Bingo Bonanza 

Charitable bingo is supposed to be a way for nonprofit groups to raise money. So why is all the big money being made by profit-oriented entrepreneurs?

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Community Charities isn't Oakland's only operator with a less-than-impressive charitable record. According to 2006 tax records, Kids Educational Development Scholarships only donated 2 percent of its $1.4 million revenue that year.

Such high costs are not illegal. But reporting false tax information to the city or the Internal Revenue Service is, and at least three of Oakland's biggest charitable bingo operators may be guilty of that. In 2006, all three nonprofits running games out of Oakland's two bingo parlors reported different financial information to the city than to the Internal Revenue Service. Kids Educational Development Scholarships told the city it earned $5.2 million in income and spent $166,083 of that on donations. But its publicly available tax forms claimed revenues of only $1.4 million and donations of $26,956.

Lori Adragna, who manages Kids Educational Development Scholarships, attributed the discrepancies to the lack of uniformity between how the city and the IRS require nonprofits to report their finances. For instance, Adragna reported income for the game "Flash Tickets" on her monthly financial reports to the city, but not on her tax forms. City reports indicate that the IRS recently deemed this income taxable, and both Kids Educational Development Scholarships and Breast Cancer Development and Research Society are now paying back taxes for those sales as a result. Adragna insists Kids Educational Development Scholarships has nothing to hide. "We were just audited for 2004 through 2007 and had no problems," she said in an interview. "We were found to be 100 percent compliant."

Community Charities told the city it made $5 million and spent $135,600 on donations, but tax forms claimed earnings of $5.5 million and donations of $138,100. And Breast Cancer Development and Research Society told the city it earned $4.1 million in income and spent $562,150 on donations, but its tax forms claimed only $2.6 million in income and $470,700 on donations. The breast cancer society also failed to notify the IRS that it contributed $5,000 to former assemblyman Fabian Núñez, who noted the contribution on his disclosure forms.

Donations of this size might seem large to a casual observer, but they accounted for less than 1 percent of the revenue of Oakland's bingo halls that year. They certainly seem small to Barbara Killey, the City of Oakland hearing officer who oversees the city's bingo scene. "What immediately struck me as strange were the donations going to places that weren't actual registered nonprofits and the amount that bingo operators were paying for rent," she said in a recent interview.

Killey issues annual permits, collects and checks financial information for nonprofit operators, and compiles annual reports that she presents to the city council. When she assumed her position in 2004, she concluded that her predecessor's oversight was lax and that his reports focused primarily on praising bingo operators. "In 2003, bingo operators contributed $108,699 to assist Oakland citizens who had no other available community resources to help them," read one such 2004 report. "This contribution to citizens of a disadvantaged community was a tremendous social equity and benefit for the City of Oakland."

She also quickly concluded that the rents being paid to parlor operators such as Casteel exceeded what was permissible under the law. She spoke with the Alameda County District Attorney's office about this issue during her very first month on the job. Although she does not recall specifically who she spoke with, she said the prosecutor told her "that $2,000 per month, the limit established when the ordinance passed, is not reasonable. So that aspect of the law has been overlooked."

In an interview, Alameda County Deputy District Attorney Thomas Rogers said he hasn't heard any complaints about local parlors since the late '70s. He said if his office had received complaints, it would have referred them to the Oakland police, who would have decided whether or not to investigate. "The police do the investigations and then they bring it to us," he said. Oakland police representatives said that they haven't received any complaints about the parlors in recent years.

In fact, law enforcement generally ignores bingo-related crime because it's less pressing than other crimes, not to mention legally complex and time-consuming to investigate. The law leaves enforcement in the hands of police and district attorneys and gives cities the option of supplanting state regulations with their own ordinances. But cities also are often reluctant to dig too deeply into bingo because schools, hospitals, and law enforcement often benefit directly from charitable donations. "There's a legitimate amount of money going to charities that wouldn't otherwise be going there," Killey said. "In the case of the city, we don't want to shut that down."For example, city reports indicate that in 2006 Breast Cancer Development and Research Society donated $100,000 to one of Oakland city council member Larry Reid's pet projects, Youth Uprising, and donated another $150,000 to other East Oakland-based charities.

But in recent years Oakland has received fewer donations from charitable bingo operations than it would like to see, and now the city is thinking more seriously about enforcing the law. According the most recent city report on bingo activities, donations in 2007 went down 40 percent from the previous year. The report suggests that donations may have decreased because of "increases in expenses disproportionate to the increase in gross income." In order to really understand where the money is going, Killey says she needs to see more detailed financial information from the parlors.

Requiring annual audits of bingo parlor landlords and the nonprofits that rent their facilities is just one of a slew of addendums to Oakland's bingo ordinance that Killey has proposed to the city council. She also recommends that the city require bingo operators to pay a monthly law enforcement fee to account for police services, that 90 percent of charitable bingo donations be spent within city limits, and that parlor rental fees not exceed "fair market value." Killey says she's looking into what "fair market value" would be for bingo parlors in that area. Changes of this type could have serious consequences for Oakland's bingo parlors. Killey already shut down a parlor in Fruitvale last May because it was spending all of income on overhead and none on charity.

A June meeting of the Public Safety Committee suggested that the city council might be on its way to approving Killey's addendums. At that meeting, councilwoman Patricia Kernighan referred to exorbitant rents at parlors as "a gigantic loophole subject to abuse." Councilwoman Jean Quan expressed grave concerns that, "out of $15 million coming mostly from low-income people in East Oakland, only about 3 percent of that is going back to any sort of charitable institution." Councilmember Larry Reid, whose district contains the Foothill Square and Durant Square parlors, was the only council member to defend parlor operators. Still, he agreed with others that both landlords and game operators should be audited regularly, on their own dime.


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