Zofia Romaszewska

Al. 3 Maja 5 m. 45

00-401 Warsaw, Poland

November 14, 2002

Report on the State of the

Institute for Democracy in Eastern Europe Foundation of Warsaw, Poland

(Hereinafter referred to as Fundacja IDEE[1])

In the beginning of October 2002, I learned about a conflict between Fundacja IDEE Management Board, namely Mrs. Malgorzata Naimska and Mrs. Urszula Doroszewska, and Fundacja IDEE’s president, Mrs. Irena Lasota.  Mrs. Lasota asked me to temporarily take over the duties of Fundacja IDEE’s Management Board.

The Fundacja IDEE’s president communicated to me that, for more than a year, she had not been receiving sufficient information about the foundation’s program activities and financial condition.  Meanwhile, Mrs. Malgorzata Naimska and Mrs. Urszula Doroszewska informed me that they founded a separate organization, the Democratic Society East Foundation[2], which, according to the two founders, took over the scope of activities conducted up until then by Fundacja IDEE.  Because I have known all the above-named participants of the conflict for many years and up until then considered IDEE’s activities as very useful, I agreed to Mrs. Lasota’s request, hoping that I would be able to facilitate a reasonable compromise between both foundations—a compromise which would preserve on-going projects in the field of developing democratic societies in Central and Eastern Europe.

On October 17, 2002, Fundacja IDEE’s incumbent Management Board members, Executive Director Malgorzata Naimska and Management Board Member Urszula Doroszewska were dismissed and I, Irena Zofia Romaszewska, was appointed for the position of the director of Fundacja IDEE Management Board.

On October 18, 2002, in order to arrive at an objective opinion about Fundacja IDEE’s program activities and financial condition, I ordered the foundation’s electronic documents to be secured.  Documents so secured allowed me to begin initial analysis.

Fundacja IDEE’s projects, carried out up until then, could have been continued.  However, on the night of October 23, there was an attempt to break into the foundation’s offices and I decided to completely interrupt all projects and secure the premises.

As of October 17, 2002, Fundacja IDEE’s debts totaled 101,897.00 Polish zlotys[3] [$25,474] and 6,859.00 U.S. dollars[4], according to a balance sheet.

But Fundacja IDEE had an additional, significant liability, which did not appear on the list of debts, namely a grant provided to Fundacja IDEE by the Polish-American Freedom Foundation[5] on July 17, 2002, under the Region in Transition (RITA) program.  That grant is only partially completed and has not been accounted for with the grantor.  The grant was given to Fundacja IDEE via the Foundation for Education for Democracy (FED)[6]. Installments of funds transferred to Fundacja IDEE under this grant amounted to the total of 97,500 zlotys, [$24,375] with the final installment remitted on October 10, 2002.  It is worth noting that FED transferred the last three installments of the grant to Fundacja IDEE’s account (45,000 zlotys in total) several months ahead of schedule, even though the president of FED, Mr. Krzysztof Stanowski, was perfectly aware of the fact that the president of Fundacja IDEE had already expressed reservations regarding the performance of Fundacja IDEE Management Board.  Fundacja IDEE then disbursed the FED funds to cover its various debts.  One of such expenditures was used to pay an installment on a bank loan, which carried a regular interest rate of 17%, plus a great penalty, which would kick in if the loan were not paid off on time.  In this situation, of course, implementation of objectives specified in the FED grant for the years 2002-2003 was impossible.  Our financial reviev also revealed that Mr. Krzysztof Stanowski, who was responsible for awarding grants to Fundacja IDEE (in the year 2001, he issued two grants for the total amount of 170,000 zlotys, and in 2002, one grant for the amount of 97,500 zlotys), was also awarded consulting contracts by Fundacja IDEE for the total amount of 11,100 zlotys.

In a not-for-profit organization (foundation), it is impermissible to cover cash shortages [of one program] using funds from a grant earmarked for another program, or to cover an organization’s ongoing operations from any grant.  The latter, prohibited method was used very frequently at Fundacja IDEE.  Because such operational practices were used at Fundacja IDEE, it is now impossible to properly settle accounts with IDEE’s grantors.  The financial reviev also revealed that monies from special accounts, which were dedicated to particular projects, were transferred to Fundacja IDEE’s main account with a notation that they were earmarked for specific tasks, but when these funds were flowing out of Fundacja IDEE’s main account, they were utilized for other purposes.

Having taken a closer look at Fundacja IDEE’s financial management practices, my observation is that these practices were used as if nothing could happen, not only as if Fundacja IDEE would last permanently, but also as if it would always be in excellent condition, as if Fundacja IDEE were not obliged to account for its activities because Fundacja IDEE’s Management Board, by definition, could never be subjected to any criticism.  This attitude is plainly visible in two memoranda—“Principles for Setting Personnel Costs at Fundacja IDEE” and “Statement on Stipends for Crimean Tatars”—prepared on October 23 and 25 by the Management Board, meaning Mrs. Malgorzata Naimska and Mrs. Urszula Doroszewska.

Fundacja IDEE operated like a company preoccupied with maintaining constant product turnover and obtaining more and more funding, in the face of mounting debts.  Under these conditions, program activities could not be carried out properly.

Moreover, we learn from the “Principles for Setting Personnel Costs at Fundacja IDEE” memo that another problem was looming over Fundacja IDEE: how to prevent the foundation’s employees from filing a suit at the Labor Court against the foundation for non-fulfillment of employer obligations.

At this point, I would like to offer the following comment.  Instead of worrying about future court trials filed by its own employees, the Management Board should have been mindful of the fact that Fundacja IDEE was not established to secure decent livelihood for a certain number of people in Poland; rather, it was founded to fulfill its mission, which is to assist in building democratic societies in the East, in countries of the former Soviet Union.  In consideration of this mission, it is necessary for Fundacja IDEE to foster the ethos of selflessness and commitment to working for the good of other people.  Fundacja IDEE should be able to convince its employees not to treat the organization as a source of steady and secure income.  In the years 2000-2002, the concern about securing steady income for people associated with Fundacja IDEE dominated the foundation's main efforts and undermined its sense of purpose.

The case of a grant from the Polish Ministry of Culture can illustrate the problems described above.  The grant agreement was signed on August 29, 2001, but its financial consequences are still in effect today (November 2002).  Funds from this grant were transferred to Fundacja IDEE account in November 2001.  It was a grant for “promoting readership in local communities.”

The first point of criticism in this case is that FUNDACJA IDEE, not the Local Press Association, accepted the grant.  The latter group is an offshoot of Fundacja IDEE, which was given a part of Fundacja IDEE’s assets without the foundation president’s knowledge.  Because the grant was large (356,825 zlotys, i.e. $89,200), it offered itself as an opportunity to cover a part of regular, bloated expenses incurred by Fundacja IDEE.  It should be noted that Fundacja IDEE received this grant ready made from the Ministry of Culture, after competing for it against Agencja Reklamowa [Advertisement Agency], which is probably why the grant was structured in such a strange way.

Poland’s libraries are dramatically underfunded.  Most of all, they lack money for book acquisitions.  Despite that, upon accepting the grant, Fundacja IDEE saw it fit to devote a lion’s share of the grant to support meetings and remunerate authors and actors from Warsaw theaters—instead of supporting libraries.  From the amount of 356,825 zlotys, libraries were allotted only 20,000 zlotys.  Fundacja IDEE’s report says: “We planned for three main awards (First Award in the amount of 5,000 zlotys, Second Award in the amount of 3,000 zlotys and Third Award in the amount of 2,000 zlotys) and twenty honorable mentions for the amount of 500 zlotys each.  These funds were to be structured as grants for those libraries which would win our competition; they were meant to be used for new book acquisitions.”  The grant was to end and a financial report regarding this program was to be filed [to the Ministry of Culture] by the end of December 2001.

Under the circumstances, Fundacja IDEE decided not to encourage the distinguished luminaries of the arts to risk working for any provincial libraries on the pro bono basis (in the period from August 1 to December 31). Anticipating the artistic community’s reaction, Fundacja IDEE preferred, this time exhibiting extraordinary responsibility, not to become indebted to prominent representatives of the cultural scene.  The foundation returned 265,568 zlotys of grant money back to the Ministry of Culture, accounting for unimplemented portion of the grant.

However, in order to disburse 20,000 zlotys to libraries, Fundacja IDEE hired an accountant and two persons to assist the accountant, at the total cost of 7,000 zlotys; a consultant for 7,000 zlotys; a project coordinator and his assistant for 16,800 zlotys; a program board, consisting of five persons, for the total of 5,997 zlotys; and ten additional assistants for the total of 12,858 zlotys.  Finally, 4,000 zlotys were designated for a Web page designer.  In result, the foundation’s total expenditures on various personnel hired for this project amounted to 51,655 zlotys.

In sum, the crisis at Fundacja IDEE developed because the foundation’s management board treated the foundation as an income-generating company, while in fact the foundation had an important public mission to fulfill and was supposed to operate as a not-for-profit organization.  To make things worse, the management board ignored all comments voiced by the foundation’s president.  The management board also stonewalled financial audit attempts initiated by the president.  Reports submitted to Mrs. Lasota, the president, were, diplomatically speaking, incomplete.

Under these circumstances, the decision, made the president of Fundacja IDEE, to liquidate the foundation appears to be the only possible solution in the situation in which the foundation does not have enough assets to pay off its debts.

Warsaw, November 14, 2002