Key Worldwide didn’t list any employees, according to four years of disclosures filed with the IRS. It had just three officers, low for a charity of its assets, and reported that two of them worked zero hours. Singer worked eight hours a week for the non-profit, the filings say, and didn’t report any compensation.
“You’d think they were at least paying somebody to keep track of the funds and pick recipients,” Mayer said.
The foundation had no independent directors, meaning that its own officers filled that role, led by Singer. The IRS considers non-independent directors to potentially have conflicts of interest through personal or financial ties to the entity.
At least one recipient of the foundation’s grants had the same residential address as the charity itself. Other grant recipients say they never received any money.
Despite these questionable practices, experts say the IRS just doesn’t go after foundations like Key Worldwide unless someone alerts it to possible wrongdoing.
Marcus Owens, a former IRS official in charge of the agency’s tax-exempt division, said that the filings didn’t contain details that "would automatically trigger an audit.” But that’s because "they avoided describing what they really do and they lied about certain grants they made."
Publicly, Key Worldwide highlighted its work with underprivileged kids. It “has touched the lives of hundreds of students that would never have been exposed to what higher education could do for them,” its website says. “Many of these students have only known life on the streets, surrounded by the gang violence of the inner-city.”
Its IRS filings say that its mission is “to provide education that would normally be unattainable to underprivileged students, not only attainable but realistic.”
Key Worldwide was founded about seven years ago by Singer, the central figure in the college bribery operation. He pleaded guilty Tuesday to racketeering, money laundering, fraud and obstruction of justice.
He is cooperating with investigators who have charged some 50 people, including actors Lori Loughlin and Felicity Huffman; William McGlashan Jr., a former partner at the private equity firm TPG, who was fired; and Gordon Caplan, the co-chairman of global law firm Willkie Farr & Gallagher, who has since been put on leave.
Singer bribed college coaches and officials at top universities including Yale, the University of Southern California and Georgetown University. Prosecutors allege that well-heeled parents paid Singer around $25 million from 2011 until last month.
Court papers allege that Singer conducted the scheme through his firm, Sacramento, California-based Edge College & Career Network LLC, and funneled the bribes through his Key Worldwide Foundation, an affiliated nonprofit.
In most years since its inception, the foundation filed annual required financial statements with the IRS that are public record. The filings were signed by accountant James Williams, in Sacramento, who didn’t respond to repeated requests for comment.
In 2016, the last year records were available, the nonprofit reported $2,024,828 in “total functional expenses,” of which only $908 was for “management and general expenses,” leaving a clear question mark over how it was using its money.
IRS spokesman Eric Smith declined to comment, citing agency rules on taxpayer confidentiality.
In its first year at least, Key appears to have taken part in some genuine charitable activities. Tobi Quintiliani, a senior director with the 1736 Family Crisis Center, said that Singer set up a 5-day summer camp on entrepreneurship for about 80 students in July at UCLA.
But in federal tax filings, Key said it created a residential summer program for 100 kids with the center, and claimed they had placed students identified by the center in programs for the next two years, an assertion Quintiliani disputes.
Between 2014 and 2016, Key sent $33,329 to “Community Donations," an entity located at the same Sacramento residential address as the charity itself. While charities like hospitals occasionally raise money through affiliated organizations that share their own address, experts encourage them to keep particularly careful records as such coincidences draw scrutiny. Records for a business entity of the same name couldn’t be located.
In 2016, Key reported a $100,000 “donation” to Princeville Enterprises, a suspended corporation that shows no record of having been a formal charity. A public filing indicates its chief executive was Jorge Salcedo, the head men’s soccer coach at UCLA who has been charged with conspiracy to commit racketeering in the college admissions case. Attempts to reach Salcedo were unsuccessful.
Robert Seltzer, the accountant who set up the entity for Salcedo in 2004, said Wednesday that Princeville Enterprises was set up to hold money that Salcedo made from summer soccer camps.
Paul Streckfus, editor of EO Tax Journal, said one obvious area where investigators can see warning signs is a foundation’s compensation. And Key Worldwide was reporting curious numbers.
Gordon Ernst, a former head tennis coach at Georgetown University, received almost $1.5 million from the foundation as a consultant from 2013 through 2016, according to its IRS filings. Ernst has been charged with conspiracy to commit racketeering. Ernst’s lawyer didn’t immediately return a message seeking comment.
Key Worldwide also appears to have listed numerous questionable partnerships on its web site. Representatives for three of the six organizations it lists as partners on the site -- Houston Hoops, Atlanta Xpress and Bizworld.org -- said they had never heard of the foundation or had a partnership with it.
Bizworld.org has demanded that Key Worldwide immediately remove all references to it from the website, Bizworld.org chief executive officer Thais Rezende said in an email.
Efforts by the IRS to root out and prosecute tax fraud have declined in recent years amid steep cuts in staffing and budgets. In 2017, a tax-exempt organization stood a less than 1 percent chance of being selected for an audit, according to IRS data. The agency had about 840 fewer tax examiners in 2017 than it did four years ago.
"No one at the IRS probably even looked at the returns until the FBI called," Mayer said.
The IRS tends to focus more on individual taxpayers claiming deductions than on how charities are spending the money they’ve raised, said Suzanne Friday, vice president for legal affairs at Council on Foundations.
Still, Key Worldwide was relatively straightforward in one part of its mission statement. On its most recent IRS filing, it says, “Our contributions to major athletic university programs, may help to provide placement to students that may not have access under normal channels.”
--With assistance from Laura Davison, Robert Lee and Tom Maloney.
To contact the reporters on this story: Lynnley Browning in New York at email@example.com;Simone Foxman in New York at firstname.lastname@example.org;Suzanne Woolley in New York at email@example.com
To contact the editors responsible for this story: Wendy Benjaminson at firstname.lastname@example.org, Pierre Paulden
©2019 Bloomberg L.P.