April 2016 Podcast: Using 990 forms to uncover campus secrets



Marcelo Rochabrun, reporting fellow with ProPublica and former editor-in-chief of the Daily Princetonian, discusses his investigation into the 990 forms of Princeton's eating clubs.  

Frank LoMonte: We are reading a lot these days about the concept of grit and about how educational institutions can best prepare their young people for the workplace and for the real world by exposing them to the kinds of adversity they’ll face in their adult lives. Well, if that’s the case, then the journalists at private colleges and universities have got to be some of the grittiest adults out there. They’re the people who are responsible for bringing the public information about the news of a campus community, that is not, with a few exceptions, subject to the same government transparency laws that would apply at a public institution. They have all the same responsibilities to bring the public the news but with many fewer tools at their disposal to compel their institutions to open their meetings or provide access to their records.

We’re here today to talk about doing investigative journalism on the campus of a private institution. I’m Frank LoMonte, executive director of the Student Press Law Center and the SPLC provides tools, tips and tutorials for young journalists about their legal right of access to information and their right to publish that information free from administrative censorship. Student Press Law Center is online at splc.org, we’re on Twitter @SPLC and we welcome any questions about your legal rights on our email hotline splc@splc.org. We are here with Marcelo Rochabrun. Marcelo is the former editor-in-chief of the Daily Princetonian at Princeton University, now working in New York as a reporting fellow for the nonprofit investigative online news service, ProPublica. Marcelo is the award-winning recipient of the IRE’s annual recognition for investigative reporting for college journalists for his work at the Princetonian, where he used records available to all journalists to investigate the operations of secretive private dining clubs which exert a powerful influence over the culture of Ivy League campuses.

Marcelo, thanks so much for joining us and sharing some of your reporting expertise. Get us started if you will, talking about how the idea for this project came about — how did you get started looking in the operations of private dining clubs, and what are these things?

Marcelo Rochabrun: Sure, hi Frank and thanks so much for the invitation. When I started doing this story, I think I was a sophomore at Princeton. I had joined the school paper, the Daily Princetonian, and I was also taking an investigative journalism class, an actual course, and at the time the professor was Jo Becker, an investigative reporter at the New York Times, and she literally said we had to come up with an investigative story to do for the semester. So I started looking into a bunch of records and one of them was the 990 forms for the eating clubs. The eating clubs are institutions that only exist at Princeton — they are similar to frats and sororities, except people don’t actually sleep there, they use them for eating, they use them for partying, they use them for studying, occasionally. There’s a street at Princeton called Prospect Avenue that is your usual frat row or Greek row at any other campus. They have their houses and those eating clubs have classrooms, dining rooms, lounging and even have a library in there.

I started looking at the 990s, which are forms nonprofits have to file, including nonprofits like ProPublica — nonprofits like any college have to file these forms with some of their financial statements. What I found was very, very interesting. These legally speaking are the same as frats. There’s something called a 501c7 and there are different types of nonprofit organizations and c7s are basically social clubs — any club you can imagine: a private New York club or a frat or sorority, is a c7 under the IRS guideline. What that means is the organization doesn’t pay taxes like any other nonprofit, however, if you want to donate to a c7, you don’t get a tax deduction.

However, what the eating clubs were doing — and I realized this the first time I looked at the forms, which was quite eye opening — they had created foundations that went with the clubs and those were separate IRS institutions: 501c3s, which is an educational nonprofit like any college would be. The reason they had done that was because c7s couldn’t offer a tax deduction, so the club itself could not offer a tax deduction. But if they created an educational foundation, the foundation could offer a tax deduction and then the foundation would transfer the funds to the eating club. What I found was an astounding amount of money — close to $20 million in the past six or seven years had been funnelled to specific foundations in the names of those clubs and then transferred to the underlying eating club.

LoMonte: Talk a little about — this is an institution and there are different types of institutions like this on Ivy League campuses. Harvard and Yale have these different residence halls that people live in that have traditions grown up around them, where your social life revolves around the life of this hall that you live in. Compare the difference in an eating club. What’s the influence that these clubs have on the culture of the campus and on how people kind of build their networks for their future lives?

Rochabrun: They’re huge — to start with, only upperclassmen can join eating clubs. Essentially about 70 to 75 percent of upperclassmen join an eating club in the first place. They’re really a significant part of campus experience. Really before you’re an upperclassmen, when you’re a freshmen or sophomore, the only place to really go out in the suburb of Princeton is the eating club. It helps that their parties are, for some of the clubs, they’re usually open to anyone, whether you’re a member of the club or not. They’re very important, their network is very powerful, very secretive.

LoMonte: You mentioned these IRS 990 forms, and those really have, for the coverage of private institutions in general and private universities and colleges in particular, been the keys to the kingdom to get out the financial information that would otherwise never become a part of the public record. Can you talk about, first of all, how you go about obtaining these IRS tax forms and how you went about delving into them and understanding them?

Rochabrun: Sure. 990s are usually available online on a number of websites. One of the most powerful ones is guidestar.org. You can have a free subscription there, there’s also a paid service. Technically you can also go to the institution itself and ask for the 990 forms and if you go personally, they have to give them to you right there. If you send them a letter, I think they have up to a month to give it to you. But at this point, I think most people get their 990s online and I did that too and I used Guidestar, and I also used another service called citizenaudit.org which has scanned the text and made it searchable from millions and millions of 990 forms.

LoMonte: So obviously, lots of people got into journalism because they were assured there wouldn’t be any math involved. And when you look at one of these 990 reports, it’s like a nightmare version of the tax return that you and I as an individual put together — much more lengthy and complex than an individual tax return. You can imagine how that would be a little off putting to a journalist who’s not a financial or accounting expert. How did you go about delving into these and making sense of them?

Rochabrun: Right, yeah, it’s almost like having to make your own accounting course as you go through them. There are numbers after numbers after numbers but at the end of the day, what I was looking at was very simple. The first page of the 990 is very valuable. It will tell you what the institution does, what its mission is, how many employees does it have, what its board members is, and then it will give you the basics of its financials — how much money is coming in from donations, how much money they’re making from whatever it is that they do, it will tell you how much money they’re spending, if it’s a profit, if it’s a loss, and it will tell you those numbers for the previous years. In this case, what was really impressive was how much money is coming in from donations. That is what really triggered my interest because they bring about a fair amount of money in fees every year, in membership fees. We talk about institutions that have about 200 members and overall they’re paying about $1 million a year between all the members for the eating club to sustain themselves. And then there were clubs that were bringing on top of that, $6 million in donations in one year or so. And that was really off putting — why was that happening and where were those donations coming from?

LoMonte: Sure. And were you able to trace that through the 990s or were you able to get any of that information through your subsequent follow up reporting?

Rochabrun: Right, so usually you’re not entitled to know who the donors of a nonprofit organization are and that gets very interesting because in political reporting, they call that dark money. Karl Rove, the conservative strategist, has dark money organizations … or at least they’re called that way because they’re a nonprofit that engages in politics, but because they’re a nonprofit they can shield their donors from disclosure. What was so interesting about this case was that there’s a way to figure out what nonprofits are contributing to other nonprofits. In this case, it was that the 990s of the foundations showed board members of the eating clubs — under the IRS guidelines, they were considered something called related organizations. Something on like page 25 of the 990 form, if you scroll all the way down, you would see any interaction between the eating club and the related organizations that it had board members in common with. And you would see right there, there was something called the Princeton Prospect Foundation or the Ivy 1876 Foundation that was giving them millions of dollars in what was self-described as educational grants. And what was interesting was that the eating clubs don’t engage primarily in educational activities, certainly not for $6 million, but there were these foundations that were giving the clubs that money for educational purposes.

LoMonte: This is a pretty big deal, you’ve disclosed essentially that people were taking advantage of a tax break that by all rights they should not have been entitled to since their donations were not going towards what the IRS would recognize as a bona fide educational purpose. What was the fallout or reaction from that reporting?

Rochabrun: I think the reaction was mixed. On the one hand, I think students were more receptive to it because those who were accused of wrongdoing were not students themselves. The student government of an eating club has no authority over how donations were handled or anything like that. But then again, others were very unhappy about any kind of legal question was being brought about the eating clubs. Others decided to interpret IRS regulations in a different way because the eating clubs had Princeton students in them, by all means, they should be educational, which is not what the law says in the first place. I think there was some confusion over that. The reaction was basically mixed and there was even a short piece in the alumni magazine about it where the president of one of the associations called my story legally flawed and offered absolutely no evidence of how flawed it was or not.

LoMonte: So in addition to your own analysis of these IRS tax documents, were there other resources you found useful in your reporting or outside experts to whom you turned for guidance on the legal or accounting points?

Rochabrun: Yes, what was great about doing this story was that I was able to rely on multiple lawyers who were very, very generous with their time. One of them sat with me for what felt like six hours in his office, just going form after form after form. There are about 12 different eating clubs at Princeton, we were looking in each case at about five years of 990 forms, and at about 20 to 30 pages per form, we’re talking about hundreds and hundreds and hundreds of pages. It was dizzying but the fact that there was somebody there guiding me step by step and who believed as I did that the story should be told was very helpful. Once I felt confident with my findings, I was able to go to other lawyers — one of them, Marcus Owens who’s a very renowned tax lawyer. He himself at one point was the person in charge at the IRS of all nonprofit organizations. He gave me exactly the quotes I needed which was these foundations seem to be going exactly against IRS regulations.

LoMonte: Well I just want to reemphasize a couple of the points that Marcelo made which might be useful to other folks interested in pursuing investigations like this in their campuses. First, there is a resource, Guidestar.org, that stockpiles IRS 990 forms in a searchable database online. Not only are these useful for private colleges and universities but really any nonprofit organization with the possible exception of some church-owned organization — they have to file an IRS 990 form which is a public document. Although you can get them online from Guidestar.org, it’s not always the case that Guidestar will have the most recent years available, understanding that there will be a one year lag because you paid last year’s taxes this year, but Guidestar will not always have received from the private organization the most up-to-date tax forms. For that, at times, you might have to go directly to the organization but it is your legal right to demand access to that. That is a public document that federal law requires be made accessible upon request. That’s point number one.

Point number two is to reemphasize that if you find this area to be confusing or requires some expert interpretation, there really are people in your community, whether it is faculty in the law school or faculty in the business school or private practitioners, who will make themselves available, particularly to students because people in authority often like to be generous with their time when it comes to educating students, to walk you through some of the finer points with the law and accounting if you find that some of these points are unclear or a little mystifying. There’s nothing wrong with that because frankly some of these tax laws are written purposefully to be confusing and if you’re confused, then you’re right. Having said that, Marcelo, any thoughts — if you were advising the next generation of young reporters on college campuses, particularly on private colleges, about how to do this kind of watchdog journalism, understanding the limitations they are under, what would be your advice to them?

Rochabrun: I think I would start by selecting my college’s 990 form and getting several years of them and starting with page one and putting them side by side and just looking at what numbers have changed the most. For example, the 990 would tell you what the college’s budget is. If you see any spikes in it, that’s something worth looking into. The other thing i would do is get similar colleges’ forms and see what they are saying. Simply by comparing, you will start to familiarize yourself with the information and with the money numbers that make sense for your particular college. That’s for colleges, and the other thing is that for the most part, Greek organizations have to file these 990 forms. They have to file them at both the national level and the chapter level — at the chapter level, unless they’re very, very small, I think they have to manage a budget of over $50,000 which for any Greek organization that manages a house in the first place, that’s definitely a threshold that they will cross.

LoMonte: Sure and we should add too that booster clubs of various kinds may need to file as well, teaching hospitals, there are all sorts of nonprofit organizations affiliated with colleges and universities that may have a separate corporate entity requiring them to disclose, so even if you are at a public institution, the chances are excellent that there are one or more private nonprofit related organizations that have to file this tax return. And the tax return really is a snapshot into the finances of the organization, including how its investigations are performing, how much it pays the top executives, whether they’re doing business with people who serve on their governing board, and whether they have interlocking relationships with related organizations as Marcelo found to be the case with these dining clubs.

Any last words of advice or inspiration to college journalists who might be following in your footsteps?

Rochabrun: Yeah, well before that, one last thing to add — most of those related organizations, you can be surprised what they are. I cannot remember any specific examples but Princeton for example in its 990 was related to hundreds of other nonprofit organizations. And it was always interesting to see what those organizations were in the first place and what kind of relationship was being had between one or the other. So the starting point is simply to look at what related organization are disclosed in your colleges’ 990. About inspiration, I think I’ve realized more and more by working at ProPublica too that sometimes people will write down in their 990 forms the things that are not great. They will not try to shield what they’re doing but they will put it out there — if you are able to figure it out and have enough sources to back up what you have found in these 990s, it is a goldmine of documents to start pouring through.

LoMonte: Absolutely and by way of wrap up, I should mention we’ve experienced this ourselves. I remember going through a 990 of a particular university with students in a reporting class and finding out that the university was required to disclose that it had suffered a financial loss due to insider fraud — due to one of its own executives diverting money for personal use, which it then pursued through the courts in order to get reimbursed. That was a story that would never have come to light if not for the 990s because at a private institution, as you can imagine, these transactions often take place quite secretly and the university doesn’t do anything to call attention to these facts. But the 990s really truly can be a goldmine that is a key to unlocking the finances of these otherwise very secret and elusive organizations.

Well Marcelo Rochabrun, I want to thank you for joining us and also congratulate you on your first place IRE award which will be presented this summer at IRE’s annual convention in New Orleans and congratulations on your success with ProPublica and we wish you much more. Thank you for being our guest. And thank you for being our listener on the Student Press Law Center’s monthly podcast. We invite you to look at the SPLC’s resources on splc.org for tips and resources to get at the secrets colleges try to conceal. If you have any questions about your legal rights as a journalist, we’re always reachable at 202-785-5450 or online at splc@splc.org. Thanks for listening and we’ll talk to you next month.