Has the COVID related surge in membership at private clubs produced the residual effect of some staff, members and even club leaders taking undue license? Just this year, Golf Property Analysts has been engaged by members of multiple established private clubs raising substantive issues about everything from discrimination, theft and management practices to club finances, capital projects, purchases and actions by boards with little or no transparency.
One club was sued by a member questioning the club’s finances, including allegedly improperly acquiring a COVID related PPP loan when the club leadership claimed $15 million in losses despite a full membership and limited availability of facilities access. At another club, members citing assessments and reckless spending combined with a full membership roll are considering legal action for, among other things, an unwillingness from the board to transparently share financial and other information with the membership. These, and instances of staff theft and inappropriate behavior issues between staff and management, and even members at clubs that go unreported are why Mitch Stump, CPA, PA, the creator of Club Tax Network started the Club Whistleblower Hotline for clubs. The Hotline was created in the fall of 2012.
While the majority of complaints reported on the hotline are staff related (sexual harassment, racial discrimination, substance abuse, religious discrimination, etc.), the Club Whistleblower Hotline is available for anybody associated with a Club, including Members, Management, vendors, and staff alike. Stump says that while most complaints are employee related, the potential for member complaints is great, but that often members are more interested in playing golf or using other club facilities and maintaining reasonable dues levels than getting involved club politics and operations.
I asked Stump how suspecting parties can expose violations of trust at a private, member-owned club – in confidence. While he believes that most employee concerns can use the proper channels, he acknowledges that when reports are on immediate supervisors, fellow members or club leaders that a complainant can find themselves in a compromising situation and a target for retaliation. When I asked why more incidents aren’t reported or exposed, Stump stated that they are, but typically kept in confidence. He says that GM’s will often share stories – in private – that can be shocking. Speaking “truth to power” is not always the path of least resistance. The anonymity of the hotline encourages the reporting of suspected abuses by aggrieved parties.
As anyone knows, private clubs are political petri dishes. Over time – often short periods – the politics of any club can result in personal conflicts and those in charge come to see the club as their “fiefdom” which sometimes leads to unethical or even illegal financial improprieties. I asked Stump how widespread he thinks the various abuses are at private clubs. He likened clubs to other small businesses and suggested that they occur regularly. Since private clubs are “nobody’s business” (as Mr. Dedman used to say) most members are focused on their enjoyment of the club’s amenities and would rather not be bothered. Accordingly, employees, some members and sometimes club leaders believe they are entitled to a few perks from the Club and Management is not always around day and night, so much trust is conveyed to them. We all want to believe that the staff, management and our fellow members are basically good and wouldn’t take advantage of their position. It’s not always that way and, according to Stump, collusion often occurs covering up the misdeeds.
Here’s how the Hotline works:
- The Club is responsible for communicating the existence and usage of the hotline to employees, Members and vendors.
- A Club signs up and pays the annual subscription fee for the Club Whistleblower Hotline, distributes information to employees, and puts up signs to inform employees of the importance of disclosing any item they are concerned about.
- The administrative staff obtains two or three names, email addresses and personal telephone numbers for contact if a report is received.
- The GM’s contact information as most concerns need to go to them.
- If a report is on the GM, the contact information of the President of the Club, as this has been deemed to be the appropriate chain of command. Otherwise, the Club President does not need to receive any reports, which is why they hire a GM.
- A third contact person (Controller, Human Resources, etc.) is often provided as a backup in case the GM is not unavailable.
Club Tax Network receives Club Whistleblower Hotline reports via email. Three in the company receive the information to ensure nothing is missed, which is kept highly confidential:
- Read the report, ensuring there is no immediate threat to a person’s life.
- Determine whether the GM or the Club President needs to receive the report.
- Email the report to GM and alternate contact (or Club President only) and immediately make a personal phone call, informing them of the existence of the report in their email and that they need to take action on the matter.
- On average, businesses worldwide seem to take a month to get to the bottom of an issue. Clubs react that same day.
- After the issue is resolved, the club is asked to write a one or two-sentence response that the problem has been taken care of and posted on the Hotline website for the reporter to see that action has been taken on the report.
Stump says, “Interestingly, we’ve lost very few subscribers, even when multiple reports are coming in from employees. Clubs are happy with the service, and we are in the annual budget.”
At many clubs, boards have considerable latitude and discretion to establish and enforce policies, approve club expenditures with limited (if any) transparency. Some clubs have even established tax-free, charitable foundations, which are designed to fund scholarships, contribute in the community or otherwise benefit the community outside the club. According to Stump, these foundations don’t always follow the rules and sometimes fund projects benefitting the club. As an example, he cited the member’s or board member’s kid who gets a job at the club, qualifying for and then receiving a scholarship funded by the foundation, seemingly meant for someone less fortunate.
This can be dangerous for both the club and the leadership, especially if legitimate complaints are “shoved under the rug”. Not only are there limited checks and balances but board members have liability. Thus, a service like the Whistleblower Hotline can serve a valuable purpose as a check and balance on staff, management, members and leaders.
As a CPA, Stump suggests that there’s lots that goes on that’s never reported and indiscretions he clearly advises against. As he says, “I can tell them what the speed limit is, but if they drive too fast and get caught it’s their problem.”