Star investigation: Giving Tree charity skirts the rules

The Giving Tree, a Tucson charity serving the homeless, paid at least two workers in the past three years by giving them gifts rather than paychecks, documents obtained by the Arizona Daily Star show.

If the workers are, in fact, employees, the practice would let an organization avoid paying taxes on salaries and benefits - and would violate state and federal employment laws, two experts in employment law said.

But in an interview last week, Giving Tree Founder and Director Libby Wright said the workers are not employees, but volunteers. Because they are poor, she said, she helps them with cash for things such as utility bills and car payments, and with other assistance. She follows employment laws, she said.

The documents obtained by the Star also show Carlo Giovingo, Wright's husband, controlled at least one Giving Tree client's bank account on her behalf, issuing checks that were cashed by The Giving Tree. Because Giovingo owns several homes where Giving Tree clients stay, much of the money in the account came back to him as rent.

The arrangement is questionable, but probably legal, said Laura Otten, director of the Nonprofit Center at LaSalle University in Philadelphia. "It's just so ripe with conflict of interest," said Otten, who has examined numerous Giving Tree financial statements and documents, including the most recent ones obtained by the Star.

Giovingo, who collected $106,000 in rent from The Giving Tree from 2007 through 2009, said there is no conflict because he did not control which homes Giving Tree clients were assigned.

Although the woman split with The Giving Tree in April, Giovingo withheld the $3,600 in her account until last week, after the Star questioned him about it.

Earlier this month the Department of Economic Security initiated an investigation of The Giving Tree's finances, based on documents former board members provided to the Attorney General's Office. Wright confirmed she met with DES officials on Monday.

This comes on the heels of an earlier DES investigation following a Star series on the organization's practices. No action was taken in that investigation.

In November 2009 the newspaper reported The Giving Tree served expired and potentially unsafe food to kids, required clients to sign over their food stamps and charged excessive fees for them to stay in overcrowded rental homes.

Wright and her supporters blamed much of The Giving Tree's problems on the board of directors that quit in May over a disagreement over reforming the charity.

Paid with gifts

Copies of Giving Tree checkbook entries show nontaxable gift payments to workers through "benevolence" funds intended for the poor and needy. The payments are also listed in a copy of The Giving Tree's books for the last four years.

Some regular or semiregular workers have been paid with "benevolence" funds in recent years, including Giving Tree Thrift Shop Manager Jere Pedrazza and sometimes-maintenance man and Giving Tree client John Heisserman.

Neither had any of their income withheld nor received a 1099 form the Internal Revenue Service requires be issued to independent contractors who receive more than $600 annually. The Giving Tree's books show Pedrazza received between $2,500 and $3,800 a year in 2007, 2008 and 2009; Heisserman received nearly $3,000 in 2009.

"The majority of the time that's how I've been paid," Thrift Store Manager Pedrazza said of the benevolence funds.

Pedrazza said she filed income tax reports for those earnings despite not getting tax forms from The Giving Tree, but said most years she didn't owe taxes because her earnings are so low.

She said she is sometimes paid in money, sometimes in merchandise from the thrift store and sometimes, when Wright says there is no money, she becomes a volunteer.

"It kinda goes in and out," Pedrazza said. "Sometimes I get paid through merchandise. If I need a table and chairs or a lamp, when it comes through I can take what I need."

Rodney Williams, The Giving Tree's director of operations, said he does not list his free rent or the Giving Tree vehicle provided to him on his taxes. He said that could total about $7,000 or $8,000 annually that's not listed on tax forms.

"If you want to bust me on that, shoot," Williams said. "I'm here for the kids."

Michelle Sanders, a former client and house parent at several Giving Tree houses, said the benevolence payments were a fact of life for The Giving Tree. "That's her way of paying people for the work they do," Sanders said of the benevolence payments. "But technically, they are volunteers."

The Giving Tree's books say about 30 workers were paid more than $600 a year in the past three years but didn't receive W2s or 1099s.

Skirting employment law

Employment-law experts said The Giving Tree could be violating employment laws in three ways: paying apparent employees with tax-free gifts, not listing compensation to apparent employees for housing and cars on tax forms, and moving workers back and forth between volunteer and paid status.

Larry Katz, a senior partner at Steptoe and Johnson in Phoenix who specializes in employment law, said employers can't pay employees through tax-exempt gifts, and must declare all compensation given to employees, including free rent and the use of vehicles.

"You can't have employees work for what amounts to gifts," Katz said, noting he doesn't know the particulars of The Giving Tree's issues.

Employment-law expert Dinita L. James, a partner in the Phoenix firm Ford & Harrison LLP, said state and federal regulators could come after The Giving Tree because it hasn't withheld money or matched payments for federal payroll taxes, Social Security, Medicare or costs such as unemployment and workers compensation insurance.

James said she would be particularly concerned about moving employees back and forth between volunteer and paid status, as Pedrazza said she is.

Besides not listing free rent and vehicle use as part of their compensation, former Giving Tree board members have said Wright pays workers as independent contractors rather than employees so the organization doesn't pay its share of state and federal taxes.

Linda M. Jones

When she became homeless four years ago, Linda M. Jones ended up at The Giving Tree's former Compassion Hope Center shelter on East Eastland Street, which the city shut down last year because it operated without permits.

After months of sleeping on one of many mattresses on the shelter floor, Jones was moved to one of The Giving Tree's private homes. At that time, she said, Wright told her to open an account allowing Giovingo to manage her funds. She was told having money with Giovingo "saved me money every month."

Giovingo, who has no formal role with The Giving Tree, was the only one authorized to sign checks on the "for the benefit of" account set up for Jones, who has cognitive disabilities.

Through the account Giovingo managed the monthly $661 in survivor's benefits Jones receives from the Department of Veterans Affairs.

Every month, Giovingo would write a $400 check to The Giving Tree for "program expenses" - which basically amounts to rent, copies of the checks obtained by the Star show. He would also write a monthly $100 check to another woman who was supposed to hold it as spending money for Jones and dole it out as needed, and $65 a month as a tithe to Jones' church, the checks show.

Many months, Jones said she received just $20 from her account.

Giovingo said Jones is a fragile person who was often stolen from and manipulated, so he set up the account to take care of her money. "We were trying to protect her," he said.

Jones said she was moved from house to house over the years, finally ending up in the Grace Home on East Andrew Street - which is owned by Giovingo. The Giving Tree pays Giovingo $1,400 to $1,500 a month to rent the property, documents obtained by the Star show.

Giovingo has also rented a duplex on East 17th Street to the charity for $1,200 a month, along with two apartments on North Palo Verde for a total of $850 a month. And he holds the mortgage on two other Giving Tree properties. Although documents show he received a total of $106,000 in rent over three years, he said his net income over those three years was $81,000.

Bruce Smith, president and owner of Equity Valuations Services, looked at all three rental properties and said the rent The Giving Tree pays Giovingo is either at or below market rates.

Giovingo said the rentals are part of his mix of investments, adding that he's loaned $190,000 over the years to The Giving Tree, which financed the purchase of two Giving Tree homes. "You might consider me a social entrepreneur," Giovingo said.

Keeping her money

After four years, Jones left The Giving Tree and moved in with her friend Leslie Fales.

However, after changing her address, Jones said she realized two of her VA checks had gone to The Giving Tree, and that her bank account was still under Giovingo's control.

Fales and Jones said they went to The Giving Tree in April to get the checks and her bankbooks. They said Fales was ordered to leave the property and Jones was taken into a succession of Giving Tree offices at 931 N. Swan Road over three hours.

The Giving Tree called the police and pressed criminal trespassing charges against Fales. Wright said she pressed charges because Fales destroyed a mailbox and was yelling and screaming.

But Fales points out there is no reference to criminal damage or aggressive behavior in the police report. The only charge against her was trespassing, to which she pleaded guilty and is on non-supervised probation.

"Libby told me that Leslie was trying to take over my money but she wasn't," Jones said. "Libby was trying to take control of my money."

One of her checks was given to her, but Jones believes she is still owed another.

Jones said she asked several times for the money in her account, which documents obtained by the Star show held more than $3,600 in March, but was rebuffed.

Giovingo and Wright, however, contend that when Jones came to ask them for her checks, she told them to hold the money in the account for her. They acknowledge Jones tells a very different version, which they attribute to her being manipulated by others.

Giovingo said he closed the account and was holding the money. "None of her money has been spent, not one cent," he said.

Wright and other Giving Tree officials initially said they were unwilling to turn it over to Jones for her own protection. But if she insisted, they would hand it over to Adult Protective Services.

However, after APS declined to intervene, Giovingo returned the money to Jones on Thursday.

Although Giving Tree officials said they wanted to turn the money over to someone "responsible," Jones pointed out since she's left The Giving Tree she's handled her own finances without a problem.

Sanders, the former client and house parent, said Wright encouraged clients to give Giovingo their money. She said she was asked, but declined.

But many clients, given their vulnerability, don't challenge Wright, Sanders said: "We're homeless people, we're going to do what she tells us to do."

"Up to God"

Wright said "nobody in their right mind" would work the way she has in the past 20 years to help the homeless "unless they were called by God to do it."

Despite the fire she has come under, Wright said she won't back down.

"The Giving Tree is not going to stop," although she said the organization could become smaller and more focused on its goals, she said: "But that's up to God."

On StarNet: Find key articles from the Giving Tree saga at azstarnet.com/givingtree

The story so far

In August 2009 the city shut down an overcrowded illegal shelter on Tucson's east side, operated by The Giving Tree.

A subsequent Arizona Daily Star investigation found The Giving Tree served expired and potentially unsafe food to needy kids, that it charges clients hundreds of dollars a month to live in crowded rental homes, and that at least twice it made public displays of giving kids gifts at holiday parties, only to take them back later.

Many of The Giving Tree's actions violate city and state regulations, or are contrary to widely accepted standards for charities, the newspaper found.

After the series ran, most members of the organization's board of directors indicated they didn't have the time or expertise to fix the problems and left the board.

The Giving Tree then appointed a new board of directors, but the members of that board quit as well, saying Director Libby Wright undermined their reform effort. They contended The Giving Tree's books are riddled with financial and accounting irregularities.

Contact reporter Rob O'Dell at 573-4346 or rodell@azstarnet.com

The Giving Tree's new board of directors, appointed to correct problems within the nonprofit program for the homeless, has resigned.

The new board was formed late last year after an Arizona Daily Star investigation found that the Giving Tree served expired and potentially unsafe food to needy kids, that it charges clients hundreds of dollars a month to live in crowded rental homes, and that at least twice it made a public display of giving kids gifts at holiday parties, only to take them back later. Many of the Giving Tree's actions violate city and state regulations, or are contrary to widely accepted standards for charities, the newspaper found.

Members of the new board - appointed because most members of the previous board of directors indicated they didn't have the time or expertise to fix the problems - say Director Libby Wright undermined their reform effort. They contend the Giving Tree's books are riddled with financial and accounting irregularities.

The first of the new board members quit in January. The rest resigned last month.

Board members Craig Littlefield and Mollie Moody, along with former Assistant Director Kathy Fast, cited numerous serious financial issues with the organization, which they have reported to the state attorney general.

Among their criticisms:

• Wright pays her employees as independent contractors rather than employees so the Giving Tree doesn't pay its share of federal payroll taxes, Social Security, Medicare and such costs as unemployment and workers compensation insurance, the former board members say. They also contend the Giving Tree doesn't report compensation such as housing and cars provided for these contractors to the Internal Revenue Service.

• The Giving Tree has an inadequate accounting system and is unable to track what is paid to whom, or for what, former board members say. They say there is no attempt to reconcile accounts - instead, volunteers take credit-card bills and bank-account statements after the fact and assign what they think the money was spent for.

A letter from Regier Carr and Monroe LLP, accountants the charity tried to hire to do an audit after the Star series, said the company was declining because it would take two years just to get the Giving Tree's books into good enough condition to be audited.

• Giving Tree money was used to pay the insurance for a truck belonging to Wright's son - money she said has since been repaid.

• After staunchly defending the Giving Tree when the Star did its original investigation, board members and former organization officials say they subsequently verified most of the complaints: requiring clients to sign over their food stamps, forcing them to work with no pay or overtime, and making clients dependent on the Giving Tree rather than helping them get out of homelessness.

In an interview Friday, Wright said the Giving Tree's accounting system is adequate and has been blessed by the accountants she hired. One recent Giving Tree accountant was let go, and another quit along with the board. The current bookkeeper has a background in human services.

Wright pointed out Moody and Littlefield are not accountants, and said their accounts of the Giving Tree's record-keeping were "silliness, because they're not true."

The letter from Mark Cowley, of Regier Carr and Monroe, however, disputes Wright's claim that her books are in good shape.

Cowley's letter said the Giving Tree's books are missing records for more than $1 million in non-cash contributions, they list rent paid by clients as charitable "donations" on financial statements, they have no disclosures or inventory for the organization's thrift shop, and they don't include records of "in-kind" assets such as vehicles and furniture. In addition, the letter said, none of the organization's 15 vehicles appears on its books.

"You have some general accounting practices to consider before an audit could be done," the letter says. Cowley did not return calls or e-mails seeking comment.

On Friday, Wright said she never saw the letter from the auditor.

She said she paid her son's insurance because all of the Giving Tree's trucks had broken down or been in accidents and her son had been laid off, so he used his truck to help with deliveries to the charity's homes and for its feeding program.

Wright said she and Littlefield had a personality clash. The bottom line, she said, was that the organization was not making changes as fast as Littlefield wanted. Anyone who thinks the Giving Tree is not doing right should "come and help us do it better," she said.

"If it's wrong, let's fix it," was her attitude, she said. "I just knew everything couldn't be done overnight."

"Truth has come out"

Moody, a holdover from the old board, said she was a true believer in the Giving Tree and Wright.

"I thought all the articles had been lies," Moody said of the Star's stories. "But the truth has come out over the past five months."

Moody and Littlefield said they came to believe Wright was only giving lip service to wanting to change while actually preventing them from reforming the organization. They said Wright denied them access to financial records she was required by law to provide and instructed clients to obstruct their efforts and lie to board members.

Wright, however, insists she gave Littlefield every record he wanted - more even than she was allowed to see.

Former board members said they still love the Giving Tree organization, and even now often say "we" when talking about it. They feel the organization does needed work in the community that isn't provided by anyone else.

But Moody, Littlefield and Fast, the former assistant director, said the organization cannot continue with Wright at the helm. They want it to go on without her, or a new nonprofit created in its image.

"We love the organization," Moody said, "but want to wrest control from Libby."

The board had the power to fire Wright but didn't because she and her husband own so much of the property used by the Giving Tree, and Littlefield and Moody said the organization is so built around her that she has the ability to evict clients and cut off services, effectively destroying the Giving Tree before she could be removed.

Glenn Bancroft, former board chairman and another holdover from the previous board, quit in January. He would not comment for this story, other than wishing the Giving Tree well and saying its services are needed in Tucson.

The other four board members quit in May. Gloria Taylor would not comment and Mark Resnick did not return calls for comment.

Five of Wright's longtime supporters sit on a new board.

Financial questions

After the Star stories ran last year, Littlefield, a former IBM manager, was put in charge of a committee to look into the Giving Tree's finances. He said he quickly ran into resistance and was shocked by the financial practices he saw.

He said he was most concerned about making employees independent contractors. That seemed to violate IRS tax laws that say workers aren't independent contractors if their behavior and business roles are determined by the nonprofit, which Littlefield said was the case with the Giving Tree.

In addition, he said worker benefits such as a housing and cars were reported to the IRS as income.

Wright denied both practices. She said all her employees who are independent contractors want to be classified that way, so they have flexible schedules and can work from home.

Littlefield said his goal was to get the 2010 books "clean," so they could be audited, and then go back to 2009 and 2008. But in more than four months, he said, he couldn't get it done because of resistance and nonexistent financial records.

The Giving Tree's accounting system lacks reconciliation for bank accounts or credit cards, he said, with volunteers given monthly statements to fill out what they think the expenses were for. A charge at Walmart, for example, might be listed as housing, he said.

Anthony Bustamante, whose degree is in human services, started keeping the Giving Tree's books less than a month ago. He said all expenses are properly logged and then reconciled at month's end - the criticisms leveled by Regier Carr and Monroe notwithstanding.

Littlefield said he's never been able to find any financial information on any of the other three Giving Tree corporations that are registered with the Arizona Corporation Commission and have filed past financial statements. "You can't get this stuff because it's so closely guarded," he said.

Two nonprofit experts were highly critical of the Giving Tree practices as described by the Star, contending they are inappropriate and potentially illegal.

"Everything points to an organization out of control," said Laura Otten, director of the Nonprofit Center at LaSalle University in Philadelphia. "They're violating every rule of fundraising, financial accounting and bond with their donors. They're violating everything."

Renata J. Rafferty, a consultant who specializes in nonprofit investigations, said if board members were denied financial records it would be illegal because they have a fiduciary responsibility to the organization.

"There are definitely irregularities," Rafferty said.

"Indentured servants"

Even more than their financial concerns, Littlefield, Fast and Moody said what bothers them most is that the Giving Tree makes its clients so dependent on the organization they can't move out of homelessness.

Littlefield called Giving Tree clients "indentured servants" who have to work without pay to stay in the program and so have difficulty finding time to get a job or save up enough money to get a place of their own.

Fast questioned how clients could get the money for first and last months' rent and to turn on utilities at a new apartment while working dozens of hours a week for no pay. Those with state or federal benefits or who have a job outside the Giving Tree are required to hand over a large chunk of their earnings to stay in a Giving Tree house, Fast said.

Wright said her organization isn't perfect but is dedicated to feeding, clothing and sheltering the homeless, particularly children. She said there are many success stories of Giving Tree clients moving out of homelessness.

"I am filled with compassion," Wright said. "All we want to do is help."

But as much as the former board members want the Giving Tree to succeed, "We want her out of there," Littlefield said, "because there is no way she will change."

Contact reporter Rob O'Dell at 573-4346 or rodell@azstarnet.com

The Giving Tree and its director, Libby Wright, portray the organization as Tucson's last refuge for the homeless, offering food and shelter to those who might otherwise have nothing to eat and nowhere to go.

The organization, which has been recognized nationally for its employment services, relies mostly on donations and small government grants. It owns or rents 17 homes and apartments, which are shared by many of its clients. And twice each week, people can get a free meal in an otherwise empty lot on East 22nd Street near South Columbus Road.

But an Arizona Daily Star investigation found that the Giving Tree served expired and potentially unsafe food to needy kids, that it charges clients hundreds of dollars a month to live in crowded rental homes, and that at least twice it made a public display of giving kids gifts at holiday parties, only to take them back later. Many of the Giving Tree's actions violate city and state regulations, or are contrary to widely accepted standards for charities, the newspaper found.

Over three months, the Star reviewed public records from six government agencies that have some authority over the Giving Tree and interviewed more than 60 people, most of them former clients, employees and volunteers, or government officials. Among the paper's findings:

* The nonprofit Giving Tree says it serves up to 8,800 clients annually and brings in as much as $1.4 million a year. Its 2007 federal finance report, the last year available, says it accomplishes that while spending nothing on management, $12,442 on salaries and $5,807 on fundraising - something that experts in running nonprofit agencies say is all but impossible for an organization of its size.

* The organization lost federal funding for its summer meals program last year after the state Department of Education found 19 violations, including reporting false information, failing health inspections and serving expired and unsanitary food to children.

* Four former clients say they were encouraged to submit false information to the state to get more public assistance than they deserved, or they believe false information was submitted on their behalf. They say those extra benefits went to the Giving Tree.

* Former clients and volunteers say the Giving Tree takes in children without a parent or guardian at its Grace Home, even though it has twice been denied a required state license to operate a children's shelter. One denial was because of complaints, substantiated by the Department of Economic Security, of "child abuse and neglect" involving Wright; the other came after state inspectors said the home was unsanitary and unsafe.

* Former clients and volunteers said Wright appeals for donated items, then holds onto them. Former volunteers said they saw stockpiled food spoil before it could be used, homeless mothers refused diapers and children forced to give back toys they received as gifts.

* The nonprofit charges many clients $200 to $500 per month each to share a three-bedroom "transitional" home with up to 28 other people, and it collected up to $8.50 a night for a cot or space to put down a mat in its now-closed shelter. Such charges are legal, but other local shelters offer such services at no cost, and advocates for the homeless say shelter charges make it difficult for someone to get out of poverty.

* City officials believe that most, if not all, of the Giving Tree's 17 homes and apartments violate residential zoning regulations because they serve as group shelters.

Wright and her husband, Carlo Giovingo, declined repeated interview requests and instead asked for written questions, which the Star provided on Sept. 18. Wright and Giovingo did not answer the questions, which are published online.

Last week, the Star sent the Giving Tree a certified letter detailing the findings of the paper's investigation and asking again for comment. It was delivered via certified mail at 8:30 a.m. Wednesday, but the Giving Tree forwarded the letter to another location. The Star then hired a courier service to deliver the letter, which was accepted and signed for at 1:15 p.m. Thursday under the name E. Parker.

On Friday, Tucson attorney Sean E. Brearcliffe faxed a letter to the Star saying the Giving Tree would respond to the paper's "false allegations" at an "appropriate time."

"Your sources are giving you bad and clearly incomplete information," the letter said.

Conflicting reputations

Wright has two reputations: a tireless champion for the poor and someone who ignores rules she doesn't like.

Pastor Roy Tullgren, executive director of Tucson's Gospel Rescue Mission, said his experiences with Wright over the years have been positive. He said she works with people whom traditional social services have failed, or at least overlooked.

"Her heart is so big. She cares more about helping people, even if it means she has to skirt the law," he said. "Whether it's healthy or not, I don't know. She's doing the best she can with what she has."

Board Secretary Mollie Moody said that in six years with the Giving Tree, she has "never heard or seen any misconduct."

"There is nothing, I mean nothing, better than taking care of the homeless and needy children and families in our community," Moody wrote in an e-mail. "The Giving Tree does this with a very full heart and the love of Jesus."

The Giving Tree has "done more for the homeless than anyone in Tucson," said Dick Mentzer, who was recently board president. "If you had 20 people like Libby Wright, you would have a lot less problems with the homeless."

Donna Pratt has overseen the Giving Tree's job program since it started in 2006, and with funding from the U.S. Department of Labor, she said, she has placed more than 600 people in jobs. "The Giving Tree offers people hope," she said, and the chance to "get back on track."

In 2008, then-President George W. Bush praised the Giving Tree in a White House report, noting that from 2006 to 2007, it enrolled 75 participants and placed 76 percent of them in jobs. This year the Giving Tree received $40,000 from the Labor Department to run its job program.

The Giving Tree touts the help it gives to the homeless, but board members did not produce satisfied clients, despite being asked to on Oct. 22 and again on Oct. 26.

Shifting opinions

Tom Hill and Don Blascak, longtime Tucson advocates for the homeless, were initially avid supporters of Wright.

For nearly four years, Hill and his family donated money and time, and provided food for the free meal program, as part of his WORKship Methodist Church.

Hill, whose family founded Tucson's Gaslight Theatre, said he was surprised to find Wright soliciting and accepting donations for food that WORKship provided for free. Hill also said he saw Wright hoard diapers and toys. When he asked about it, Hill said, Wright would only say, "We need those for later."

After dissociating himself from the Giving Tree, he learned that Wright not only wasn't licensed to operate a children's shelter at the Grace Home, but women at his downtown meals program told him they had to pay to stay there.

"We had brought in groups to do work at the Grace Home - cleaning, planting trees and fixing stuff - all on the premise that what the Grace Home was doing was providing shelter to women and children in crisis," he said. "Now that we've heard that it's actually being run as a hotel is mind-boggling."

Paul Bennett is a former client who managed the now-closed shelter at the Giving Tree's church, Compassion Hope Center. (The city cited the Giving Tree for running an "illegal and unsafe" shelter and in August ordered it to be closed at night).

Like Hill and Blascak, Bennett was devoted to the organization at first but grew uncomfortable, especially with charging people to stay at the shelter. At that time, in 2007, it cost $6.50 to sleep on a mat inside and $1 extra for a shower, he said. If people couldn't pay, he said, they worked - for the Giving Tree.

Bennett said that as shelter manager, he had to screen clients to learn what government aid they received. Those who got Social Security or cash often would move to a Giving Tree home where they would pay rent, usually to share quarters with many others.

Homeless advocates said asking clients to work for and pay rent to a charity in exchange for help can be a barrier to independence. Monthly payments eat into already-scant incomes, making it hard to save a security deposit and rent for their own place, advocates said. Also, they said, having to work for the non-profit organization makes it hard to find time to get a job - especially for those without cars.

Cathleen Hall is one of 10 former clients who told the Star about using government aid to stay in crowded homes. Hall, 54, said she paid up to $400 a month for a bed in the Giving Tree's "Our Home." At one point, she said, 27 other people lived in the three-bedroom, two-bathroom home.

With former clients reporting rents of $200 to $500 each, and up to 28 people assigned to three-bedroom homes, that could total thousands of dollars a month per home. Similar housing is readily available in Tucson for $1,000 a month or less for those who can afford the rent and security deposit.

Ignoring the rules

Blascak, who volunteers for the American Red Cross and the Interfaith Coalition for the Homeless, said he was bothered by comments he heard that the Giving Tree exaggerated how many families it helped in an effort to get more Christmas donations. When he asked Giving Tree staffers about it, they said that was true. "They not only did not deny it but insisted that 'all agencies do that,' " Blascak said. "I assured them that was not the case."

"Working outside the system, and often outside of ethical considerations and regulation and the law, neither promotes the agency (nor) helps the client," Blascak said.

Hill said he believes Wright started out trying to help people but got off-track. He said he became disillusioned by Wright's disdain for government regulations - an attitude he said reflects badly on all social-service groups.

Although Wright would not comment for this story, in an August interview with the Star, she raised the Giving Tree's willingness to work outside rules as one of its selling points.

Discussing a new home the organization was opening in an area that is not zoned for a shelter, she said she didn't tell the city about building improvements that were under way or take out building permits to avoid interference. She said she didn't want city officials asking her "who is living there, are they related, unrelated, male or female."

"We don't want to have that kind of thing go on," she said.

Contact reporter Patty Machelor at 235-0308 or pmachelor@azstarnet.com. Contact reporter Rob O'Dell at 573-4346 or rodell@azstarnet.com.

Despite being twice denied a state license to run a child-welfare group home, the Giving Tree accepts children without a parent or guardian at its midtown Grace Home shelter, say 12 former Giving Tree clients, workers and supporters - and even the Giving Tree's own fundraising materials.

The Giving Tree was turned down in 2004 and again in 2006 for a state license required to care for children who are not in the custody of a parent or guardian.

The 2004 denial notice says Giving Tree Director Libby Wright's name had been placed in a registry kept by the state Department of Economic Security and Child Protective Services listing "substantiated reports of child abuse and neglect." It says Wright was put in the registry, which is used for caregiver background checks, for "failure to provide adequate medical care" or ensure the child-care staff was qualified.

"In addition, Pima County Superior Court has made findings of your physical and medical neglect of children in your care and custody in two separate dependency actions," the notice says.

The 2006 denial says multiple inspections of the five-bedroom Grace Home found an unsafe backyard play area that was littered with equipment and broken and unused objects, along with a shed that had no doors and contained "tools, paint and other dangerous items."

Inside the home, inspectors found food that had expired or was stored in unsanitary containers; overcrowded conditions; unsecured razors, birth-control pills and other pharmaceuticals; and other sanitation and safety concerns.

After the denials, Department of Economic Security spokesman Steve Meissner said the organization amended its policy to require that a parent or guardian be at Grace Home with the children, which eliminates the need to be licensed as a child-welfare group home.

Because Grace Home does not have that license, Meissner said, it should not be caring for unaccompanied children, and the state should be notified if there is reason to believe it is doing so.

Wright, the Giving Tree's founder and director, would not be interviewed for this story. However, in a YouTube video posted online last year promoting Giving Tree programs, Wright said, "The Grace Home is meant for children who are voluntarily placed, so we do not go through the court system."

She continued: "Nor do we have to do a lot of paperwork and go through a lot of red tape to be able to get a child. From a vehicle into the Grace Home, usually it happens within an hour."

Similarly, a fundraising brochure distributed this year says that "children are placed voluntarily or are accompanied by a parent or other relative" at the Grace Home.

Sally Hueston, who spent a year off and on as a resident and later as a "house parent" at the Grace Home, said she dealt with numerous children who stayed for weeks or months at the shelter without a parent or guardian. They were cared for by house parents, volunteers and other adults living there, she said.

A.J. Peters, a supervisor at the Giving Tree gift shop who regularly visited the organization's operations, including the Grace Home, said the same thing.

And Tara Drew, who lived at the Grace Home for two months last winter, said one of the other residents at that time was an underage girl.

Former Grace Home resident Sonja Corso said she was expelled after a falling out over Corso having her child support from Alaska sent through DES instead of directly to her at Grace Home. However, she said Wright told her to leave her children at the home, telling her she was a bad mother.

She said Wright said she would tell Child Protective Services that Corso falsified financial-aid documents - which she admits doing - and was on drugs - which she denies - if she complained about the kids being at the Grace Home without her.

She said her children lived there without her for more than four months, and she was allowed to see them for a few hours only on Thanksgiving, Christmas and her son's birthday in February.

She said she could have taken her children from the home, but she didn't feel comfortable doing so because she was afraid of being reported and of Wright testifying against her in a custody dispute.

Tom Hill, pastor of the WORKship Methodist Church and a former Giving Tree supporter, said he went to the Grace Home several times to do work projects. He said there were often six, seven or eight kids living at the home without parents or guardians.

They often participated in Hill's program to take foster children to the movies, he said. Wright played up the fact that unaccompanied kids lived there, Hill said, saying they had been "rescued."

One reason the Giving Tree was denied a group-home license, said Meissner of the Department of Economic Security, was its repeated refusal to follow guidelines.

"They just don't play by the rules," he said. "They do things their own way."

Four former clients said Giving Tree workers asked them to falsify applications for state public assistance or submitted false information on their behalf.

All four former clients told the Arizona Daily Star that they were eligible for cash assistance and/or food stamps from the state Department of Economic Security, but they got more than they deserved based on false information in their applications. They said the extra money mostly went to the Giving Tree.

Some Giving Tree clients are not eligible for public assistance. And of those who were eligible, only four told the Star that they had falsified documents. All four told similar stories - and three brought up the topic unsolicited when reporters contacted them to ask about their experiences with the Giving Tree.

Two former clients said Giving Tree workers filled out change-of-address forms for them, which they said were submitted to DES by the organization.

One of the forms, signed by a Giving Tree worker, falsely claimed the woman's three children were living in a Giving Tree shelter with her. The other said a man was paying $400 a month to stay at a Giving Tree shelter, which he said was double his actual rent.

The Giving Tree and its director, Libby Wright, did not respond to questions about the allegations.

Linda Peterson said she was ordered to leave the shelter after she filed a police report in August about missing medication, over the objections of the Giving Tree "house parent." After she left, she said she submitted a new form to DES, which did not include her kids, who were living with their father. She said she never received any money based on the form filled out by the Giving Tree.

Sonja Corso, a 27-year-old mother of two, said she stayed at the Giving Tree's Grace Home for women and children on and off for a year. She said Wright told her in 2007 to fill out paperwork saying she paid $800 a month for room and board, when she actually paid $200.

That qualified her for more money and food stamps, which Corso said she was required to turn over to Wright. All told, she estimates she gave the Giving Tree more than $2,000 in state money and child support.

"She gave me a piece of paperwork she had signed and told me to take it to DES that said I paid $800 a month, which was not true," Corso said. "The more money you say you pay for rent, the more you get."

She said Wright also took her food-stamps card and demanded her personal identification numbers, saying she would contact DES and tell it that Corso had falsified documents if she refused.

She said Wright later expelled her from the Giving Tree in a dispute over money, but told her to leave her kids at the Grace Home for more than four months, accusing her of being a bad mother. When Corso objected, Wright again said she would report her false application to DES.

Corso said she agreed to leave the kids out of fear that Wright would report her and testify against her in a custody dispute. She eventually was readmitted to the home, where she stayed briefly before leaving with her kids. She now has a job and is living with them on her own.

Sally Hueston, a former Giving Tree client who later became an unpaid Grace Home house parent, said that when she was a client two years ago, the staff asked her to falsify state documents to get cash assistance and food stamps from DES.

Hueston said she lied on the documents by reporting her two children were living there when they were actually in the care of Child Protective Services, another DES agency. DES spokesman Steve Meissner said the agency's computer system cannot cross-check applications for DES benefits, other than a few programs involving child support.

Hueston said that after she joined the staff, Wright told her to get other women at the Grace Home to falsify documents. The extra money helped clients pay rent, she said, and brought in more food stamps.

Tom Hill, a pastor at WORKship Methodist Church, said Hueston came to him at the time expressing guilt over submitting false documents for herself and others. He said he didn't consider her responsible because she was "a vulnerable adult" who depended on the Giving Tree for food and shelter. Because he was talking to her confidentially as her minister, Hill said he did nothing with the information. Neither did Hueston.

Since she left the Giving Tree last year, Hueston has regained custody of her kids and has gotten a job.

Kenneth Bearrentine said he had forgotten to turn in his change-of-address form to DES while staying at the Compassion Hope Center last summer, so a Giving Tree worker did it for him.

He said at first he didn't realize the form showed he paid $400 a month to stay at the shelter, when he only paid $200. He said he was present when a DES caseworker called the house to verify that he lived there and how much he paid. Benefits are awarded in six-month blocks. He said he has not corrected the information, but he will when he has to reapply in February.

Peterson, 37, said she told Giving Tree employees she had three children and gave their names, but she said a Giving Tree employee put them on the change-of-address form telling DES where to send her benefits. She said the employee knew the children were not living with her at the home. She said she was thrown out of the shelter after she insisted that the Giving Tree call the police about her epilepsy medicine being stolen.

Both Bearrentine and Peterson gave the Star copies of the documents they said were submitted to DES on their behalf, signed by a supervisor at the Compassion Hope Center on Aug. 6, 2009.

City officials believe most, and possibly all, of the Giving Tree's 17 homes and apartments violate Tucson's zoning code because they appear to be shelters in residential areas where they aren't allowed.

Giving Tree homes would be considered shelters because of the number of people staying there and the short-term duration of their stays, officials said.

The Giving Tree could operate shelters in residential zones if it had a state permit to operate a group home, said Ernie Duarte, city development services director. However, the organization has no state permits and has twice been denied a license from the state Department of Economic Security to run a child-care group home at the midtown Grace Home.

Giving Tree Director Libby Wright would not respond to questions about her operation. But in an August interview after a hearing on the Compassion Hope shelter, Wright said she purposely doesn't tell the city where her homes are or what activities take place in each one because she doesn't want the oversight.

The operation doesn't always avoid scrutiny: The Giving Tree was cited six times in 2008 and 2009 on six different properties for building and remodeling without permits.

To get a state group home license, each home would have to serve an eligible client group. State law requires the home to meet size requirements for the number of clients, pass a building inspection and have an approved floor plan. The group home must provide counseling and monitoring by a qualified staff, which must pass a criminal background check (and be fingerprinted if the home is for children); have adequate insurance; and have an approved neighborhood-relations plan.

The Giving Tree has been issued special city occupancy permits for two of its homes, both of which limit how the properties can be used and the number of people who can stay there.

Special-occupancy certificates allow a property to be used in ways beyond what would normally be allowed by the zoning. If some other license or permit is required -such as a state group-home license - the property owner or tenant must also meet those conditions.

One of the two city permits issued to the Giving Tree is for the 2,200-square-foot Compassion Hope Center, a converted duplex at 4650 E. Eastland St., which has an occupancy certificate for a church in a residential zone. In August, the city forced the Giving Tree to stop providing sleeping space for more than 50 people a night there.

The notice revoking the occupancy certificate called the overnight shelter an "illegal and unsafe use" of the home because of the zoning and building-safety problems caused by overcrowding. The city issued a new certificate for the church after the Giving Tree agreed to prohibit overnight stays.

The Giving Tree's other special-occupancy permit went to the Grace Home, which takes in women and children. It was issued a special city permit to operate a shelter for women and children, but occupancy of the 2,100-square-foot, five-bedroom home was limited to eight people.

But former clients and employees say the Grace Home routinely has more than eight occupants, which would put it in violation of the permit. And in a promotional video posted on the Web's YouTube last year, Wright appears on camera saying an average of 15 kids live in the home at any given time.

Even if the organization is violating those special-occupancy permits, there is little the city can do, Duarte said. Enforcing zoning violations is difficult, he said, because private-property rights severely limit inspectors' ability to go inside and verify the number of people living there or how the property is being used.

Craig Gross, Tucson's deputy zoning administrator, said the city has no authority to enter a single-family home unless officials are called there by police, or if there is a fire or accident at the site.

Former Giving Tree client Preston Adams said that when a fire marshal came to inspect the house where he lived, house supervisors would lock the doors and refuse to open them.

If a homeowner fixes a problem after being cited but later commits the same offense, Gross said, that's treated as a separate case, and the process starts over.

He said many cities have escalating punishments for repeat offenders, but Tucson has never seriously considered doing that. Until Tucson's code gets "teeth," he said, there is little the city can do.

The city even has problems getting into houses where it has issued an occupancy permit, such as the Grace Home and the Compassion Hope Center. Duarte said the city can request entrance, but if the owner refuses, the city needs to show "reasonable cause or belief" to get an administrative warrant to enter.

City code inspectors got into the Compassion Hope Center only after they were called by the police, who went there in response to safety concerns.

Duarte said several city departments recently have formed a team to develop a strategy to investigate Giving Tree houses that may be in violation of city codes.

Poor sanitation, expired snacks and milk served too warm were just the start.

The state also found the Giving Tree falsified information, showed up late and sometimes didn't show up at all to feed children in the Arizona Department of Education's 2008 summer food program.

Department inspectors found 19 significant violations, leading them to revoke the Giving Tree's contract to run the program, an extension of the federal school-nutrition program.

The Giving Tree was found so deficient it had to return $40,000 in federal funds it was given as an advance, and was denied reimbursement for the food service it provided in May and June of that year.

The state has deemed other agencies deficient in the past, "but the Giving Tree was the first time it was ever severe enough to terminate," said Lori Bassett, the department's summer food coordinator. She said there are 140 summer food-program sponsors statewide.

Giving Tree director Libby Wright declined interview requests for this story. Her organization, which also runs a twice-weekly meal service for the poor, was awarded a contract to feed children qualifying for federal assistance in the summers of 2004, 2006, 2007 and 2008.

But after a routine inspection in the summer of 2008 raised concerns, Department of Education officials say they returned in July to make sure the Giving Tree was complying with federal regulations. They asked Pima County Health Department inspectors to go with them.

Education Department inspectors found milk served at 67 degrees, canned fruit at 87 degrees and pasta-and-cheese at 105 degrees. "All the foods listed were in the danger zone, meaning bacteria grows more quickly at those temperatures," Bassett said.

Cold food like milk and canned fruit must be served below 41 degrees, said Lynn Ladd, director of the department's school health and nutrition programs. Hot food, like pasta and cheese, must be above 140 degrees.

Inspectors from the county health department found 11 "critical violations" that day. Food service facilities fail any inspection with more than four such violations.

The state's Department of Education also found the Giving Tree was giving food away at unauthorized sites, while skipping some designated sites.

Preston Adams, a former Giving Tree client who worked for the summer feeding program, said that after workers visited a couple of designated sites, Wright told them to give the rest of the food away. It didn't matter who received it, Adams said, or whether other sites hadn't been visited.

Ladd said summer feeding sites are posted online so parents and caregivers can easily find food for children. She said she received no complaints about food not showing up.

The most serious findings in the two inspections, Bassett said, were lack of documentation and misuse of federal funds.

State inspectors became suspicious of numbers the program submitted, Bassett said, because the Giving Tree was unable to document the volume of food prepared or distributed during a routine review. When the state asked for receipts of food purchases showing it had fed as many children as it claimed, the organization was unable to provide them, Bassett said.

"Their documents did not support the numbers they were claiming," she said. "Where they came up with those numbers, I can't really say."

Sally Hueston says she knows a bit about where the numbers came from. So do Preston and Elizabeth Adams. All three are former Giving Tree clients who worked for the summer feeding program. They said Giving Tree supervisors overstated the number of children fed.

Sonja Corso also worked for the Giving Tree program and said she normally fed about 25 children each day. But Corso said when documents were submitted for reimbursement, the number would jump to 250. Corso said Giving Tree Director Wright changed the numbers and told her she wouldn't be paid if she spoke up.

The Adamses stayed at the Giving Tree off and on for two years while struggling with drug addiction. They worked in the summer feeding program in 2007 and said they were to receive $7.50 per hour for a six-hour day. Wright evicted them shortly before the program ended, they said, and refused to pay them.

Despite more than 800 free beds at Tucson's homeless shelters, the Giving Tree charged $8.50 a night to stay at its recently closed shelter, plus up to $1.50 to use the shower.

In addition to its shelter, which remains open as a church, the Giving Tree has 16 other homes and apartments where former clients report paying $200-$500 a month per person to share a three-bedroom home. Sometimes up to 28 people stayed in a home, with people sleeping in bedrooms lined with bunk beds, as well as on couches and the floor.

Ten former Giving Tree clients told the Star that they were required to sign over some or all of their food stamps from the Arizona Department of Economic Security in order to stay in the homes. All told their stories on the record without anonymity.

Requiring residents to use food stamps to cover meals in a home could be legal or illegal, depending on the specific circumstances, said Steve Meissner, a DES spokesman.

Charging for emergency shelter is legal, but social service experts and other local groups that work with the homeless oppose doing so because it inhibits clients' ability to get back on their feet.

"When a person is seeking emergency shelter because they've become homeless, it's not common that anyone would charge them for this safety net," said Leslie Carlson, coordinator of the Plan to End Homelessness in Tucson and Pima County.

Programs for the homeless typically include fees for longer-term transitional housing. But the Giving Tree's placements in its network of private homes and apartments - and the amount it charges to unemployed and underemployed clients - don't fit generally accepted standards for transitional housing.

Linda Kot, deputy director for the Primavera Foundation, a large, homeless-assistance organization, said her organization places some clients in group residences, where they may share a living room, bathroom and kitchen. But each has his or her own secure bedroom.

Some are also placed in apartments or homes. Charges are limited to 30 percent of the client's income - the standard set by the Department of Housing and Urban Development.

The first priority to get the homeless back on track is housing; the second is a job, said Peggy Hutchinson, executive director of Primavera. When people move into Primavera's permanent housing, she said, rent is kept low so they can "save some money and get on their feet."

Don Blascak, a volunteer for the Interfaith Coalition for the Homeless, said most agencies serving the homeless do not evict clients if they can't pay. But the Giving Tree does, he said.

Placement in one of the Giving Tree's private homes was based primarily on an applicant's ability to pay by the month, instead of by the night at the shelter, said Paul Bennett, who once managed the now-closed Compassion Hope Center shelter.

He said he was instructed to screen clients to see if they received government checks from Social Security or the DES. Those who had access to money were quickly moved to the private homes, he said.

Once there, clients say they had to pay significantly more than 30 percent of their income - in some cases, most of their money - to share a bedroom with multiple other residents. They also were required to volunteer at Giving Tree programs or facilities, which limited their ability to find a job or save money.

Preston Adams said he had to give up his food-stamp card and the PIN number to access it while he stayed at a rental home.

Forcing someone to give up their PIN would be illegal, Meissner said.

Clients at the Grace Home were required to apply for cash assistance and food stamps to pay for rent and food, said Sally Hueston, a former client who became a house parent at the Grace Home.

Cathleen Hall, who uses a walker because of fractured bones in her back, said she stayed in the three-bedroom Our Home with as many as 27 other people. Hall, 54, said she was asked to sign over her food stamps, as well as pay between $340 and $400 a month. She had been there for a year when she left in August.

Mail sent to Giving Tree homes was delivered to the house parent, who distributed it, several former residents and house parents said.

"When your mail came, if it had anything with DES on it, the office would call Libby," Hall said of Giving Tree director Libby Wright. "You would have to open it in front of them and sign it over to them."

Bennett said he lived in the house next door to the shelter, where as many as 14 clients paid up to $500 a month each to sleep on bunk beds and couches. Similar homes are available in the mid-town area for less than $1,000 a month, although renters must come up with a security deposit and pass a credit check.

Former client Don Jayne said he paid $200 a month to live with his daughter in a three-bedroom Giving Tree home for fathers and daughters. Up to 18 people stayed there at once, he said. The unit was set up almost dorm-itory-style, with the fathers sleeping in one room while the daughters had their privacy in another, he said.

Former client Tara Drew lost her housekeeping job in November. By January, depressed and homeless, she and her two young children turned to the Giving Tree. Drew said she was told there would be a program fee, but the amount was never discussed - until she got a $1,500 tax refund two months later.

Drew said Wright demanded immediate payment of $600 in back rent - money Drew planned to use for a car to help her find another job. She paid, but moved out a month later because she couldn't continue paying.

She said Grace Home residents were also expected to use their food stamps to help feed all of the residents, and were told the staff would confiscate their vouchers if they didn't participate.

After leaving the Giving Tree, Drew found space at the Salvation Army, where she wasn't asked to pay for housing. She later started a landscaping job and she now lives on her own with her two children.

"Once you're in," she said of Giving Tree, "it's hard to get out."

4888 E. Broadway

Owner: R. Glenn Bancroft, Giving Tree board member.

Use: Bancroft provides free office space to the Giving Tree.

Compassion Hope Center, 4650 E. Eastland St.

Owner: GT Outreach Program.

Use: House is used as a church, formerly used as a makeshift homeless shelter

Purchased: in 2005 for $135,000; Giving Tree founder Libby Wright's husband, Carlo Giovingo, lent $130,000 for the purchase.

Problems: Cited twice by the city as an illegal homeless shelter, shut down by the city in August. Cited twice more for code violations, one for work done without permits. Police called to the church 48 times in 2008 and 25 times in 2009. Five health department complaints filed.

4425 E. 22nd St.

Owner: Palm Court Inn LLC (used for free by the Giving Tree).

Use: Parking lot where the Giving Tree feeds the homeless on Thursday and Sunday nights.

Problems: Police called to the lot 221 times in 2008 and 163 times this year through mid-August. Cited for work done without permits.

"New Life Home" duplex for clients

Owner: GT Outreach Program.

Donated: In late 2008 through early 2009 by Robert and Barbara Renner.

Problems: Cited in 2009 for doing work on building without permits.

"Our Home" rental

Owner: GT Outreach Program.

Purchased: In May 2008 for $140,000, with $28,000 down.

Problems: Police called to the house five times in 2008 and three times in 2009. Cited in 2009 for work done without permits.

"Angel Wings" rental home

Owner: GT Outreach Program.

Purchased: In December 2008 for $100,000, with $40,000 down. Giovingo lent the rest.

Problems: Police called to the house five times in 2009. Cited in 2009 for work done without permits.

Rental home for clients

Owner: GT Outreach Program.

Purchased: In March 2007 for $165,000, with $33,000 down.

Problems: Police called to home four times in 2008. Cited in 2009 for work done without permits.

Grace Home for women and children

Owner: Carlo Giovingo

Purchased: In 1991 for $55,000. Rented to the Giving Tree.

Problems: Police called to the house six times in 2008 and once in 2009. Twice denied a license to care for children without a parent or guardian, but the Giving Tree says it does so anyway. Has a city permit for up to eight residents, but former clients and volunteers say it regularly exceeds that.

Rental duplex for clients

Owner: Carlo Giovingo.

Purchased: In 1993; price unknown.

Use: One unit used to house clients, one rented by a Giving Tree volunteer.

Problems: Police called to the property once in 2008 and twice in 2009 through August, once by a longtime Giving Tree employee who said she paid rent but was threatened with eviction. She later moved out.

Six-unit apartment building

Owner: Carlo Giovingo.

Purchased: In 1993, price unknown. Problems: None.

Thrift shop, 4221 E. 22nd St.

Owner: DECAGEE LLC

Purchased: Unknown.

Problems: Tucson police called to the property 11 times in 2008 and 10 times in 2009 through mid-August.

Offices: 929 and 931 N. Swan Road.

Owner: Wright says property was donated this year. County records list the owner as Vakili Revocable Trust in Tucson.

Problems: None.

Half of rental duplex

Owner: Ida Ybarra Jacobs

Use: Could not be confirmed that the Giving Tree still rents this property.

Problems: One police call to the house in 2009.

Half of rental duplex

Owner: Heeringa Revocable Trust

Problems: Police called to the location twice in 2009, once to apprehend a sex offender wanted by police. Giving Tree employees alerted the police after conducting a background check on the man.

Note: The Star is not printing addresses of the agency's rental properties. Some of them house women fleeing abusive relationships, the agency's attorney said.

1988

Giving Tree Director Libby Wright moves to Tucson.

1991

Wright's husband, Carlo Giovingo, buys a midtown house for $55,000 and opens an adult-care home. It later becomes the Giving Tree's Grace Home.

1993

Giovingo buys a midtown duplex and apartment complex.

1996

Giovingo is sued by two women who bought his Family Care I adult-care home. The suit claims Family Care's multiple Arizona Department of Health Services violations so damaged the business that it was not viable. The suit settles out of court. Giovingo retains ownership; the property later becomes Grace Home.

1996

The GT Outreach Program incorporates in Arizona, although Wright says it actually started in 1988.

2000

Grace Home starts operating as a child-assistance program.

2003

Grace Home becomes a residential facility for women and children.

2005

GT Outreach buys a house at 4650 E. Eastland St. that it turns into the Compassion Hope Center - a church, a place to provide social services and, until August, a homeless shelter. Giovingo provides the loan to buy the house.

2007

GT Outreach buys the house next to the Grace Home.

2008

The Giving Tree buys two houses in the same midtown block to serve homeless clients. One of the purchases is financed by Giovingo.

2009

The city forces Compassion Hope Center to stop letting people stay overnight. A midtown duplex and a commercial property at 929 and 931 N. Swan Road are donated to the Giving Tree.

The Giving Tree has grown exponentially in recent years.

What was a small charity for the homeless with $353 in the bank in 2000 is now a sprawling organization with nearly $1.4 million in revenue and services at more than 20 sites across Tucson.

The growth has given the Giving Tree a reputation for helping Tucson's homeless. But a three-month investigation by the Arizona Daily Star found that the Giving Tree served expired and potentially unsafe food to needy kids, that it charges clients hundreds of dollars a month to live in crowded rental homes, and that at least twice it made a public display of giving kids gifts at holiday parties, only to take them back later.

Many of the Giving Tree's actions violate city and state regulations, or are contrary to widely accepted standards for charities, the Star found.

The Giving Tree, formed in 1988 and incorporated in 1996, says on its federal financial reports that it serves 8,800 clients a year. The same reports say the Giving Tree provides all that service with almost no staff or administrative costs, which experts in running nonprofits say is improbable.

Giving Tree founder Libby Wright declined to comment for this story. Wright makes most of the organization's decisions, and her board, which ranged from four to seven members in recent years, serves mostly as an adviser to her, board member Dick Mentzer said.

"Without Libby Wright, there is no Giving Tree," Mentzer said.

Over three months, the Star reviewed public records from six government agencies that have some authority over the Giving Tree and interviewed more than 60 people - most of them former clients, employees and volunteers, or government officials.

Among its findings, the Star found the Giving Tree has grown rapidly in recent years, but the nonprofit reveals few details about its finances. In 2001, it reported $13,000 in annual revenue, jumping to nearly $200,000 in 2004 and $1.4 million in 2007, the most recent year for which data are available.

The numbers come from the organization's federal Form 990, required to maintain its nonprofit status. Its filings with the Arizona Corporation Commission for 2008 have a list of corporate officers and answers to questions, such as affirming the organization is not in receivership. It has no financial data, which was not required that year.

Giving Tree federal reports in 2005 and 2006 listed no staff, no salaries, no administrative costs and no fundraising costs. In 2007, there were $12,000 in salaries and $5,800 in fundraising expenses.

Seven people told the Star that they were paid employees of the Giving Tree during those years, and another two said they were promised wages for working for a Giving Tree program but never were paid.

The organization is incorporated under four names in Arizona, making its finances difficult to follow. For example, a corporation formed in 2005 called the Giving Tree II had no income in 2005 and 2006, but in 2007 it claimed to have $315,000 in a checking account and $468,000 in other fixed assets for a total of $783,000.

And numbers in the state reports often conflict with information provided to the Internal Revenue Service.

Laura Otten, director of the Nonprofit Center at LaSalle University in Philadelphia, questioned how Wright could run an organization that serves 8,800 people annually with few costs for staff, inventory, case management, grant writing and fundraising.

"I have never seen anything like this - never," Otten said. "Anybody who works with nonprofits has to question this."

The Giving Tree's accountant, Phyllis A. Conrad, was put on two-year probation in 2008 by the Arizona Board of Accountancy after a complaint was filed against her by another one of her clients for an error in a tax return. Conrad did not return calls from the Star.

Nancy Church, a certified public accountant who runs the Oregon-based Not-for-Profit Accounting Help, said a nonprofit's administrative and fundraising costs can be as high as 20 percent to 30 percent of its expenses. The amounts listed by the Giving Tree in 2007 accounted for 2 percent of its expenses.

Wright pays herself no salary, and Giving Tree tax filings show she volunteers 100 hours a week. Other board members often are listed on IRS forms as volunteering 40 hours a week, with one at 60 hours a week.

On her own board

Wright sits on the Giving Tree's board. In some years, the organization has had only three board members besides her.

Hildy Gottlieb, the director of the Tucson-based Community Driven Institute, which helps nonprofits improve their management practices, said boards are supposed to have authority to hire and fire the executive director. "There's not a vote where the executive director does not have conflict of interest," said Gottlieb, a nationwide expert in nonprofit-management practices.

A small board made up of supporters who are close to a program and/or its director does not represent the community, Gottlieb said. She said such a board - as is the case with the Giving Tree - often sees its role as helping or supporting the director.

Who owns the houses?

Roughly half of the Giving Tree's rental homes and apartments are owned by Wright's husband, Carlo Giovingo. He also holds the mortgage for two homes owned by the Giving Tree, meaning he receives monthly payments from the organization his wife runs.

State and federal financial reports don't specify how money paid by clients - which can total thousands of dollars a month for a shared three-bedroom home - is distributed between Giovingo and the Giving Tree. The Giving Tree doesn't list program fees or rent from the houses in its tax filings with the IRS.

Former Giving Tree clients and workers said Giovingo collects rent from the shelters and homes. Paul Bennett, former manager of the Compassion Hope shelter at 4650 E. Eastland St., said Giovingo came in the first thing every day to collect the money from the shelter.

Giovingo rents the Grace Home shelter for women and children directly to the Giving Tree for an undisclosed monthly sum. He also provided the home loan on two of the Giving Tree's properties - the Compassion Hope Center and a midtown house. The financing arrangement means that if the Giving Tree fails to pay, he could be in the position of foreclosing on his wife's nonprofit.

Although the Grace Home rental agreement is disclosed in the Giving Tree's IRS filings, the home-loan financing is not disclosed in the "self-dealing statement" in the Form 990, which experts said it should be. The Star obtained the information about the home loans from the Pima County Recorder's Office.

Gottlieb said nonprofits should avoid doing business with the spouse of a board member or the executive director. If that is not possible, she said, it should be disclosed, negotiated at arm's length and done at market rates or below.

"In Tucson, Arizona, there is no excuse not to find rental property," Gottlieb said, adding that Tucson also has many banks and mortgage providers for home loans.

Renata J. Rafferty, a lawyer who runs Rafferty Consulting Group in Southern California and specializes in investigating nonprofit financial activities, said that under IRS rules, the Giving Tree board must prove its dealings with Giovingo are at or below market rates, or board members who approved the contract could be fined by the IRS.

Problematic numbers

Otten questioned how the Giving Tree could raise money, manage inventory, do its finances, provide case-management services, prepare and serve food, and manage all of its houses without a staff or substantial payments to contractors.

"It's staggering they do theoretically all this work with no paid employees," Otten said.

Even if everything is on the up and up, Otten said, violations of best practices can break the trust that nonprofit organizations should have with the community.

Contact reporter Rob O'Dell at 573-4346 or rodell@azstarnet.com online. Contact reporter Patty Machelor at 235-0308 or PMachelor@azstarnet.com

Memories of children crying over confiscated Christmas toys still upset the Rev. Tom Hill.

Hill, a former Giving Tree volunteer, also remains baffled by the diapers. There were boxes and boxes in storage, he said, and yet Giving Tree Director Libby Wright resisted handing them out to mothers in her program.

Wright often said food was in short supply when she sought donations, Hill said, even after he discovered Wright was storing large amounts in one of her organization's homes.

Wright declined an interview request for this story.

Hill, who now runs his own food program for the homeless, said he tried not to doubt Wright during his first years as a volunteer, but an incident at Christmas a few years back was hard to come to terms with.

Giving Tree clients attended a Knights of Columbus Christmas party where the children were all given toys. Hill was nearby at the Giving Tree's feeding site on East 22nd Street. He said he was appalled when several parents arrived with their crying children, telling him Wright waited outside the door and took the toys back as the children left.

Sally Hueston, a former client, said her son was devastated when he had to return a basketball.

"Right then, we went out as a group and got a bunch of toys for those kids," Hill said. "Our big issue was taking care of kids who were really, really upset."

Like Hill, Nick DeMesa was a Giving Tree volunteer for several years before he withdrew in early 2008. DeMesa, 60, said that while he was with the Giving Tree, he would frequently donate food to supplement the meal program.

"There were times when, in order to provide food, I would go out and buy a hundred chicken breasts," said DeMesa, a retired Raytheon engineer. He said he was then shocked to visit a Giving Tree storage house where there were rows of industrial shelves and freezers full of food.

"At the time, it bothered me a bit that she had all this food, and I was spending my money to do it," he said.

But he didn't question Wright about it, he said, opting to ignore things that didn't seem to make sense in order to focus on feeding the homeless, a sentiment Hill echoed.

"We were always under the impression that there was just no food," Hill said. "I didn't know that there were large amounts of off-site food at all, and then discovering there were all these diapers and discovering there was all this food, it was like, 'What?' "

Paul Bennett, a former Giving Tree client who later managed the Compassion Hope Center, said Wright stored so much food that it sometimes spoiled before it could be used.

"It made me sick. I remember telling her, 'For the love of God, give it to somebody who needs it,' " Bennett said.

At Thanksgiving in 2007, dozens of turkeys were donated to the Giving Tree, but Bennett said there was no storage space. Eventually he gave away some of the turkeys at a south-side apartment complex so they wouldn't go to waste. Many of the frozen birds thawed and spoiled, he said.

A month later, Hill helped hand out toys at a Christmas party. There were trailers and storage bins full of donated toys, he said, and about 150 children were there to receive them.

Even so, he said Wright told the volunteers to hand out only one toy per child. Hill said he was perplexed, but he thought Wright might be being careful in case more children came along. Then he heard her making a pitch for more to a television news crew.

"She said, 'We've run out of toys, and we need help and we need donations,' " he said. "To hear Libby tell the press we had no toys and had 2,000 kids who wanted them . . . that was the last straw."

After Wright's plea, people responded quickly with toys and "lots and lots of money," Hill said. "People are really good about that here in Tucson, and that's why I want people to know that there are groups that do this well."

Preston Adams, a former client who worked in Wright's summer feeding program, said he saw Wright give children bikes to ride before television news cameras, and then take them back after the journalists were gone. The children were devastated, he said.

Bennett said he also saw Wright confiscate bikes that were given to kids at an early Christmas party.

"The children thought the bikes were theirs, and the excitement was high," he said. Afterward, when Wright took the bikes back, Bennett said she told the children they would get them back at Christmas.

Bennett said that a month or so later - a couple of weeks after Christmas had passed - he unlocked a storage trailer and found the bikes still there.

The Giving Tree has been indefinitely suspended from receiving food from the Community Food Bank of Southern Arizona after failing to account for and properly distribute about 400 pounds of sliced ham intended to feed the hungry.

That discrepancy is the latest in a list of problems found by the Food Bank, which had temporarily deactivated Giving Tree from its distribution list three times before suspending the group, said Jean Fox, agency relations manager for the Food Bank.

Hundreds of unaccounted-for 2-pound packages of sliced ham were supposed to go into emergency food boxes distributed by the Food Bank through Giving Tree. The emergency food boxes, which are part of the federally regulated Emergency Food Assistance Program, are a last-resort safety net for hungry Tucsonans.

Giving Tree also received free food from the Food Bank for its twice-weekly feeding program, which was also suspended.

After the suspension on Nov. 4, the Food Bank took back all of its remaining food from the Giving Tree, including about 30 5-pound hams the Food Bank purchased to be handed out in November and December for the holiday season, Fox said.

While the Food Bank sometimes temporarily stops providing food to an agency while working through problems, she said, Giving Tree is just the second organization to be suspended in more than 20 years.

Neither Giving Tree Director Libby Wright nor Giving Tree board member Glenn Bancroft, who serves as the nonprofit's designated spokesman, returned phone calls on Tuesday.

The Food Bank isn't the first community charity to cuts its ties with Giving Tree. After an Arizona Daily Star investigation earlier this month that revealed the hoarding of diapers and food by Giving Tree, among other problems, the Diaper Bank of Southern Arizona issued a statement that it had stopped providing diapers to Giving Tree in 2006 because of "concerns over diaper-distribution practices."

Fox said the Food Bank tried to work through problems with the Giving Tree several times before deciding on suspension. Past problems were that Giving Tree had not prepared and stored food properly and could not account for donated food, she said.

She said when she checked in last month with the woman running the Giving Tree's food box program, the woman didn't know anything about the sliced ham, which had been provided by the Arizona Department of Economic Security.

"This is nothing against her; she was doing a good job, but when we said, 'How is the ham going over,' she knew nothing about the ham," Fox said. The ham, which is perishable, was given to the Giving Tree in separate packaging from nonperishable food-box items so it could be kept cold.

Fox said that when she questioned people working with the Giving Tree, they either didn't know about the ham, guessed it might have been put away in freezers, or handed out at the Giving Tree's biweekly meals program.

Fox said she understands mistakes do occur, but this was "completely unacceptable."

"If this was the first time that this happened, we might have taken it as human error, but this is the latest in a number of incidents with this organization," said. "We had lost almost a month's worth of the 2-pound packages of ham."

The Giving Tree responded to the Community Food Bank's concerns by accusing the Food Bank of "hurting the client," Fox said. "We were the bad guys; we were doing everything wrong," she said.

The indefinite suspension will be difficult to reverse, Fox said. "A lot of things would have to change before they could ever come back to us. I can't tell you how many times I've driven by there to make sure everything's OK"

Fox said it's important to make sure food is being handled and distributed properly so donors know their food or money is going to good use.

People who need emergency food boxes can still get them from a number of other distribution locations, including Freedom Park at East 29th Street and South Swan Road, which is within walking distance of Giving Tree's Compassion Hope Center, 4650 E. Eastland St., where food boxes were handed out three times a week. Compassion Hope Center staff members can also refer clients to other nearby distribution locations, Fox said.

The Giving Tree will hire an independent auditor to review its finances and issue a public report to reassure donors about where their money is going, a spokesman said.

The nonprofit organization, which provides housing and food to Tucson's homeless, also will establish a community advisory board to serve as ombudsman and offer advice, said Glenn Bancroft, a Giving Tree board member.

The moves comes days after an Arizona Daily Star investigation in which former clients, volunteers and government officials raised questions about Giving Tree practices.

Bancroft said the audit will be done to reassure the community the organization is above reproach. The Giving Tree is considering several certified public accountants to conduct the audit, Bancroft said, but he would not identify the candidates other than to say they were suggested by Giving Tree board members and others close to the organization.

The auditor should be selected by next week, he said. When the audit is finished, it will be made available to the public because "I'm quite sure ... your readers would far prefer to have actual fact, as opposed to, you know, rumor, innuendo and conjecture. That's why we've chosen to do it, to establish a baseline so there's no question about our integrity."

As for the advisory board, Bancroft said the only member selected so far is from Little Rock, Ark. He said that person, whom he could not name because no agreement has been finalized, has extensive experience helping nonprofits and their boards and was recommended through one of the churches that support the Giving Tree.

He couldn't say how other members will be chosen.

Giving Tree representatives did not respond to numerous Star requests for comment over the six weeks before investigative series was published on Nov. 1 and 2. After the stories appeared, the organization, through its attorney, requested a meeting with the Star to "clear the air."

Bancroft said last week, however, he was unable to meet in person and asked to do a telephone interview. Giving Tree founder and director Libby Wright was not available for interviews.

Bancroft faxed a six-page letter to the Star on Tuesday criticizing the newspaper's three-month investigation, which found, among other things, that the Giving Tree served potentially unsafe food to needy children, charges clients hundreds of dollars a month to live in crowded rental homes and appears to be operating in violation of state regulations and the city zoning code.

Much of the letter addresses issues that never appeared in any of the eight Star stories. It does not address two of the most serious allegations raised in the stories: that the Giving Tree ran a group home for children even though it was twice denied a required state license to do so, and that it falsified state documents or had clients falsify those documents in order to get more state aid.

Star stories said the Giving Tree was denied a state child care license because Wright's name appears in a state Department of Economic Security/Child Protective Services registry of "substantiated reports of child abuse and neglect" for "failure to provide adequate medical care" or ensure the child-care staff was qualified and because the organization's midtown Grace Home was an unsafe and unsanitary environment for children.

Bancroft said the real reason the Giving Tree was denied a license is because it is a faith-based organization, and state bureaucrats don't like the fact the facility is run in "a manner that befits our ministry."

DES spokesman Steve Meissner said religious affiliation is not a reason to deny a license.

During the telephone interview, Bancroft denied claims by 12 former clients and others familiar with the Grace Home that children were allowed to live there without their parents, which requires a state license - a claim that is also made in Giving Tree's own promotional materials.

He said the sources who talked to the Star were wrong about the unaccompanied children, and the Giving Tree's promotional materials are wrong as well and need to be changed.

Bancroft said he doesn't believe the Giving Tree falsified any documents sent to the Department of Economic Security, and he doesn't know why someone would claim they did. He said he didn't include the documents issue in his letter because "obviously, it wasn't an important issue for me at the time."

Among the points Bancroft did raise in the letter:

• He complained the Star used anonymous sources who refused to put their names to allegations.

However, everything in all eight stories is attributed to named sources. In fact, the paper set a standard for these stories that at least four different people had to make a similar complaint for it to be included. Bancroft later agreed the Star didn't use anonymous sources.

• He asserted former Giving Tree pastor Tom Hill never told the organization about his concerns.

When questioned, Hill said he did tell Giving Tree officials, and later produced a letter signed by seven other community volunteers who said they also registered complaints multiple times to no avail.

• Bancroft said the Star's reference to the Giving Tree receiving $1.4 million in revenue in 2007 gave the false impression the organization received that much in cash donations.

The Star never said the $1.4 million was all cash revenues or donations. It said several times the Giving Tree had many different sources of funding.

• He denied what he said was an allegation in the stories the Giving Tree distributed expired and potentially unsafe food through the Compassion Hope Center.

However, none of the Star stories made any reference to the Compassion Hope Center food program. References to food were related to an Arizona Department of Education-funded summer feeding program for children that was terminated after the Education Department and Pima County Health Department inspectors found they served expired and unsafe food and numerous other violations.

Bancroft conceded in the interview the stories didn't talk about the Compassion Hope Center. But he insisted the termination of the summer food program was an "amicable" parting of the ways between the organization and the state because Giving Tree officials had problems with the "bureaucratic" aspects of the program.

State officials, and state documents, dispute that description, and the state required the Giving Tree to return a $40,000 advance and denied reimbursement for additional claims the organization filed.

• Bancroft said the allegation that the Giving Tree took back toys from children was "a reckless falsehood."

However, in addition to two former volunteers and three former clients who originally told the Star about the toy incidents, since the article ran, three more former volunteers have come forward to say they, too, witnessed toys being taken away from children.

• Bancroft said the Giving Tree does charge "program fees" for residents of its homes, but they are charged on a sliding scale and are charged per family, not per individual. He said only 10 percent pay program fees at all.

Nearly all of the more than 20 former clients interviewed said they were charged program fees. Twelve people told the Star they paid between $200 and $500 a month each to share a three-bedroom Giving Tree home with up to 27 other people. Many others paid by the night to stay at the Compassion Hope Shelter.

Four people said they were evicted from Giving Tree homes because they could not pay their program fee.

• Bancroft said in his letter that Carlo Giovingo, Wright's husband, who owns many of the homes where Giving Tree clients and assigned, "donates, for the most part," the use of the houses.

Although Giovingo charges the Giving Tree rent, Bancroft said the amount is below the market rate. He said the organization considers the difference between what Giovingo is paid and what he could make renting on the open market to be a donation.

However, Bancroft was unable to say how much rent the Giving Tree pays Giovingo for any of the properties, or - in the case of two homes for which Giovingo holds the mortgage - what the terms are.

He said he was unable to check organization files for details of the agreements with Giovingo, or provide any documents, because all of the records have been turned over to the different auditors the Giving Tree is considering hiring, and the organization has no copies.

Bancroft said rent charges to clients are also below the market rate. Classified ads indicate rental homes similar to those offered by Giving Tree are available for less than $1,000. Twenty residents paying $200 each would produce $4,000.

More on starnet

Find the Star's Nov. 1-2 investigative report at go.azstarnet.com/ givingtree

To read the Giving Tree's response go to azstarnet. com/pdf