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Thursday, October 13, 2016

Cash Flows Via Multiple Channels to Executive at Special-Education School

From The Eye
The New England Center for Investigative Journalism

By Jenifer McKim and Koby Levin
October 11, 2016


The Chamberlain International School, a private residential school facing allegations of student abuse, paid more than $800,000 to entities controlled by its executive director, raising questions of whether he uses the nonprofit for personal gain or misspends public funds, according to legal experts and a state lawmaker.

The Middleborough, Massachusetts, school which enrolls many students with psychiatric histories, pays Executive Director William Doherty a salary of $325,880, and also makes payments to a real estate trust he oversees and a Netherlands-based company he owns, according to the school’s financial reports.


Chamberlain, registered as a charitable organization with the state, also employs Doherty’s ex-wife, her sister and his brother in senior management and administrative positions.

The questions about Doherty’s financial arrangements come after The Eye and WBUR public radio reported in August that the school has regularly violated state regulations in instances where students were harmed, including a death and alleged cases of sexual misconduct.


Chamberlain says it’s compliant with state regulations, reported most issues itself and worked with the state to resolve any problems. School officials describe the center’s report as “flawed” and “biased.” With revenues of more than $13 million, the school has about 114 students from ages 11 to 22.

Doherty, who co-founded the school in the 1970s, is both trustee and beneficiary of a trust that received $722,622in rent payments from Chamberlain in the year ended August 2015, according to the school’s state filings and attorney. The Dutch company owned by Doherty received $103,903 that year from Chamberlain to recruit international students and increase enrollment, school records show.

Doherty’s ex-wife Jeanne Edwards, also a co-founder of Chamberlain, was paid $210,592 in the 2015 fiscal year as its chief operating officer, records show. Sarah Norfleet, her sister, earned $156,612 as program development director. Doherty’s brother Paul earned $88,550 as the school’s technology administrator in 2013, according to Chamberlain’s latest filing with the Internal Revenue Service. Paul Doherty’s LinkedIn profile says he still works there.

The Eye asked former Massachusetts Attorney General Scott Harshbarger to review Chamberlain’s financial filings. Harshbarger said the “various income channels that funnel to the executive director and his family” raise issues that deserve more scrutiny by state regulators.

“Are they using the charitable entity for their own benefit?” asked Harshbarger, senior counsel in the litigation and nonprofit departments at the Boston law firm Casner & Edwards.

Plans for Hearings

Rep. Alice Peisch, a Wellesley Democrat who co-chairs the state legislature’s Joint Committee on Education, said that Doherty’s salary and other income streams from the school raises the question of how public money is being spent at Chamberlain — about a third of whose students have their tuitions paid by local school districts and the state under special education laws. Peisch said she plans to hold hearings on alleged abuse and neglect and other issues at state special education schools, including Chamberlain spending.

Doherty declined multiple requests for an interview through school representatives. Eric MacLeish, an attorney at the Boston firm of Clark, Hunt, Ahern & Embry who represents the school, said that Doherty’s business transactions with Chamberlain are publicly disclosed and legal.

“You would have to be pretty foolish in this environment right now to try to take advantage of a non-profit corporation,” he said. The transactions “have to be disclosed and they must be fair. They are fair.”

Doherty’s salary is the third highest among the top executives at 26 comparable Massachusetts residential, special-education schools qualified to receive taxpayer-paid tuitions, according to an Eye review of schools’ financial filings. His 2015 total compensation, which encompasses benefits, ranked fourth at $343,732, including $17,852 from Chamberlain to cover personal use of a Mercedes Benz that he drives as a perk from the school.

Attorney David Szabo: Is Chamberlain a charity or a family business?

David Szabo, a partner at the Boston law firm Locke Lord, said that Doherty’s multi-sourced revenue stream raises the issue of whether the school’s board is doing its job. “Is it a charity under the supervision of an independent board or is it a family business?” asked Szabo, who advises non-profits on governance and tax issues.

Chamberlain declined requests to interview board members to discuss school governance and Doherty’s financial arrangements.

A statement issued by the school and attributed to Edwards said that she, Doherty and Norfleet were all founders and the fact that they are still at Chamberlain is “testament to their dedication and hard work.” She said Doherty’s brother Paul, as well as Daniel Vanderlip and Melissa Doherty, two other relatives who work at the school, are “important contributors” with fair salaries.

Salary Cap

She said Chamberlain in 2009 began training board members and is “continually looking to areas where it can improve” governance. The Dutch company has never earned a profit and Doherty hasn’t received a salary payment from it, according to the statement.

William Doherty’s total compensation as Chamberlain’s top executive has more than tripled from the $98,820 reported in 1997 in the school’s filing with the Internal Revenue Service. His raises since then came during a period in which the school violated state regulations 33 times, mainly related to alleged abuse and neglect at the school. Chamberlain’s enrollment and revenues also expanded during the period.

Some parents have praised the school, others say their children were mistreated or neglected. Last year, two sets of parents filed suit alleging the school failed to protect their troubled teenage daughters, who were said to have suffered severe injuries in separate incidents of jumping from a second-story bathroom window.

Claudia Russo, of Worcester, Massachusetts, said she pulled her learning-disabled son out of Chamberlain after a troubled four-month stay there in 2012 as a day student. She said the school is “a cash cow” more interested in collecting tuition than caring for students.

Russo said her son begged to leave because classes were out of control, with students throwing furniture and swearing. He was introduced to drugs, she said, and offered “protection” from older students who asked for money. She said she spoke to Chamberlain officials, but they dismissed her concerns. Chamberlain’s Norfleet said in a statement that the school disagrees with Russo’s account.

Massachusetts students who board at Chamberlain are charged $120,176 a year; out-of-state students pay about $137,000. About 70 percent of its enrollment comes from other U.S. states or abroad, MacLeish said.

Non-state students play an important role in William Doherty’s compensation because of a Massachusetts cap on the public funds used to pay executives at nonprofits that provide services to the state. The tuitions paid to the school by non-state students allow the school to exceed the $173,697 cap.

This means Chamberlain’s payments to the Dutch student-recruiting company owned by Doherty stand to benefit him twice – once by improving the bottom line of his company and a second time by bringing more non-state funds to the school, giving it leeway to pay him more.

Auditor’s Scrutiny

Chamberlain’s finances and transactions with its leader have been scrutinized by Massachusetts before. In 2008, the state auditor found the school was controlled by Doherty and other staffers “without the necessary independent oversight,” and recommended fewer insiders on its board, according to the audit report. The school responded by expanding its board and limiting inside directors, the report said.

The audit prompted scrutiny from the Massachusetts attorney general. Emily Snyder, a spokeswoman for the attorney general, said the AG’s office worked with the school “on a variety of governance issues” which “appeared to have been resolved” in 2013, “and we concluded our ongoing dialogue with the organization.”

Chamberlain rented 34,622 square feet in eight properties – or “the majority of its campus facilities” — from a trust overseen by Doherty in fiscal year 2015, according to the school’s financial filings. MacLeish confirmed that Doherty is one of two of the trust’s beneficiaries that are directors at the school; he declined to name the second.

Chamberlain rents most campus properties from a “related party:”
  • A dorm for 18 students, some administrative and therapist offices. Appraised value for two buildings: $699,400.
  • The “Barn,” including reception area and cafeteria. Appraised value for two buildings: $699,400.
  • Dorm for 15 students as well as classrooms and an office. Appraised value: $584,900.
  • Dorm for five students and a nurse’s station. Appraised value: $314,200.
  • Dorm for 18 students, about 10 miles off campus. Appraised value: $299,700.
Sources: Town of Middleborough, Chamberlain International School

The school has disclosed that $348,263 of the rent payments exceeded actual costs such as mortgage payments and taxes. That’s allowed if non-state funds pay for the excess, which the school says is the case.

Fair-market value is among the measures the U.S. Internal Revenue Service uses to determine whether related-party transactions at nonprofits pass muster under the tax law. Several real estate agents in the Middleborough area said the $722,622 annual rent Chamberlain pays Doherty’s trust appears to be above market prices.

Based on the average monthly rents per square foot of $1.27 for 55 Middleborough rentals surveyed by broker Kim Thomas of Realty One Group, the space leased by the school should go for about $527,600 a year, or $195,000 less than what it is paying the trust.

Middleborough town records list eight properties with nine buildings that appear on Chamberlain’s campus map and are owned by a trust in William Doherty’s name.

On Friday, the school released a 2013 appraisal of the eight properties, finding an annual rental value of $617,000 that year and a projected $648,200 in 2015. A school spokeswoman said Chamberlain pays a “premium” because many students “suffer from mental illness and have behaviors that can lead to being destructive.” The appraisal counted a small tenth building on the properties not listed separately in town records.

Kate Lanagan MacGregor, owner of Mattapoisett-based Bold Moves Real Estate, which handles property in Chamberlain’s region, said the rent that Doherty’s trust charges for the campus buildings far exceed anything else in Middleborough.

She said new three- to four- bedroom colonial houses in the town typically bring about $3,500 a month. The rent Chamberlain is paying averages $6,691 per month for each of the nine buildings, or $6,022 for each of the 10.

Numbers like those “don’t make sense,” MacGregor said.

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