Brooke Briggance discovered in October that Count Me In Corp., a Washington state online vendor that handled sports and activity registrations for the Alameda Education Foundation, in Alameda, Calif., owed the nonprofit more than $81,000 in fees it had collected from parents.
Briggance, who joined Alameda as executive director in 2007, hadn’t chosen CMI, based in Bellevue, Wash., and was already considering changing vendors when she found the discrepancy. But in the end, she was also out of a job, let go as a result of the shortfall the nonprofit experienced because of CMI’s financial problems.
Like hundreds of other nonprofits, Alameda, an intermediary that raises funds and advocates for after-school enrichment activities for some 5,000 students a year who participate in karate, dance and other classes at 10 area elementary schools, paid CMI about $3 for each online transaction. CMI collected registration payments and was to pay Alameda twice a month, minus the transaction fees.
But in October, the payments didn’t arrive at Alameda. And they didn’t arrive for many of CMI’s other clients, either.
Since then, at least 52 complaints about CMI have been filed with the Washington state attorney general’s office, according to spokeswoman Kristin Alexander. The company is also being sued in California and Washington, is under criminal investigation in Bergen, N.J., and is facing involuntary bankruptcy petitions filed by three groups in Alaska.
Hundreds May Be Affected
It’s unclear how many of the hundreds of sports and recreational clubs that used CMI’s services will end up losing money – or whether the company will find a way to meet its obligations.
In an e-mail to clients that was also released to a public relations newswire on Jan. 2, company founder and CEO Terry Drayton said he was trying to find money to pay the $5 million he said he owes to 220 sports organizations across the country. He attributed the company’s problems to poor financial accounting practices and not having the right staff, and said that, unbeknownst to him, the financial troubles had been building since the company’s inception eight years ago.
He said he first learned of the problems about two years ago but was not aware of their full extent until more recently. In an interview with TechFlash, a Seattle business news blog, Drayton said a major problem was that the registration money and his company’s own finances were handled through a single banking account.
CMI changed its business model late last year and no longer handles money on behalf of its clients, giving the nonprofits financial control, Drayton said. “With 20/20 hindsight, I wish we’d done that from the outset,” he wrote in the blog.
CMI referred calls to Mark Firmani, head of a public relations firm, who said CMI is still accepting clients, using the new processing procedures. .
Tip of the Iceberg
Montclair United Soccer Club (MUSC) in New Jersey, a nonprofit group serving more than 1,600 area youth, discovered in September that CMI had missed its payments; it filed suit in federal court on Nov. 10 against CMI, its parent company Arena Group Inc. and Drayton for breach of contract and other causes.
The MUSC lawsuit alleges the soccer club is owed at least $142,000. In a response, CMI admitted owing MUSC money, but said the amount is $117,000. MUSC says that “cost-cutting measures” and aggressive fundraising will help stabilize the club’s finances this year.
Teaneck Baseball Organization, a nonprofit in New Jersey that serves around 800 youth, could be missing as much as $80,000 from CMI, said Dr. Steven Gronowitz, Teaneck’s executive director.
Gronowitz said he has asked parents to protest CMI charges with their credit card companies and then he will have to “scrub” the books to find out exactly what Teaneck is still owed. He set up an in-house PayPal system for accepting future online payments, and he said he will use money from a capital improvement account to plug budget holes.
On Dec. 16, Bergen County Prosecutor John L. Molinelli launched a criminal investigation into the allegation that CMI failed to repay hundreds of thousands of dollars in registration fees legally owed to volunteer recreational sports programs in the New Jersey county.
Too Late for Alameda
Page R. Barnes, a partner with the San Francisco law firm of Foley & Lardner LLP, offered Alameda pro bono representation to recover the money. After getting just half of it, Barnes filed suit in early December in California state court, citing breach of contract and conversion.
Alameda’s annual budget is just $500,000, so the $40,000 loss has had a “horrific domino effect,” Briggance said, because the foundation owed payments to other nonprofits that carry out its school programs.
Briggance was laid off in mid-December.