The Arnold Foundation’s annual reports for 2017, 2018 and 2019 admitted that an employee engaged in “self-dealing.”
Self-dealing” is defined, generally, as either financial transactions between the foundation and a “disqualified person” or an “agreement by a private foundation to make any payment of money or other property to a government official … other than an agreement to employ such individual for any period after the termination of his government service if such individual is terminating his government service within a 90-day period.”
The Arnold Foundation’s 2017 report stated that it became aware of an employee’s conduct that “violated its code of conduct by having engaged in activities that may also constitute self-dealing as defined by [the Internal Revenue Code].” The Foundation reported that the person was no longer employed by the Foundation and that, “[i]f the Foundation determines that the disqualified person’s activities did result in an act of self-dealing, appropriate corrective filings will be made.”
A year later, on its 2018 form, the Foundation determined that the disqualified person had, in fact, engaged in self-dealing, and that the Foundation “is taking the appropriate corrective action.” Finally, on its 2019 Form, the Foundation stated that it had “taken the appropriate corrective action.” Both the 2018 and 2019 reports demonstrate that the self-dealing may have been agreeing “to pay money or property to a government official.”
A “disqualified person,” generally, is a government official, foundation manager, or a substantial contributor to the foundation. Since the Arnolds are the only disclosed contributors to the foundation, the list of possible self-dealers is short, but this also raises more questions that are not answered by the filing. Besides dismissing the employee, the Arnold Foundation has taken another important corrective action – they have reorganized the organization, purportedly for tax purposes, rendering them no longer subject to such a thorough examination. Despite the annual report having revealed that the Arnold Foundation identified a crooked employee, they shifted their approach in 2019 to bring the Foundation, their donor-advised fund, and the Action Now Initiative advocacy organization under the single umbrella of Arnold Ventures, an LLC, which freed them from the self-dealing restrictions on Foundations.