Charity errs big on fund values
Boston Foundation alerts 900 donors to accounting mistake
The Boston Foundation mistakenly overstated the value of funds it manages on behalf of some 900 donors by a total of $30 million this past summer, prompting the region’s largest charity to send an unusual letter to the donors, warning them of errors in their philanthropic accounts.
The mistake was essentially an accounting error caught during a routine audit of the organization’s books and ultimately did not affect the amount of money the Boston Foundation gives to nonprofits, said its president, Paul Grogan. It gave away $86 million in its last fiscal year.
However, Grogan could not say whether individual donors may have made philanthropic decisions based on the incorrect information. The error, which overstated account balances by an average of 8 percent, was reported and corrected in “preliminary’’ quarterly statements mailed to donors last month.
In addition to managing its own philanthropic funds, the Boston Foundation acts as an adviser and manager to donors who want to give money to charitable causes. Of the $695 million in overall funds the Boston Foundation oversees, about $370 million are donor funds that were affected by the mistake.
Grogan said the mistaken balances were based on information supplied by State Street Corp., the custodian of the foundation’s assets. The Boston Foundation itself knew the correct value of its funds all along, because a consulting firm that oversees its investment managers had reported the proper figures to the organization.
Though mostly a harmless mistake, the episode is an embarrassment for State Street Corp., which is separately recovering from investment losses that arose from the credit crisis. State Street has set aside more than $400 million to cover legal exposure related to losses on certain fixed-income strategies.
A State Street spokeswoman declined to comment on the problem. “The Boston Foundation is a valued client,’’ she said. “We are working closely with them to resolve this issue.’’
Grogan noted that the foundation itself failed to spot the discrepancy prior to the audit. “Until this period of extreme volatility, there has never been any serious discrepancy between these two numbers,’’ Grogan said. “We manage the organization based on the numbers we get from our’’ investment consultant.
In a letter to donors last month, Grogan said the foundation had hired another outside accounting firm to review its systems and implement a new financial reporting process. “We are taking aggressive measures to ensure that errors of this kind do not occur again,’’ he wrote.
The Boston Foundation pools assets from its own discretionary fund and the hundreds of other donor funds into one large investment account. The reporting error occurred because investment losses suffered during the last fiscal year were not proportionately applied to donor accounts, inflating their true value by $30 million in June 30 statements.
Steven Syre can be reached at email@example.com.