All of them, those in power, and those who want the power, would pamper us, if we agreed to overlook their crookedness by wilfully restricting our activities.
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Last updated on January 26, 2009 09:55 by Raymond Hill
This page is being revised to take into account the 2006 990 filing.
From the 990 filings of Narconon Stone Hawk, there are questionable expenses, and a dichotomy between the growth rate of many expense items and the growth rate of the number of individuals whom enrolled (corrected for accrual accounting):
In 2006, the entity earned $26,139 per client enrolled (2004: $19,470), while it spent a total of $25,551 per client enrolled (2004: $20,607).
Total revenue per individual increased by 34% between 2004 and 2006, meaning that Narconon Stone Hawk charges more in 2006 to individuals for its drug rehabilitation services.
Program service expenses should grow proportionally to the number of individuals enrolled in the drug rehabilitation program — taking inflation into account.
However the total expenses grew 123% between 2004 and 2006, while the number of individuals whom enrolled grew 80%.
As per 990 filings, close to $5,000 was added to total expenses per individual, or 24%, between 2004 and 2006, while the inflation rate grew at about 7% during that period.
Net assets at the beginning of the year must match net assets declared at the end of the previous year (line 19 and 21 on the 990 form.)
Narconon Stone Hawk declared assets of minus $1,413,281 million for the beginning of the year 2004, while it had declared net assets of plus $328,000 at the end of the previous year.
This amounts to $1,742,044 that vanished from the balance sheet between 2003 and 2004, without explanation.
Between 2004 and 2006, there is a net correction of $309,208 to the balance sheet (line 20), thus bringing the vanished amount down to $1,432,836.
Question: What happened to this $1,432,836?
An overview of the progression of costs:
Important not about this graph: the number of clients used was taken from Narconon Stone Hawk's 990 filings. However, it can be demonstrated that Narconon Stone Hawk inflated its number of clients served.
Again, I could have made mistakes, in collating data and/or interpretation: therefore, if you have any doubt, download the forms and see for yourself if this make sense.
So in 2004, Narconon Stone Hawk thought that 60% of its accounts receivable had a low probability of being paid. Such a high percentage of doubtful accounts is very unusual. And when considering that in 2003 and 2005 there no doubtful accounts at all, it just doesn't make sense.
Cumulative 2003-2005: 810 admitted, 640 completed
According to the information submitted by Narconon Stone Hawk to the the Manistee Planning Commission:
Cumulative 2003-2006 (March): 743 admitted, 579 completed
Now a bit farther in the same document, in the section titled "THE IMPACT OF NARCONON STONE HAWK'S CURRENT OPERATIONS AND PLANNED EXPANSION", it says:
Cumulative: 621 'students' (clients) entered the program (no word on completion in that section)
Well, that's a lot of discrepancies...
From 810 admitted according to 990 forms, to 743 admitted according to the "Demographics" in the Manistee minutes, to 621 admitted according to the "THE IMPACT OF..." in the Manistee minutes. Which figure is factual?
According to the IRS, here is the definition of 'Occupancy' (line 36) on the 990 form:
According to Narconon Stonehawk's 990 form of 2005:
Total occupancy expenses: $1,385,594/year, or $115,466/month.
If a few newspaper articles from the Petoskey News-Review are correct, the property used by Narconon Stone Hawk in Battle Creek is owned by TIA Corporation. [see "Petoskey planners reject drug rehab home", "Comments sought on drug rehab center"]
Narconon Stone Hawk also owns a property in Albion, which is used to host 'students' for the withdrawal part of Narconon rehabilitation treatment. Official records show that this property is also owned by TIA Corporation. [City of Albion: General Property Information] Notice also that the address supplied in the 'Taxpayer Information' is actually the address of the Narconon Stone Hawk Rehabilitation Center.
TIA Corporation is a 'Real Estate Leasing Company' as described in its 2003 annual declaration (see image on the right.)
TIA Corporation is owned by the Kathleen J. Wickstrom.
Kathleen J. Wickstrom is the president of Narconon Stone Hawk.
A definition of Inurement is appropriate at this point:
Now the key question: does TIA Corporation lease the properties used by Narconon Stone Hawk at a fair market value?
Add to this that Narconon Stone Hawk owed of at least $754,000 to the directors of Narconon Stone Hawk at the end of 2005.
At this point, this is obvious that the directors of Narconon Stone Hawk have significant private financial interests that potentially conflict with their duty as directors of a non-profit entity. This is why the IRS requires such private financial interests to be disclosed. In Part III of Schedule A (Form 990), there is the following question:
2 During the year, has the organization, either directly or indirectly, engaged in any of the following acts with any substantial contributors, trustees, directors, officers, creators, key employees, or members of their families, or with any taxable organization with which any such person is affiliated as an officer, director, trustee, majority owner, or principal beneficiary? (if the answer is 'Yes,' attach a detailed statement explaining the transactions.)
a) Sale, exchange, or leasing of property?
b) Lending of money or other extension of credit?
In the 990 filings of Narconon Stone Hawk for 2003-2005, both these questions were answered 'No'.
The IRS explains well how to answer this question:
In conclusion, there is a false statement from Narconon Stone Hawk and its directors to the IRS."LICENSE AGREEMENT: (NARCONON INTERNATIONAL/CENTER-MARKS)":
Now, notice that as of 2005, the 990 form of Narconon Stone Hawk shows licensing fees of $572,000, while revenue from its rehab services were $7,735,000. Visibly, the licensing fees as reported represent 7.4%, not 10% of the revenue as should be expected.
Part of the missing licensing fees could possibly be explained through the 'Accounts receivable' item: this is money that has not been received, reportedly. If we deduct 'Account receivable' from total revenue we get:
$7,735,000 - $732,000 = $7,003,000
Not quite 10% yet, but getting closer with 8.2%.
Now the interesting excerpt from the contract mentioned above:
Now if we deduct these 'Advertising' expenses — lets hypothesised these expenses were actually "materials purchased from NARCONON INT or ABLE" — we are getting right on 10%:
$7,017,000 - $1,290,000 = $5,714,000
$572,000 / $5,714,000 = 10%
What if we apply the same calculation for 2004?
$5,135,022 - $282,681 - $580,886 = $4,271,455
$428,542 / $4,271,455 = 10%
Coincidence? Maybe, in which case more details from Narconon Stone Hawk would be welcomed. As it is we can speculate that these 'Advertising' expenses went to Narconon International and/or ABLE. Narconon Stone Hawk could have bought a bunch of TWTH booklets (e.g. any pamphlet from its Life Improvement courses), which cost partly consists of licensing fees, again... In short, another path to funnel more money up the hierarchy.
Update, June 30, 2007: I found this anonymous account from an ex-Narconon employee, and this actually supports the current hypothesis: