Spending accusations spin Elks Lodge into ‘turmoil’

Reporting from SAN FRANCISCO

Splashed across the screen in blindingly patriotic red and blue, the mission statement of the Benevolent and Protective Order of Elks opens with the four core tenets of Elkdom.

“Charity, Justice, Brotherly Love and Fidelity.”

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From the third floor of its 15-story, multi-million dollar headquarters a half-block from Union Square, San Francisco’s Elks Lodge No. 3 — the oldest in continuous operation, since 1876 — prides itself in donating hundreds of thousands of dollars to charities, schools and veterans each year.

Like all of the 1,978 local Elks chapters across America, Lodge No. 3 is a nonprofit fraternal organization; a charitable, non-partisan social club where its 874 members leave business and politics at the door in order to drink, eat, and, in San Francisco, work out at a Lodge-owned health club and swimming pool.

SFBay photos by Scot Tucker, Jesse Garnier

Listen to groups that Lodge No. 3 supports, and you’ll hear nothing but praise.

But listen to some current Lodge No. 3 members and former leaders, and you’ll hear serious questions about how the 137-year-old 501(c)(8) nonprofit has chosen to spend members’ money.

Hundreds of thousands of dollars in lodge funds were spent on travel, booze and cigars — including cabanas and suites in sundrenched locales — by Lodge No. 3 leaders, their spouses and guests in recent years, according to current Elks members, documents obtained by SFBay, and IRS tax returns.

And $523,339 in additional spending — reported as “postage and shipping” from 2005 to 2007 on Lodge No. 3 federal tax returns — stumped and shocked multiple current and former Lodge leaders when asked by SFBay to recall what the money was used for.

Earlier this year, four Lodge No. 3 members were suspended after joining together to raise questions to club leaders over chronic patterns of overspending. Two other popular members were also fired from their jobs at the Lodge.

Accusations over spending and their bitter aftermath thrust Lodge No. 3 into a state of “turmoil” — in the words of the head of the national Elks Grand Lodge — and prompted a review of Lodge No. 3 finances by the parent organization.

Yet, as allegations swirl, members say Lodge No. 3 leaders continue to drink and smoke at the Lodge’s expense, while fending off persistent questions — from both inside and outside the club’s wood-paneled walls — over spending, governance and oversight.

“All Lodge records should be open for inspection by a member at all reasonable times.”

– Elks USA, Annotated Statutes, Section 12.050 (2012)

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The most recent member concerns about spending at Lodge No. 3 are summarized in an 11-page, legal-style complaint against Lodge leadership filed internally by four current Elks members and obtained by SFBay.

The February 2013 complaint — prepared by San Francisco attorney and 11-year Lodge No. 3 member Arthur Brunwasser — was filed within the Elks’ arcane system for adjudicating internal disputes.

Brunwasser declined multiple requests from SFBay to be interviewed for this story.

In his complaint, Brunwasser describes how he and other members sought $3-per-hour pay raises for longtime workers at the Lodge’s health club and swimming pool at their Post Street headquarters.

When told the Lodge could not afford the pay raises, Brunwasser reviewed spending at Lodge No. 3, discovering $230,000 were spent in past years on national and state conventions.

In violation of the Elks’ governing Annotated Statutes, Brunwasser was denied access to reimbursement reports for hundreds of thousands of dollars in spending at 2010 Elks conventions in Orlando and San Diego.

In late February, Brunwasser circulated his complaint to Lodge No. 3 members, part of a series of e-mails critical of club leadership over spending and governance.

The first e-mail — sent in the days leading up to a Lodge election — also urged members to vote against candidates and longtime Elks Lodge No. 3 leaders Eric Wright and David Harmer, calling them:

“… part of the small group of individuals who have essentially run the Lodge and moved from one office to another … treating our mutual benefit association as their own private fiefdom.”

Brunwasser’s message struck like a double-edged sword within Lodge No. 3. His financial allegations brought more than 100 people to the February 21 election when normal attendance at meetings is around a dozen.

But many members were infuriated after Brunwasser mistakenly exposed their private e-mails in his bulk message.

Candidates Harmer and Wright, criticized by Brunwasser in his e-mail, were overwhelmingly rejected by Lodge No. 3 members in the election.

Days later, in another e-mail to members, Brunwasser accused Nasir Shakour — then-incoming and now-current Exalted Ruler, Elk-speak for Lodge president — of “retaliating” against the defeat of his “friends” by firing Steve Micros, a popular manager at the health club and Lodge No. 3 member.

On Feb. 28, Shakour fired a Lodge bartender — also an Elks member and recent “Elk of the Year” — after, according to multiple sources within the Elks, she was heard discussing Brunwasser’s first e-mail with members at the bar.

The official reason stated in her termination letter was “behavior inappropriate to an employee representative of the Elks.”

At an internal hearing on March 14, Brunwasser and three other members had their Elks privileges suspended for their e-mail gaffe.

None were present at their own suspension hearing because, according to Elks members and internal Elks documents obtained by SFBay, Shakour stood in the Lodge doorway, preventing them from entering.

In April, nearly 150 Elks members turned out for an appeal hearing to overturn the suspensions for Arthur Brunwasser and his three supporters.

Before the contentious hearing began, Elks Treasurer Bob Merjano confronted and had to be “pulled apart” from Micros, according to an Elks member present at the meeting. During the hearing, the suspended men fell nine votes short of the 96 needed to overturn the suspension.

In an e-mail obtained by SFBay from current national Elks Grand Exalted Ruler Thomas Brazier to Brunwasser sent in early April, Brazier recuses his office from getting involved in the issue which has brought “turmoil” to Lodge No. 3.

But in May, the suspensions of the Brunwasser group were stayed while the national Grand Lodge considered an additional appeal.

Later that month, according to documents obtained by SFBay, an internal Elks arbiter ordered Lodge No. 3 reveal to Brunwasser the records he first requested in July 2012 associated with convention spending from 2008 to 2012.

In mid-October, in another decision, a Grand Forum of the National Elks order overturned, on appeal, the suspensions of the Brunwasser group.

The four members’ due process had been violated, according to the decision, when they were turned away from the hearing at the Lodge door by Nasir Shakour, and not properly notified of the hearing by mail.

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“In no event shall the travel allowance exceed coach air fare plus applicable per diem.”

– Elks USA, Annotated Statutes, Section 4.240 (2012)

In his complaint, Brunwasser explains why he and other members are pursuing the issue of spending at the Lodge:

“My interest, and the interest of other members, is to obtain sufficient data about the way officers are spending our funds, present it to the membership, and then seek membership approval to stop the wasteful spending and to redirect necessary funds to properly compensate our gym employees and fund our charities.”

Brunwasser’s complaint specifically questions $230,000 in Lodge No. 3 spending on state and national Elks conventions from 2008 to 2011.

IRS Form 990 tax returns for Lodge No. 3, public documents due to their nonprofit status, reflect a total of nearly $460,000 spent on conferences, meetings and conventions from 2005 to 2011.

Lodge No. 3 media relations chair Tina Shakour — wife of current Exalted Ruler Nasir Shakour — told SFBay their convention spending is “not out of line” with other Bay Area Elks Lodges.

But an SFBay review of 26 California Elks Lodges with assets of more than $1 million showed none of them reported spending nearly as much on conferences, meetings and conventions as San Francisco.

On their 2010 tax return, Lodge No. 3 reported spending $121,348 on conferences, meetings and conventions.

The other California Elks lodges examined by SFBay — including several with assets many times that of Lodge No. 3 — reported spending an average of $6,920.

According to figures cited by Brunwasser, the 2010 spending includes $66,057 for the five-day Elks national Grand Lodge convention in Orlando, and $24,821 for a four-day state convention in San Diego in 2010.

Only each Lodge’s Exalted Ruler is required to attend the annual Grand Lodge convention, according to the “Exalted Rulers, Lodge Officers, Committee Members Manual” distributed to lodges by the national Order of the Elks.

Lodge No. 3 would not provide information to SFBay about attendees at the 2010 conference, though Brunwasser’s complaint said 11 and 13 officers were sent to Orlando and San Diego, respectively.

After finally receiving access to the reimbursement receipts in May, Brunwasser summarized his findings in a message to Lodge No. 3 members obtained by SFBay:

“Review so far has disclosed why they sought to keep the information from the members. … $2,700 was charged for 110 bottles of alcoholic beverages for our ‘hospitality room’ with top of the line brands. … $2,448 for liquor was charged to us at another convention. … For one dinner and drinks, we paid $1,602 for 11 officers, an average of $145 each.”

The document included additional expenses charged to the Lodge, including cabana rental, spa fees, diapers and baby wipes.

Shakour said all officers who are required to attend conventions have their travel expenses paid by the Lodge:

“With three major conventions a year, plus four training sessions, things add up when you start looking at all the travel costs.”

Shakour said meals served to new members, their sponsors and guests at indoctrination dinners, as well as food served at initiation meetings — also accounted for some of the $460,000 spent between 2005 and 2011.

By 2012, according to figures in the Brunwasser complaint, convention spending at Lodge No. 3 had shriveled to just $14,000.

Shakour also told SFBay the finances at Lodge No. 3 are examined annually by an internal auditor and by the Elks national lodge and that:

“No one in our organization has ever questioned our spending.”

Brunwasser’s complaint, though, details months of being stonewalled by one Lodge No. 3 leader after another over his requests to view details and accompanying backup for hundreds of thousands of dollars in spending.

Louis Grillo, former national exalted ruler and current liaison between California lodges and the national order of Elks, told SFBay no red flags had been raised regarding spending at Lodge No. 3 until more than 10 member complaints were received, spreading what Grillo called unverified rumors:

“This is nothing but a bunch of baloney. You should have more important things to do than worry about an Elks lodge with a bunch of troublemakers. Your paper should have something else better to do.”

Grillo also told SFBay that the national Elks office has been investigating the member complaints:

“Absolutely we’re looking into it. We want to get to the bottom of this because our main concern is that the money the lodge raises is spent properly for its officers, facilities and even charities.”

He added:

“We have over 2,000 lodges but each is an independent entity and we do not step in unless we are contacted. It comes down to the lodge. The whole lodge should not be condemned if somebody has made a terrible mistake and done something wrong.”

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Former Lodge No. 3 leaders and current members tell SFBay that Brunwasser’s allegations are merely the most recent and detailed in a string of accusations about spending at the Lodge.

From April 2007 and to March 2008, the Exalted Ruler of Lodge No. 3 was Patrick Murphy. Murphy joined Lodge No. 3 in 2000, serving in various leadership positions before ascending to the top position.

Murphy left Lodge No. 3 after family health issues required him to stay closer to his North Bay home. He is now a member of Elks Lodge No. 2655 in Novato.

In an interview with SFBay, Murphy described himself as a “frugal” Exalted Ruler whose main priorities were stepping up veterans programs and working with local kids on track teams:

“The San Francisco Elks do a wonderful job with children, youngsters and veterans. We are a community-oriented organization and I think we’ve been very successful.”

When asked about misspending at the Lodge, Murphy told SFBay:

“I have heard in the past that it existed. It did not exist when I was president because I’m a rather frugal individual and I believe that the membership money should be spent on what we’re supposed to be doing, and that’s charitable.”

Murphy said he recalls hearing accusations about spending at Lodge No. 3 after his days as Exalted Ruler were over:

“2008, 2009, 2010, that’s when I started hearing rumors of this spending. So it’s been fairly recently. Old-timers said since San Francisco has the income, sometimes people have spent money that they shouldn’t have but that has been corrected.”

Lodge spending grew only 0.5 percent under Murphy’s term as Exalted Ruler in 2007.

But in fiscal years 2008 and 2010, under Exalted Rulers Josh Hachadourian and George Flamik, Lodge No. 3 spending would hit record levels.

Increased building maintenance and improvements were taking a bigger bite of revenue, which itself fell sharply during recession-starved 2010 and 2011.

But even as revenues receded, spending at Lodge No. 3 continued to surge, peaking in 2010.

Sharply higher professional fees, convention and “miscellaneous club” expenses ballooned spending to $1.46 million in 2010 and contributed to $275,000 in cumulative operating deficits in the 2010 and 2011 tax years.

Neither Hachadourian or Flamik would agree to an interview with SFBay for this story, nor would Treasurer Bob Merjano or Exalted Ruler Nasir Shakour.

No current members at Lodge No. 3 — other than Tina Shakour, as media relations committee chair — would agree to comment on the record.

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An SFBay review of Lodge No. 3 federal tax returns from 2005 to 2011 show patterns of spending far in excess of other Elks lodges with similar membership and gross receipts.

Lodge No. 3 expenses jumped 80 percent between April 2005 and March 2010, with $816,377 spent in 2005 growing to a peak of $1.46 million in 2010, according to tax returns.

From 2005 to 2011, Lodge No. 3 spent $275,000 on “officer’s expenses.” Current and former Lodge members told SFBay some of this money goes toward paying booze and cigar tabs racked up by leadership at the Lodge bar.

Between April 2005 and March 2007, Lodge No. 3 spent a total of $523,339 on postage and shipping, according to their federal tax returns.

At 2007 postage rates, $523,339 would pay for more than 1.2 million pieces of first-class mail — for a Lodge with around 900 members.

None of the current or former Elks leaders asked by SFBay about the amount — representing 20 percent of Lodge No. 3’s overall annual expenses in 2005 — could initially recall what the line item was actually for.

Tina Shakour was a Lodge No. 3 trustee from 2005 to 2008. She told SFBay she was “completely responsible” for the budget for at least part of that time, though she added that she worked only with internal budgets and “never saw” the organization’s tax returns.

When first asked about the amount reported spent on postage and shipping from 2005 to 2007, Tina Shakour told SFBay:

“If we spent half a million on postage when I was a trustee, I should have been fired. … $175,000 in postage a year, unless we were shipping pandas, it really is impossible.”

When asked several days later for additional clarification, Tina Shakour responded via e-mail that her memory was refreshed after conversations with other Lodge leaders:

“I was reminded we spent years sending care packages (toiletries, clothes, books, games, gifts, cards, letters, etc.) to soldiers serving in Iraq and Afghanistan. Shipping these essential items to our soldiers overseas does not come cheap; and as I received this clarification, suddenly that line item makes a lot more sense to me.”

Tina Shakour would not elaborate if shipments to soldiers were made via the U.S. Postal Service or a private carrier, or if packages were sent directly to individual soldiers or distributed through a third party.

She also would not disclose how many packages were shipped, or the approximate total weight of the shipments.

At 2005 postage rates, a “Large Flat Rate Box,” endorsed by the Postal Service for sending care packages to troops abroad cost $11.95 to ship any weight to individual soldiers using overseas military “APO/FPO” addresses.

At $11.95 each, nearly 42,000 of these standard care package boxes could have been shipped for $500,000. That’s nearly 60 packages shipped every business day — about 1,150 each month — for three years.

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To grasp the context of spending at Lodge No. 3, first understand what makes the Lodge unique, and how they make their money.

The center of the Elks No. 3 universe is their showcase 450 Post Street headquarters, a jewel of San Francisco’s 1920s splendor worth many times its stated pre-depreciation tax basis of $2.1 million.

The building is owned by San Francisco Elks No. 3 Building Association, a 501(c)(2) nonprofit which passes nearly all of its income on to the Lodge after incurring expenses.

Of Lodge No. 3’s $1.1 million revenue in recession-weary 2011, $570,000 came from rental income on their Post Street headquarters, which houses the well-rated, 92-room Kensington Park Hotel and revered Farallon Restaurant.

In 2008, during brighter economic times, rental income approached $1.1 million.

Lodge No. 3 operates a bar, restaurant, meeting space and health club in the stately, handsome building just off Union Square. Elks and their guests are welcome to dine and drink at time-warp prices.

Except for the flat-screen televisions in the bar and gym — and mostly modern workout equipment — the Elks’ lodge looks plucked from a vintage black and white photo.

As open and majestic as is the Elks’ third-floor space, the gym and pool feel bunkerish and cramped down two flights of stairs clipped by low ceilings.

The impeccably maintained yet somewhat tired health club and pool generates the second-largest portion of Lodge No. 3’s revenue. The health club generated a record $243,291 in revenue in 2011, against $167,702 in expenses.

Dues from current Elks members made up $148,773 — about 13 percent — of Lodge No. 3’s revenue in 2011.

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The most openly vocal critics of Lodge No. 3 are those who are no longer inside. 59-year-old Joe Ragen resigned from Lodge No. 3 in May 2008 after 15 years as a member.

Ragen spent his last year as an Elk as a trustee at Lodge No. 3’s building association. The trustees act as officers to oversee, but not manage, operations at the building association.

Ragen told SFBay convention spending and “freebies” — like drinking at the bar and waiving fees for events and ballroom rentals — were two specific areas of spending that soured his view of Elks leadership:

“When I became a trustee I saw the funny things that were going on with the money and how the members elected into the officer circle had formed this clique that they would spend a lot of money on them and give themselves a lot of free things and they would do anything to protect that ability to give themselves stuff.”

Ragen added:

“Out of the money officers spent for personal benefit, that money should be going to Elks charities, to college scholarships, and they would rather spend it on themselves and impress their fellow Elks with the ‘Freddie the Freeloader’ big shot-ism.”

Ragen said the spending he saw as a trustee was one of the things which finally drove him out of the Lodge:

“That’s why I left, rigging elections, stealing money, stuff like that. Nothing unusual. Always seems to be the way that officers operated at the Elks Lodge. I had always heard stories and I didn’t realize the extent of it until I became a trustee.”

Ragen said the “final straw” for him as a Trustee was the 2008 election for officers of Lodge No. 3’s building association.

Ragen told SFBay:

“They just made up rules as they were going. I noticed they were conducting the building association elections incorrectly, people were voting who were not allowed to vote. By the time there was a clarification from a justice officer, the election had already happened and they didn’t do it correctly. … In other words, the members of the Lodge are not protected by the bylaws and rules if the officers decide to ignore the rules. That’s why I decided I should leave.”

Nonprofit boards of directors — or, in the case of Lodge No. 3, officers and trustees — are expected to act with fiduciary responsibility to their organization, according a Bay Area-based consultant and adviser to major nonprofits who asked not to be identified in this story.

Upholding and adhering to governing corporate documents — even secret ones not available to the public — is one of three crucial duties associated with governing a nonprofit: Care, loyalty, and obedience.

Care means paying ample attention to the issues at hand in managing an organization; loyalty means putting the needs of the organization before any personal or outside interests; and obedience means adhering to the mission as defined in corporate documents.

When asked by SFBay if he had any advice for the parties currently embroiled in disagreement, former Lodge No. 3 Exalted Ruler Murphy said:

“… my ultimate statement is, grow up kids. We’re all adult, we’re supposed to be here for one purpose and that’s charity. That’s really what it’s all about. That’s the reason why I joined, and this egotistical sandbox behavior is unacceptable for me on either side.”