A California nonprofit that grew from just $25,500 in annual revenue in 2018 to more than $5 million in 2024 has come under scrutiny after a Los Angeles Times investigation found it paid more than $1.7 million over three years to companies owned by its chief executive officer. The Times also reported that the nonprofit failed to disclose those business relationships on its most recent IRS tax Form 990, calling attention to the importance of independent board oversight whenever charity leaders have financial interests in companies doing business with their own organizations.

The organization, A Step to Freedom, operates interim housing programs for people experiencing homelessness in Los Angeles County. According to the Times, no criminal allegations have been made against the nonprofit or its CEO, Kenya Croom. Instead, the article focuses on governance questions raised by the charity’s business relationships with companies owned by its chief executive.

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What Happened?

According to The Los Angeles Times, A Step to Freedom expanded rapidly after receiving millions of dollars in government funding to provide housing and services for people leaving jail. As the organization grew, it contracted with two companies owned by CEO Kenya Croom to provide meals, snacks, and beverages for residents. The Times reports that those companies received more than $1.7 million from the nonprofit over a three-year period.

The Times also reports that A Step to Freedom did not disclose Croom’s ownership interests in those companies on its most recent Form 990. After the newspaper began asking questions, Los Angeles County reviewed the arrangement and concluded that the meal contract constituted a conflict of interest requiring formal disclosure. County officials also identified three additional vendor relationships involving nonprofit managers that they determined were conflicts of interest and directed the organization to repay approximately $82,800 for work outside the approved scope of its contract.

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What Did the Board Do?

The Times reports that the nonprofit’s chief of staff said Croom did not participate in board discussions or votes concerning contracts involving her companies, consistent with the organization’s conflict-of-interest policy. The policy also calls for the board to conduct an annual review of the relationships to ensure the nonprofit is receiving the best value.

However, when The Times requested board meeting minutes documenting discussions or approval of the contracts, the nonprofit declined to provide them. Nonprofit governance experts interviewed by the newspaper said that boards should seek competitive bids and independently evaluate both cost and quality before approving related-party transactions.

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What Did the CEO Say?

Croom defended the arrangements, telling The Times that her companies could provide meals at lower cost than outside vendors and that creating separate companies reduced workers’ compensation costs compared with operating the food service within the nonprofit. She characterized the omission from the nonprofit’s IRS filing as an oversight.

“We didn’t check a box. We made a mistake,” Croom told The Times. “We just have work to do. And our work to do here is really to help people.”

Notably, The Times also reports that county officials found the meal costs to be reasonable and within the nonprofit’s approved scope of work, even while concluding that the arrangement required conflict-of-interest disclosure.

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What Did CharityWatch Say?

CharityWatch CEO Laurie Styron told The Los Angeles Times that arrangements like this create an inherent conflict of interest between the objectives of a charity and those of a for-profit business.

“The driver of a for-profit company is to maximize profit and the driver of a charity CEO is to provide the best services and to fulfill its mission. Those conflict.”

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Why It Matters

Business arrangements between a charity and companies owned by its executives, directors, or other insiders, known as related-party transactions, are not automatically prohibited. However, they require careful independent oversight and public disclosure because the interests of the charity and the financial interests of the insider may not always align.

For that reason, charity boards should independently evaluate whether such arrangements are in the organization’s best interests, carefully document their decisions, require and enforce appropriate disclosures, and continue monitoring vendor performance after contracts are approved.

The Los Angeles Times investigation serves as a reminder that public confidence in charities depends not only on whether organizations comply with legal requirements, but also on whether they demonstrate transparency, accountability, and independent oversight when conflicts of interest arise.

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