Last November, a few hundred people donned their best suits and gowns and converged on San Jose’s historic Hayes Mansion to toast some of the East Side’s most accomplished alumni. The stars that night, honored in the East Side Union High School District Education Foundation’s Hall of Fame fundraiser, consisted of a 10-person class led by Khaled Hosseini, a 1984 graduate of Independence High School and author of The Kite Runner.

The nonprofit’s mission from the outset has been to support the East Side Union High School District (EDUHSD), which has been hard hit by state funding cuts. It was set up in 2007, when George Shirakawa Jr. was the president of the district’s school board. Shirakawa is now a county supervisor who is fighting to save his career in the face of illegal spending allegations. His current chief of staff, Eddie Garcia, was one of the first three foundation trustees. The district contracted with Cindy Chavez, now head of a union-aligned think tank and advocacy group, to establish the foundation.

To date, the organization has donated more than $70,000 in grants, school supplies and sports donations to ESUHSD, which paid more than that to get the foundation rolling.

But on Nov. 15, 2011, the IRS revoked the foundation’s nonprofit status. And yet almost no one outside of its board—including donors—knew about its lost certification when it threw a fundraiser a year later.

As a result, some of the charitable donations that were made may not be eligible to be claimed as tax deductions on contributors’ 2012 returns. The foundation now awaits word from the IRS on reinstatement of its nonprofit exemption. Foundation board members hope that will happen in the next two to four months.

“It’s embarrassing and it’s unfortunate we found out after we began the Hall of Fame fundraising for this year, because it kind of puts everyone’s tax deduction in a status that they might not be able to use as a write-off,” says Chris Funk, the ESUHSD’s new superintendent and vice chair of the foundation.

Funk says he was surprised to learn in August 2012—a month after he assumed his two roles—that the foundation lost its nonprofit privileges because it failed to file required Form 990s for three consecutive years, from 2009 to 2011.

“I sent [the notice] to my business office,” Funk recalls, “and said, ‘What the hell is this?’

“The understanding was that unless you were making a profit, you didn’t have to file your paperwork, which was a mistake.”

While it is not unusual for nonprofits to have their status revoked due to inexperience in filing forms, it appears the East Side foundation’s precarious footing can be traced, in part, to its creation.

Expensive Lesson

When the ESUHSD board decided to create a nonprofit foundation to bridge funding gaps, it tapped a company called California Leadership Services to create bylaws, tour the district’s high school campuses and write grant applications.

What few if any of the ESUHSD board members knew at the time was that Chavez, fresh from a defeat to Chuck Reed in the 2006 San Jose mayoral election, controlled California Leadership Services.

“When Cindy was hired by the district, I honestly don’t think the board was aware it was hiring her,” says Frank Biehl, who still holds a seat on the ESUHSD board. “I know I wasn’t aware of it.”

By the time Chavez’ contract expired in the summer, she had been paid $79,000 in consulting fees from school district funds. However, the foundation had almost nothing to show for this payment—no website, a board still stuck at three members and less than $5,000 in the bank.

“We were appalled that all this money had been spent and there was little to show for it,” says Diane Blum, whose children attended East Side schools at the time the foundation started. “There was really not a lot of work to show for it. ... Definitely out of whack with the money that had been spent. I think people should be held legally responsible. I think she should pay it back.”

Bob Nunez, the ESUHSD superintendent at the time, who was also under investigation for questionable spending of district funds, remembers that “the few times that we did talk about the foundation, it was that it was moving along. It wasn’t very specific that I can recall.

“I do know [the foundation] was no place close to being ready.”

Chavez declined comment for this article, but those involved with the foundation say that it was still in its infancy when she left. Nunez filed the incorporation papers after Chavez’s engagement ended. Though she had had no prior experience in the nonprofit world, county Supervisor George Shirakawa defended Chavez’s hire in a September 2009 San Jose Mercury News article, noting that “she had the thickest Rolodex in the valley.”

A little more than two years after he made those comments, Shirakawa made his own contribution to the foundation: a $2,500 sponsorship for the 2011 Hall of Fame dinner. That contribution, made via PayPal in December 2011, proved to be problematic, along with many others Shirakawa made in his first four years as a supervisor, as he donated county funds without receiving the Board of Supervisors’ approval.

On Jan. 19 of this year, the foundation returned Shirakawa’s $2,500 “Silver Level” sponsorship to the county’s controller-treasurer department.

Shirakawa’s office did not respond to a request for comment for this story, and he remains under investigation by the District Attorney’s Office and the Fair Political Practices Commission for his own misuse of county funds and failure to file campaign disclosure documents.

Lost and Foundation

Kathy Camin, an East Side Hall of Fame inductee in 2011, took over as foundation treasurer in the summer of 2012. The IRS revocation, she says, could have been avoided by simply sending in an annual 10-question postcard.

With the foundation’s 2012 signature event just weeks away—the Hall of Fame dinner occurred Nov. 3 at Hayes Mansion—the foundation forged a fiscal agent agreement Oct. 19 with the Silicon Valley Education Foundation. Less than a week after the ceremony, Nov. 9, the East Side foundation filed an application to have its nonprofit status reinstated.

What’s concerned many of the people contacted for this story who have close ties to the foundation is the lack of transparency in failing to alert stakeholders of the revocation.

The foundation raised just $9,062 from May 2008 through June 30, 2011, according to Form 990s the foundation provided to Metro. But in the following fiscal year, more than half of which followed its yanked status, the foundation raised $84,179.

There was no announcement to 2012 Hall of Fame attendees of the lost nonprofit status, and there are still multiple sources online, including the foundation’s Facebook page, where the organization misrepresents itself as a registered 501c3. The East Side, parent-organized booster program “Save Our Sports” donated roughly $50,000 to the foundation last year, and it is not clear if that group has been made aware of the changes.

“This is news to me,” Biehl said when contacted on Monday. “This is the first I’ve ever heard of this.”

“No, I was not aware,” said Muhammed Chaudhry, the president and CEO of Silicon Valley Education Foundation. “You really want to be up front about that.”

San Jose Councilmember Ash Kalra, who was inducted into the Hall of Fame this past winter, told Metro he also was unaware of the foundation’s decertification.

Officials on the foundation board could not say for sure how much money was collected while its nonprofit status was revoked, but Camin estimated that the total is “at max a couple thousand.” To date, the Silicon Valley Education Foundation has collected $18,400 on behalf of the foundation, Chaudhry says.

But other issues remain. Chaudhry says that a typical nonprofit’s expenses eat up about 20 to 30 percent of funds raised. But of the East Side foundation’s $162,000-plus of total revenue raised to date, according to documents the foundation provided, a little more than $70,000—or 43 percent—has gone to expenses, including two Hall of Fame dinners at Hayes Mansion, which cost $23,800 in 2011 and $26,728 in 2012.

Funk says he is confident that the foundation’s current leadership, which consists of 13 unpaid boardmembers, will correct any past issues.

“I think the district has put all the safeguards in place,” he says, “so going forward we can be good stewards of the public money.”

Published by Josh Koehn

Josh Koehn is a former managing editor for San Jose Inside and Metro Silicon Valley.

10 replies on “East Side Union High School District Education Foundation Decertified by IRS”

  1. So then board members Gluttonous George Shirakawa and Golden Boy Eddie Garcia hired Mayoral-flunkee and newly out of office (and work) Chavez to be a consultant at $80k with no experience in setting up foundations but based on Shirakawa’s expert assessment of her fat rolodex she gets the nod.  When her consulting is done, there is no paperwork filed (Nunez did that after she left) no website set up and no funds raised. 

    The $80K bought them $70K in donations.  The group manages to throw two swanky dinners where (surprise, surprise) they “honor” their own (Kalra, Garcia, Campos?) and get a free dinner (we all know how Gluttonous Georgie loves those!) 

    Shirakawa never ceases to amaze in his ineptitude. In this instance not only does he push hiring someone with no skills who delivers no product or profit, he manages to go on to Supervisor and double dip in his stupidity by “donating” a sponsorship of the signature event with money that is not his to spend (the pcard scandal) so the non-showing a profit Foundation ends up having to PAY BACK $2500 TO COVER HIS MISUSE OF FUNDS. 

    Then to top it all off, the foundation loses its non-profit status because of non-filed paperwork?  That is just perfect isn’t it?  I mean really, yet another Garcia/Shirakawa mea culpa giggle, giggle, we didn’t know, its not our responsibility, oh wait no comment response.

    I suggest Superintendent Funk create a East side Hall of Shame for all the incompetent, under investigation, can’t file the paperwork to save their lives and reek of nepotism crew.  Gluttonous George Shirakawa can be the first inductee.  Then Golden Boy Eddie Garcia.  Lets not leave out the Invisible Man Xavier Campos.  If Cindy Chavez didn’t go to East side schools its no matter, give her an honorary life time membership.

    Is every single agency, board or elected position these guys are part of under this gray cloud of mismanagement and impropriety?  At least the public now knows if we see any of their names as associates or “sponsors” to steer clear.  No doubt they will be involved in a scandal.  Agencies should look elsewhere for leadership and leadership because those turkeys are worse than the three stooges.  Stooges with no comment.

    1. Sadly it’s not just these three stooges involved in the corrupt county and city politics.  I’m just glad SJ Inside is exposing all of this garbage.  No one else seems to have the gumption to do it.

  2. Next time Gluttonous George finds himself out of work (which if there is a God will be soon) he should hire himself out as a consultant that specializes in finding organizational weaknesses. 

    He’d be awesome at it.  Elect, appoint or hire him as your guy and he will come in and test your organization’s integrity.  If you have undefined policies or rules that can be exploited for personal gain, he’ll find them. 

    Then when he runs you aground you can do what the County Board of Supes just did and now what Superintendent Funk is doing and put “necessary safeguards in place”

    What better way to test your organizations finances than with Mr-who-needs-paperwork? Gluttonous George Shirakawa and his incompetent cast of thousands.  Fattest rolodexes (and waistlines) in the County!

  3. “While it is not unusual for nonprofits to have their status revoked due to inexperience in filing forms…”

    So it seems that there’s quite a few non-profits that don’t know the rules about filing 990’s, is JK is going on a local witch hunt?  Yes, Shirikawa appears to be a crook but the reporting appears to attacking every one of his associates and making mountains out of molehills- based on his association and little else.  Nobody, and no organization is perfect… let’s keep it in perspective!

    Reading through the comments on the last article related to Chavez, it appears that even though the forms weren’t readily available it was more of a misunderstanding than an intentional action.

    How about we tackle the OBVIOUS deceit that is being done by elected leaders (Chuck Reed and his ilk) that is perpetrated with malice?  Seems like a better idea than exposing unintentional clerical errors made by non-profits.

    1. If a nonprofit has its status revoked, donors do not get a tax deduction.  You can split hair about what’s a misunderstanding and what’s intentional, but no one can justify not disclosing that to donors.

      If they did send out letters to donors that the IRS requires for donations to nonprofits that are over $250, then you’d have real story.  A fraud story.

    2. Unintentional clerical errors?  Shirakawa’s outright shirking of his obligation to file legal paperwork and his overspending are not mere clerical errors or oversights.  They indicate a habitual disregard for the rules.  He seems to think that no rules apply to him. He has been in public service on various elected boards, foundations & office so he is hardly able to claim the “I didn’t know” defense.  If he truly doesn’t know at this point in his career (20 plus years into it) then he is a hopeless incompetent who will never learn.  If he simply doesn’t care and think he gets to pick and choose which rules he wants to follow based simply upon his own assessment of whether something is important or not then he should be fined, recalled, charged and held to the highest accountability for that disrespect for the office he holds and the public he defrauds. 

      Maybe those associated with him should think twice before continuing their association.  SJI is doing a public service by exposing all of this.  The public has been asleep at the wheel far too long and needs to hold all of our public officials to the very basic standard of decency and fair play.  Shirakawa’s big defense to his Pcard scandal was “but look at all the good I’ve done”  Well guess what?  Josh & SJI looked for all the good and this is what they’ve found.  He hasn’t raised money for the community, they don’t show great profits or money into the schools or non profits its just more of the same.  Big swanky dinners where they all sit around and congratulate themselves on how important and special they are. 

      Some of us in the community are sick of that entitlement and ashamed of how they portray themselves as Latino leaders.  They’re an embarrassment to the eastside and in particular to the Latino Community. 

      You can stop with the Chuck Reed is the anti-Christ deflection too.  While the Mayor has his faults they in no way shape or form excuse the misdeeds of Shirakawa and the like.  You accuse SJI of having a Shirakawa bias then wind up your comments by saying Reed operates with malice.  Pot, meet kettle.

      Even if Reed turns out to be the worst Mayor in SJ history, guess what?  Shirakawa is still a shameless crook of public funds with a total disregard for his office’s responsibilities (filings etc)

  4. It’s on the record that there was no permit and in fact the only woman on the board had questioned the “foundation” was not registered when she found out about the 80 K contract and she got squashed by the “good old boys club” including Biehl Nguyen Garcia Herrera who is just as dirty as the rest of them. Why didn’t you include dirty Moser in the article he’s been running the foundation. Funk knew about it and didn’t report it to the public

  5. This one smells really bad.  It is a major overstatement to suggest that 501c3 ventures often have their status revoked.  In fact, it is quite rare.  (It is true that if you fail to file anything, then that would be a common reason for it to happen, but few fail to file.)

    Another point in your article struck me an unconvincing.  Prior to the Hall of Fame dinner you mentioned that the Education Foundation acted as a last minute fiscal sponsor for that dinner. There would be no reason for them to do that if they didn’t understand that the existing Foundation’s status was compromised.  How then should we interpret Muhammed Chaudhry’s (president and CEO of Silicon Valley Education Foundation) comments?  Why would he be a fiscal sponsor if he didn’t know what was going on?

    Most peculiar.

  6. This type of activity has been going on for years in the East Side Union High School District. Millions of dollars have been misdirected and no one wants to take action.  When disclosed in audits the auditors are told not to put the information in reports or they are let go. Is there an Internal Auditor now?  No they have been fired.

    When members of the public mention these situations at the Board or Bond Oversight Committee meetings they are ignored.

    An Audit Committee was formed but appears to be inactive.  There is no continuous monitoring of activity or ERM to ensure funds not misused.  For instance outside consultants are paid up $200 per hour to do work that could be done by district employees at 10% of this cost.

    What is needed is a serious clean up with strong internal controls.

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