Report Clears JNF of Fraud, but Suggests Donors Were Misled

A fiscal firestorm has shaken the roots of the Jewish National Fund of America.

JNF has employed sloppy accounting procedures that have misrepresented how much of its money is sent to Israel, according to the results of an investigation.

A panel appointed by JNF to probe the organization’s financial practices has found it innocent of allegations of fraud, malfeasance and misappropriation of funds.

But the panel found that the charity, which raised roughly $30 million last year, engages in accounting “inefficiencies” that make it hard to determine exactly how the money is spent.

The findings have rocked the organization, long viewed as one of the jewels of Jewish philanthropy. It has shaken the confidence of some of its supporters and was expected to lead to at least one high-level resignation.

One of the most potentially damaging findings is that so little money gets to Israel when JNF’s historic mission is popularly understood as planting trees and developing the land.

While some promotional JNF material suggests that nearly 70 percent of its money goes to Israel, only 21 percent of the agency’s total expenditures actually find their way to the the Jewish state.

Nearly twice as much money stays in the United States for what JNF calls Zionist education and “Israel-based programs.”

For their part, JNF officials have responded to the report with pledges to overhaul the organization’s accounting and fiscal operation, to reduce administrative and fund-raising costs and to revise JNF’s method of reporting allocations to Israel.

JNF Executive Vice President Samuel Cohen refused repeated requests for an interview about the investigation, which was initiated in the spring after donors raised questions about JNF spending.

But in a letter sent to the media, he and JNF President Milton Shapiro wrote that “the worst allegations of misconduct are simply untrue.”

The stakes were high in the investigation, with reverberations extending far beyond the fate of one organization.

The JNF mission to make the deserts of Israel bloom is sacrosanct.

For decades, children have placed coins in JNF’s signature blue boxes with visions of planted saplings destined to mature into sturdy trees.

The vision, inseparable from JNF itself, was always an emblem of the fledgling state defying nature by putting down roots in a region that was not a naturally hospitable one.

JNF’s universal appeal is reflected in its constituent organizations, which support and contribute to its work. Those groups include B’nai B’rith, Hadassah, Na’amat USA, Amit and Religious Zionists of America.

The probe has shaken the confidence of some supporters, who say they feel betrayed by JNF.

“Trees are like motherhood,” said one prominent organizational official who asked to remain anonymous. “We should have known” how JNF was really spending its money.

“Every Jewish organization is tainted by an inference that this oldest and most revered of organizations should be even under question,” said the official.

The investigation was conducted amid an atmosphere of drama, innuendo and bitterness, judging from an extensive series of correspondence obtained by the Jewish Telegraphic Agency and a reference in the committee’s own findings.

“The committee has determined that there is no evidence of fraud, misconduct, malfeasance by JNF personnel, nor is there evidence of misappropriation of JNF funds,” wrote the panel, which was chaired by Marianne Bretton-Granatoor, in- house counsel for Merrill Lynch.

However, the report continues, “a number of management, accounting and fundraising inefficiencies” are “in large part, responsible for the atmosphere of suspicion which has provided a catalyst for many of the recent accusations leveled at JNF.”

The investigation included an independent audit by the accounting firm Deloitte & Touche, which was requested by the four-member panel appointed in April by JNF President Shapiro.

The probe was triggered in the spring after Stephen Breslauer and Ben Guefen, two activists from Houston, began raising questions about what they perceived as discrepancies in JNF’s accounting. They did so after having been invited in mid-1995 to take the top lay positions in their regional organization.

In letters to JNF lay and professional leadership across the nation and in interviews, Breslauer repeatedly said that he had no interest in hurting JNF’s enterprise. He said he only wanted clarification about JNF spending practices after being named the head of a foundation whose primary beneficiary was JNF.

His concern was also piqued after a disturbing personal discovery.

After the Breslauers’ son died, the couple designated in January 1995 a $10,000 gift for a woodland in the JNF AIDS forest near Beersheva. When they went to Israel the next spring, they found that no trees had been planted for their son.

“The funds were absorbed totally in JNF operations and in purchasing a plaque,” he wrote in a letter to Bretton-Granatoor in June. “Is it not a misrepresentation to describe that donations are made to reforest Israel (whether one tree or 1,000) when little if any of those funds is used for that purpose?”

Meanwhile, what Breslauer viewed as his inability to get thorough answers helped fuel a series of investigative pieces on JNF by free-lance journalist Yosef Abramowitz. The articles were recently published in a few Jewish newspapers.

In his series, Abramowitz indicted JNF by suggesting that it could not account for millions of dollars in donations.

The auditors, for their part, concluded that there were no missing millions. Some of the discrepancies they found, often reported only in the fine print of footnotes to their report, were due to inconsistent financial reporting practices, they said.

Nonetheless, some of those discrepancies resulted in clouding the true spending practices of the charity.

For instance, a letter dated Feb. 1, 1996, from Jack Grunspan, the JNF controller, stated that $12.5 million of the $18.6 million in JNF’s total program money for fiscal year 1994 went to Keren Kayemeth LeIsrael, known as KKL, the sole agent for JNF’s projects in Israel.

That is 46 percent of the $26.9 million in total expenditures JNF reported on its 1994 tax forms.

Until the release of last week’s report, JNF stood behind that figure as the portion of its budget going to Israel.

In contrast, the audit found that only 21 percent of that total, or $5.5 million, is what JNF transferred in net funds to Israel in fiscal 1994.

The auditors also said JNF records indicated that in fiscal 1994, $11.8 million was spent on “Israel-based programs,” including the $5.5 million going directly to KKL.

But underplayed is the fact that the other $6.3 million for so-called Israel programs is being spent on education in the United States.

JNF professionals failed to respond to detailed questions from JTA about why they included U.S.-based programs in the broad category of “Israel programming.”

But Cohen, the agency’s top executive, defended the spending in a terse faxed statement, saying, “Israel remains the top priority.” He said, “One of the most important ways we achieve our goals is through educational programs in the Diaspora.”

He pointed to a resolution passed at a JNF/KKL world conference in 1994 in Jerusalem that affirmed that priority.

However, the organization, appearing to acknowledge a problem of misrepresentation, promised in a letter to JNF supporters to “revise” its method of reporting funds to Israel and funds expended in the United States “on behalf of” programs in Israel.

As for JNF’s promotional material, one piece furnished to JTA states that “almost 70 percent of JNF’s overall budget is invested directly in the land” in Israel. When questioned, JNF said that figure refers to the KKL’s budget, not JNF’s, and was erroneously labeled by the KKL, which produced the material.

Apart from the Israel-based programming, JNF spends an additional $4.5 million in the United States for “Zionist education.” The panel reported that Deloitte & Touche could not complete its audit of this category because it was too broad and not enough information was furnished by JNF.

The report also addressed claims that JNF money is being sent to South America in violation of U.S. law. Such claims were dismissed as baseless.

Meanwhile, the jury is out as to the long-term impact of the episode on the organization.

“I think the work JNF has done in Israel is remarkable and I hope it continues to merit the support” of the American Jewish community, said Jacob Stein, a former chairman of the Conference of Presidents of Major American Jewish Organizations, who served on the JNF-appointed panel.

Stein said he hoped that the organization tightens its accounting procedures.

“Where there is an ever-higher level of participation by donors,” he said, “an organization has to be prepared to provide information.”

For her part, Charlotte Jacobson, a past national president of JNF and current board member, said it was too soon to judge the impact of the findings. But she said there is “general appreciation” that JNF has pledged to implement the panel’s recommendations and “satisfaction that no personal fraud was found.”

Sources say one casualty will be Grunspan, the organization’s longtime controller, who was expected to resign.

Breslauer, whose concerns sparked the whole investigation, was less sanguine. He said he had little confidence in the probe, in part because it did not go far enough. He specifically cited its failure to follow up on his request for a management audit.

But even if he doubted the “missionaries,” he said, he continued to have faith in JNF’s mission.