NHF Foundation Board releases statement regarding allegations

Published 2:13 pm Thursday, April 20, 2017


The Nederland Heritage Festival, one of the longest running community events in Southeast Texas, is an event planned, promoted and sponsored by the Foundation that bears the same name as the Festival , with the Festival being the primary source of revenue for the Foundation. The Festival is run entirely by volunteers within the community, with most being residents of the City of Nederland. The Board of Directors of the Foundation that runs the Festival is not comprised, as is often the case for foundations, of individuals whose family has donated substantial sums or who are politically connected, but is instead, and in compliance with the Foundation’s Bylaws , comprised solely of individuals who have, prior to even being

considered for inclusion on the Board, devoted many hours and years of volunteer efforts necessary to insure the ongoing success of the Festival and the Foundation. In turn, the Foundation uses the net funds generated by the Festival operations to not only promote all aspects of the City of Nederland, but additionally , if not more importantly, to provide scholarships and financial benefits to students in the Nederland school district. Thus, to insure the ability to accomplish these ongoing goals , the financial health of the Foundation is, and always will be, a primary area of concern for the Board of Directors that oversees the Foundation and its Festival.

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In the spring of 2016, not Jong after completion of the 2016 Nederland Heritage Festival, and related to the winding down of the 2016 Festival operations and completion of accountings related to same, members of the Festival brought to the attention of the Nederland Heritage Festival Foundation Board of Directors concerns that they had only recently discovered related to the potential misuse of Foundation accounts and/or potential misdirection of funds. Upon notice of these issues, the Board immediately began its own initially informal investigation, which ultimately confirmed that misuse issues of some sort were apparent. Immediately thereafter, the Foundation ‘s Board began a more detailed and formal investigation, with that investigation being headed by outside counsel retained primarily for this purpose.

That investigation began in late May, 2016 and was not completed until sometime in September 2016. The investigation did not involve a full forensic audit, with that decision due to (i) the limited complexity of the accountings in question, (ii) a cost analysis of any potential forensic audit and (iii) concerns that such an invasive forensic audit could generate potential negative feedback to future Festival operations. Even though the investigation undertaken did not include a forensic audit, it was completed by persons with appropriate accounting and legal expertise , with the result of that investigation uncovering and verifying issues related to the potential misuse of Foundation accounts and funds, with the amount of discrepancy determined, based upon reasonable certainty , to the satisfaction of the investigation team , the Foundation Board and its counsel.

The investigation by outside counsel and others concentrated not only upon verification of the misuse and the extent of same, but also upon the means utilized that allowed for the misuse of accounts to occur without timely detection . The result of that secondary investigation was a review, analysis and tightening of the Foundation ‘s accounting and financial policies and procedures which the Board is now confident will preclude any potential future misuse and/or misdirection of funds. The Foundation’s 501 (c) 3 status as a charitable institution is now, and will continue to be, in good standing.

After the investigation was completed as necessary to determine the potential amount in controversy, the investigation shifted to detailed analysis of the potential recoverability , including the limitations upon said potential recovery, of said funds , with that analysis being controlled by applicable Texas statutory and other applicable law. The Board’s analysis included all aspects of potential recovery from the offending parties, whether from direct or indirect sources .

The result of that investigation and analysis indicated very limited potential collectability of funds from the offending parties. More particularly, the investigation indicated an extremely limited ability of the Foundation to recover even a minimal portion of the subject funds, utilizing applicable Texas civil and other procedures , from the offending parties . The funds in question were deemed by the Board to be not only material in amount, but also material as to the ongoing financial strength of the Foundation, an issue of which should be primary concern for any board governing a 501 (c) 3 charitable entity and/or foundation.

In fact, the only identified source of repayment that would allow for recovery of the financial discrepancy that had been reasonably determined by the Board, which recovery was the primary guiding policy of the Board given the material nature of the amount in question, was the potential of a voluntary payment made through third party sources who were not directly involved in the controversy. Based upon information relayed to the Board, any such third party payment, which would potentially result in recovery of the reasonably determined discrepancy , would also likely require a full civil release of the offending parties, a requirement that clearly caused the Board much consternation. Notwithstanding that consternation, and the potential implications of the required release, based primarily upon (i) the material nature of the amount of the funds and (ii) the Board’s belief that its over-riding legal responsibility was to recover said funds for the benefit of the Foundation, the Festival and the citizens ultimately served and benefited by same, the decision was ultimately made by the Board, unanimously (subject only to legal counsel mandated recusal of certain members due to potential future conflicts , which excluded participation of board member , Chief Darrell Bush of the Nederland Police Department), to accept a resolution of the controversy that resulted in the Foundation’s recovery of the final determined discrepancy , even if that payment required the grant by the Foundation of a release of the potential offending parties. The decisions made by the Board of the Foundation were made in good faith, upon the advice of counsel and outside professionals and were based upon the over-riding concern that the final decision was a decision that was in the best long term interest, both financially and otherwise , of the Foundation and the community it serves.

Had recovery of the amount in controversy not been financially material to the current, and future, financial health of the Foundation, the decision by the Board to grant a civil release of the offending parties may very well have been different. However, that was not the situation faced by the Board of the Foundation. The ultimate decision made by the Board, albeit reluctantly , was one that will insure the ongoing future operations of the Festival and the ability of the Foundation to financially serve the interests of the persons for whom the Foundations was originally establish …… namely, students who will receive future scholarship opportunities from the Foundation and who will ultimately become productive citizens for our community. The decision by the Board insures that the Foundation will continue to be in a position to serve the best interests of not only those future students who may be scholarship recipients, but additionally insures that the Foundation and its Festival can continue to promote the City of Nederland and its surrounding communities, including the continuation of the donations made historically to area parks, libraries, and other community servants, including first responders such as the Nederland Police and Fire Departments. The Board believes that its actions in regards to this controversy, given the totality of the circumstances and issues facing the Foundation, were clearly in the best interests of the Foundation and our community and despite statements made by others, were in no way an attempt to “cover up” any wrongdoing by the offending parties. The Board’s ability to respond to various inquiries made by media and others to date has unfortunately been, and will continue to be, limited by various legal and other impediments. We are hopeful this statement will lay this matter to rest for all concerned.

Board of Directors

Nederland Heritage Festival Foundation

Copy to: Board Minutes

Meeting Date April 19, 2017