Lawyer Takes James MacDonald and Harvest Bible Chapel to the Woodshed (UPDATED)

I don’t know any other way to describe the report written by Sally Wagenmaker about the financial and governance practices of Harvest Bible Chapel during the tenure of former pastor James MacDonald.

MacDonald recently defended himself against the church action of declaring him disqualified as a pastor.  He may have to write another Facebook post or ten with asbestos gloves to handle the fire in this report.

If interested in a blistering report about a megachurch in disarray, you must read it for yourself. Here are some spicy appetizers to help you decide:

Based on our law firm’s review of available information, we determined that a massive corporate governance failure apparently developed over several years at HBC, primarily due to the following factors:
• MacDonald’s powerful and subversive leadership style;
• His development of an inner-circle leadership group through which he could control HBC;
• His marginalization of broader leadership, particularly the former HBC Elders; and
• His other aggressive tactics that thwarted healthy nonprofit governance.
Directly resulting from such problems, MacDonald appears to have extensively misused HBC’s financial resources for improper financial benefit.

MacDonald’s strong and persuasive role as authoritative senior pastor, along with his close inner circle, insulation from proper accountability mechanisms, and key changes to the church’s operational structures, resulted in a highly problematic culture. Policies, formal and informal, were put into place to reinforce this unhealthy power structure.

We were provided with extensive salary information for MacDonald and the HBC Compensation Committee’s year-end meeting minutes, reflecting summary approval for executive compensation, housing, deferred compensation, and the housing allowance for MacDonald. The Committee unanimously approved an overall 2015 compensation amount
of $1,240,000, a 2016 compensation amount of $1,370,000, and a 2017 compensation amount of $1,387,500. For year-end 2017, we provided with a “Memorandum of Understanding and Documentation” dated December 19, 2017, reciting “commitments and pledges given in good faith [that] represent a contractual and covenant commitment” to MacDonald, plus a statement that “Walk in the Word and the respective assets are a bible teaching ministry of Dr. MacDonald.” For year-end 2018, the minutes of the “Elder Executive Committee Compensation Committee,” reflecting a total compensation package of $1,270,000 for 2019.

In a word, this is obscene.

Within this context, a leader who receives a tangible personal benefit as a result of a decision affecting the church’s operations or assets has an inherent conflict of interest that must be fully addressed through disinterested, independent leadership decision-making. Based on our legal evaluation, MacDonald seems to have acted in his own personal interests – reaping significant personal financial benefits, avoiding accountability to any governing board, and with heavy-fisted exclusionary leadership. His close inner circle of HBC leaders helped him to do so and without the important accountability measures needed for effective nonprofit ministry governance.

Although I am not an attorney, I would be worried about my legal liability were I formerly involved in leadership at HBC.

UPDATE: James MacDonald responds:

Gospel for Asia and Compliance with ECFA’s Standards: The 2015 Letter, Part 8

In CEO and founder K.P. Yohannan’s recent “exclusive personal response” to the fraud lawsuit settlement involving Gospel for Asia, Yohannan traces GFA’s problems to a 2015 “confidential letter from a financial standards association we were part of, and of which we were a charter member.” That letter was from the Evangelical Council for Financial Accountability and outlined 17 potential violations of ECFA financial standards. In October 2015, ECFA evicted GFA from membership. To help donors understand the nature of the concerns ECFA had about GFA, I am posting the concerns one at a time with commentary. You can read all of the posts by clicking this link.

Read the entire ECFA letter on GFA’s compliance issues here.

From that letter, here is the eighth compliance issue:

8. Use of funds restricted for the field for other purposes.

On June 3, ECFA discussed GFA’s claim that 100 percent of field funds are sent and used in the field. GFA staff confirmed that this was accurate. On August 24, ECFA was informed that GFA India made a gift to GFA of $19,778,613 in 2013 to complete GFA’s new office. On August 27, GFA’s staff confirmed that the funds relating to this donation were originally received by GFA as gifts restricted for the field and GFA transferred to field partners to fulfill donor restrictions.

Two important issues are raised:
A. Reallocating gifts donated for field purposes and using them to pay for headquarters construction appears to be a violation of ECFA’s Standards 7.2. GFA staff stated in a recorded GFA staff meeting that you approached the field partner and explained that GFA could borrow the funds in the U.S., at less than desirable terms, for the headquarters construction. However, a gift from the field partner, in lieu of GFA borrowing the funds, would allow GFA to complete the new headquarters and thereby save interest. Therefore, GFA would be able to send more money to the field in future years.

ECFA believes that the potential savings resulting from the GFA India gift is an inadequate basis to reallocate gifts donated for field purposes.

B. Reallocating gifts donated for field purposes contradicts GFA’s claim that 100 percent of funds are sent to the field. In fact, a significant amount of donations restricted for the field made a circuitous trip back to GFA and were used for the headquarters construction, as though they had never gone to the field. This appears to be a violation of Standard 7.1.

In a GFA staff meeting, GFA indicated the field partner took out a loan to cover the use of the $19,778,613 gift and GFA staff confirmed on August 27 that India-generated income was used to repay the loan. Our review of the board minutes did not indicate the GFA board had approved, or even been notified, of the $19,778,613 reallocation of donor-restricted gifts.

The lawsuit settlement between Garland and Phyliss Murphy and GFA included this agreement:

The Parties also mutually stipulate that all donations designated for use in the field were ultimately sent to the field.

Some, including GFA in their promotional material, have portrayed this as an admission that they did no wrong with donated funds. However, this is not the case. GFA did use donor funds in an elaborate scheme to help fund their corporate headquarters in Wills Point, TX. The donations were solicited to help needy people in India and were originally sent to “the field” but then sent back from “the field” to GFA in Texas. The ECFA letter outlines the circuitous route of those funds.

Originally, GFA leaders told staff that an anonymous donors gave the $20-million to complete the construction of the Wills Point headquarters. Then, in a staff meeting (that I first revealed on this blog), Yohannan and David Carroll disclosed to the staff that a field partner under the authority of Believers’ Church gave the money to GFA in the U.S. In that staff meeting, the staff were not told that the funds were originally given by donors.

GFA was so worried about the truth coming out about this point in the ECFA letter that they threatened to sue my former blog host, Patheos, to remove the staff meeting audio.  GFA is a nonprofit organization which requires a certain transparency. They claim to maintain financial integrity but threatened to sue to attempt to cover up aspects of their financing concerning their headquarters.

Thus, one of the key reasons GFA lost their membership in ECFA was reallocating field funds back to headquarters. So the funds were sent to the fields, but they didn’t stay there. If the Murphy suit had gone to trial, there is no doubt in my mind that the Wills Point headquarters transaction would have been a central component of the plaintiffs case.

Next: GFA’s financial statements presentation of restricted funds.

Gospel for Asia and Compliance with ECFA’s Standards: The 2015 Letter, Part 7

In CEO and founder K.P. Yohannan’s recent “exclusive personal response” to the fraud lawsuit settlement involving Gospel for Asia, Yohannan traces GFA’s problems to a 2015 “confidential letter from a financial standards association we were part of, and of which we were a charter member.” That letter was from the Evangelical Council for Financial Accountability and outlined 17 potential violations of ECFA financial standards. In October 2015, ECFA evicted GFA from membership. To help donors understand the nature of the concerns ECFA had about GFA, I am posting the concerns one at a time with commentary. You can read all of the posts by clicking this link.

Read the entire ECFA letter on GFA’s compliance issues here.

From that letter, here is the seventh compliance issue:

7. GFA’s financial statements do not appropriately report transactions with foreign partners.

During our review on June 3, GFA staff indicated that funds transferred to GFA India were actually transferred to a number of related entities instead of the single entity reflected in the 2013 audited financial statements. Additionally, on August 24 we learned that GFA received a $19,778,613 donation from GFA India, which was classified as a related party elsewhere on the 2013 audited financial statements (also see #8 below).

On August 27, GFA staff confirmed that this donation was neither disclosed in the footnotes of the 2013 financial statements as a related-party transaction nor to the GFA board of directors. This inconsistency within the financial statements and lack of disclosure to the GFA board of directors about a significant related-party transaction appears to violate ECFA Standards 2, 3, and 6. On July 20, ECFA was informed that GFA engaged a new audit firm and they are in the process of reviewing related-party transactions.

This is one of several problems related to the nearly $20-million in donations which was sent to “the field” but then sent back to Wills Point, TX to complete the GFA headquarters complex. Apparently, GFA leadership tried to obscure this transfer of funds from their board and auditors. It has never been made clear to the public whether or not the auditors (Bland Garvey) knew the full circumstances of this transaction.

In the first paragraph, ECFA refers to the fact that GFA sends funds to multiple shell organizations in India. These organizations are incorporated as charities there with Yohannan and his family in control. However, they have no other purpose but to funnel funds to Believers’ Church.

This point is a reminder that GFA has not released audited financial statements to the public since 2013. Actually, they did not release that statement willingly. I requested it and published it in stages to demonstrate the problems with this “related party transaction.”

 

Next: Use of funds restricted for the field for other purposes.

Gospel for Asia and Compliance with ECFA’s Standards: The 2015 Letter, Part 6

After about a month break, I am resuming this series.

In CEO and founder K.P. Yohannan’s recent “exclusive personal response” to the fraud lawsuit settlement involving Gospel for Asia, Yohannan traces GFA’s problems to a 2015 “confidential letter from a financial standards association we were part of, and of which we were a charter member.” That letter was from the Evangelical Council for Financial Accountability and outlined 17 potential violations of ECFA financial standards. In October 2015, ECFA evicted GFA from membership. To help donors understand the nature of the concerns ECFA had about GFA, I am posting the concerns one at a time with commentary. You can read all of the posts by clicking this link.

Read the entire ECFA letter on GFA’s compliance issues here.

From that letter, here is the sixth compliance issue:

6. GFA solicits funds for narrower purposes than the eventual expenditure of the funds.

During ECFA’s review on August 12, GFA staff provided a document to demonstrate the flow of funds from GFA to field partners. ECFA learned that donor-restricted donations are appropriately tracked by particular revenue classifications. However, we also discovered, and it was confirmed by GFA staff, that the disbursement of the gifts are tracked in much broader categories. For example, donations were received and tracked for 38 different specific items including kerosene lanterns, bio sand filters, chickens, manual sewing machines, blankets, bicycle rickshaws, and others, but related expenses were only tracked as “community development.” In other words, donations were raised for 38 specific items, with the donations pooled for expenditure purposes instead of expending them specifically for the purposes raised.

ECFA did not find any evidence that donors to the 38 different giving categories had awareness that their gifts were grouped and used in a broader category than the specific categories in which the gifts were raised. ECFA’s staff raised concerns regarding GFA’s compliance with ECFA Standard 4, 7.1, and 7.2 in raising funds for a particular purpose but then failing to document the actual use of those funds by the particular donor-restricted purpose.

Subsequent to this conversation, on August 16, GFA staff indicated that GFA field partners will begin tracking expenditures by specific item accounts to provide adequate transparency as to the use of designated funds.

Our review of the board minutes did not indicate the GFA board had approved, or even been notified, that gifts solicited for very specific purposes were not being expended with the same specificity as the gifts were raised.

GFA led donors to believe their funds had been spent for specific items but there was no way to know if such intent had been followed since there was no documentation of that use. This policy had not been approved by the board. However, after this the board would have been alerted via the letter.

Francis Chan was on the GFA board by this time and had reassured people that he had sent in personal auditors to make sure funds were being spent as intended. Here is a May 15, 2015 email from his organization Crazy Love to me:

He has even gone to the lengths of sending two different auditors/accountants to research their financial practices. Both have come back with glowing reports.

His auditors/accountants missed a whole bunch of violations of ECFA standards. Chan continues to use this story. However, we know that GFA was kicked out of ECFA in October for numerous violations. GFA promised that they would reapply for ECFA membership which they have not done. GFA has not released audited financial statements. They have not disclosed to donors that their charity registration in India has been revoked.

Next: GFA’s financial statements do not appropriately report transactions with foreign partners.

James MacDonald Responds to Disqualification Decision

Last Sunday, the elders of Harvest Bible Chapel announced that they had found former pastor and church founder James MacDonald to be biblically disqualified for pastoral ministry.  Today, MacDonald posted what appears to be a response to that announcement on his Facebook page.

MacDonald begins with a vague reference his “former church”:

I trust this timing finds you well in the Lord and growing in your awareness of how good He truly is. Our efforts to work through existing channels in our former church have reached an unsuccessful end, leading to this release of words we have long sought to express.

MacDonald addresses various concerns raised by Harvest’s weekend statement. Specifically, he confesses “sinful patterns of fleshly anger and self pity that wounded co-workers and others.” He adds that his decisions involving the lawsuit against Julie Roys, two former elders and their wives, his media ministry and Harvest Bible Fellowship were “regrettable.”

In the end, however, he continues to contest the statements from Harvest and remains in arbitration.

Decisions by the current Elder/staff, along with inaccurate announcements and recent public condemnation, signaled clearly the timing to communicate our message directly. With sadness we accept that no face-to-face confession or truth-advancing interaction will be forthcoming.

The above matters are now in Christian arbitration where impartial believers will hear and give a written, objective ruling. As we cannot give specifics, we are trusting the Lord for truth to be revealed in His time, and we covet your prayers.

Despite the words of confession and findings of HBC, it appears MacDonald is gearing up for a return to ministry of some kind.

After waiting many months in hope of a pathway toward restoration, we have been welcomed into the congregation of New Life Covenant Church in Humboldt Park, Chicago. A multi-ethnic church under Pastor Wilfredo DeJesus, New Life has embraced us in love, offering us a place to serve and the beginnings of healing community.

In a recent Naples Daily News article, I was quoted as saying that James MacDonald would be back in the ministry saddle.  That interview was conducted in May. It is not that I think disqualified pastors should go back into the pulpit. I don’t; but this is the pattern that has become well traveled.