Auditor General DePasquale refers DNC Host Committee bonus case to IRS; chides state for not doing more

Pennsylvania's Auditor General is asking the IRS to look into some of the $1 million in bonuses spread among staff and volunteers who helped manage the 2016 Democratic National Convention in Philadelphia.

In a report released Monday, Auditor General Eugene DePasquale urged the IRS to review the controversial bonuses because the DNC Host Committee was registered as a nonprofit under the federal tax exemption code. He said bonuses given to board members Kevin Washo and Eliza Rose, who were also paid staff, might have violated IRS regulations that bar any "private shareholder or individual" of a nonprofit from benefiting from its earnings.

Determining whether Washo and Rose were paid bonuses as employees — as the committee's lawyers contend — or board members "was confusing enough that we forwarded it to the IRS for them to make a determination," DePasquale said at a news conference in Harrisburg.

Resolving another lingering question, DePasquale said that his months-long review of spending by the convention's Host Committee didn't find that it had misused any of the $10 million it got from the state to manage the convention.

But, he said, "the agreement was too loosely drafted and it would've been almost impossible to not meet the grant requirements." He chided the state for not including a claw-back provision on the $10 million grant, that would enable it to recoup funds that weren't needed or spent. "The reality is there should be [a] provision that says if you have enough private money, don't use the state money."

The report marks yet another blow to the host committee that by all other accounts put on a successful convention that cast Philadelphia in a positive national spotlight.

The bonuses, which were first reported by the Inquirer and Daily News in May, have stirred criticism from Gov. Wolf, state Republicans and even Democratic powerbrokers such as David L. Cohen.

Monday's report immediately generated a fresh call for a deeper investigation from Senate Republican leaders in Harrisburg.

"As we pointed out in May, the Internal Revenue Service (IRS) should also be looking into this matter, given the Host Committee's tax exempt status and limits placed on tax exempt organizations regarding 'cash awards.' It is imperative that the issue be further examined.  As the Auditor General has passed all information regarding the DNC audit on to the IRS, we now await their findings," they said in a statement.

Washo, a Scranton native and onetime executive director of the state Democratic Party, was paid $13,000 monthly as executive director of the nonprofit host committee and received a $310,000 bonus. He also served as treasurer of the board, according to the committee's nonprofit filings. Washo declined to comment Monday. He has previously defended the bonus as appropriate.

Rose did not return a call Monday seeking comment. A former campaign worker for Sen. Bob Casey (D., Pa.), she was paid between $9,000 and $10,000 monthly as the host committee's chief operating officer and received a post-tax bonus of $43,238 last year. She served as secretary of the board.

Washo's and Rose's bonuses, along with the bonuses of about a dozen other staffers and several volunteers, ranged from $500 — for interns and volunteers — to $310,000. The rewards were paid four months after the convention. The amounts were listed in a year-end report filed with the Federal Election Commission on Jan. 31.

Former Gov. Ed Rendell served as chairman of the host committee and has consistently defended the bonuses, calling them "deferred compensation" for the time some of the staffers worked without getting paid and for receiving what he called low salaries.

"The Auditor General's report confirms what we knew all along: that the Host Committee fully complied with the stipulations in the DCED contract and spent those funds completely appropriately and in accordance with legislators' parameters," he said in a statement released Monday.

As to the concerns about the tax-exempt status, Rendell said: "The compensation of all host committee employees was demonstrably reasonable and fully complied with IRS regulations. We have complied with official reviews to date and are available to do so again."

The host committee was tasked with fund-raising and organizing the events surrounding the July 25 to 28 Democratic National Convention. The committee raised $86 million, of which $10 million, the largest amount, came from Pennsylvania taxpayers. It wasn't until September, when the committee filed its financial reports with the Federal Election Commission, that it reported exceeding its fund-raising goal.

The committee used its surplus to pay the city more than $500,000 for municipal services incurred during the convention, make $1.2 million in grants to the Philadelphia School District and local nonprofits, including the Rendell Center for Civics and Civic Engagement, and provide the bonuses.

DePasquale said that if the state had a claw-back provision in its grant agreement, all of the surplus would've gone back to the state. He asked that the state immediately start adding such provisions to all of its grants.

The only requirement the state grant had was that the money be spent "to pay for infrastructure necessary for the City of Philadelphia to host the Convention including rental and build out of the Convention arena and other facilities, transportation, communications and technology systems, necessary office space and event security."

DePasquale said the $10 million was spent on three major items: $5.8 million went to rental of the Spectrum Arena; $2.5 went to Kirshner Events, which handled production and technology to televise the event; and $1.76 million to Hargrove Inc., the convention's general contractor. All three were allowed under the grant agreement.

"We see no legal recourse for the state to get any of that money back," DePasquale said.

Liz Navratil of the Harrisburg bureau contributed to this report.