A little known New Mexico charity, Tribal Energy Consortium (TEC), was awarded a $50 million grant by The U.S. Department of Energy in the final weeks of the Biden Administration as part of a climate program under The Inflation Reduction Act. TEC’s principal officer, Roger Fragua, a former Enron Corporation manager who works on tribal development projects, is also the founder and executive director of another charity, Flower Hill Institute. CharityWatch analyzed recent audits and tax filings of Flower Hill Institute and identified several issues of concern related to inherent conflicts of interest between the organization and its officers and directors.

For example, the board chair (Leslie Elgood) and vice chair (Atherton Phleger) who are charged with governing the charity, including monitoring any conflicts of interest, also provide paid consulting services to the organization. CharityWatch CEO, Laurie Styron, spoke with Gabe Kaminsky, a journalist for The Washington Examiner, about this arrangement:

The charity reports that Board Chair, Leslie Elgood, received $203,773 of “Reportable compensation from the organization” in 2023. Elgood is reported to have been paid through a company called “Senior Movers.” The charity reports that Vice Chair, Atherton Phleger, received $28,038 of reportable compensation paid through a company called Rootstock Consulting.

In the nonprofit sector board positions are generally unpaid roles. However, charities are allowed to engage in what are known as “transactions with interested persons” provided they do not run afoul of the law by conferring excess benefits to interested parties, such as by paying more than market rate for any services provided, contracting services unrelated to the organization’s mission, or buying goods or services that are not needed at all. Best practices for such transactions include collecting and considering bids from vendors or contractors with no connection to the charity, and voting on such arrangements in the absence of the interested parties who are expected to recuse themselves from such votes. These practices are designed to mitigate the instances of charities’ resources being used for the financial benefit of individuals.

The Washington Examiner reported that “the Flower Hill Institute was found through an independent third-party audit mandated by the government in 2022 to have “material weaknesses in internal controls,” in part “because Fragua’s group did not test to see whether anyone besides a trio of companies tied to its board members fit the criteria to be contractors.” Also according to The Washington Examiner article, “The taxpayer-backed Flower Hill Institute was found through the audit to be out of ‘compliance with federal requirements when entering into procurement contracts as well as not meeting suspension and debarment requirements by potentially contracting with a suspended or debarred vendor.'”

Independent Contractor Versus Employee, A Significant Distinction

The charity reports that Roger Fragua received no salary from the charity in his role as executive director. Instead, the executive director position is described by the charity in its tax filing as a “volunteer position,” and that any compensation received “pertains solely to contracted services rendered under specific service agreements” that are unrelated to executive director duties. The charity reports in both 2022 and 2023 that Fragua spent an average of 10 hours per week working in his position as executive director. Fragua’s total “Reportable compensation from the organization” was $407,546 in 2023, according to the Flower Hill Institute’s IRS tax Form 990 of the same year. Fragua is reported to have been paid through a company called Cota Holdings, which shares an address in New Mexico with the Flower Hill Institute, as well as the Tribal Energy Consortium, the $50 million awardee, according to public records.

The charity reported in Part VII of its 2022 tax filing that Fragua did not receive any “reportable compensation from the organization” whatsoever that year as an independent contractor or as an employee. However, the charity did report paying $285,082 to Cota Holdings in 2022.

By characterizing the executive director role as an unpaid position and instead paying Fragua as an independent contractor, the Flower Hill Institute may be avoiding certain employment taxes and insurance. For example, employers are required to pay social security and medicare tax (FICA) on compensation paid to employees, but generally not on payments to independent contractors. New Mexico, the state in which the charity operates, requires most employers to fund Workers’ Compensation Insurance and contribute to Unemployment Insurance.

Some laws are enforced differently or may not apply to employers operating on tribal lands. According to the New Mexico Workers’ Compensation Administration (WCA), “The WCA does not have enforcement on tribal lands, absent their consent however, the tribes may choose to enforce the requirement. Businesses that operate on a Native American reservation or pueblo must follow the guidelines of that tribe. Some tribes choose to have workers’ compensation coverage for their tribal enterprises, and others choose to require private businesses located on their land to provide workers’ compensation coverage. If a private business is located on tribal land and a workers’ compensation claim or coverage dispute occurs, it may be resolved in a tribal court or the WCA’s administrative court, depending on the circumstances.”

In cases where a charity does misidentify an employee as an independent contractor it could be responsible for unpaid FICA tax, state unemployment tax, and workers’ compensation insurance. It could also get into trouble with the IRS and state revenue agencies for failing to withhold and convey income tax. The individual employee could be responsible for back income taxes to state and federal departments of revenue. Both could be liable for penalties and interest related to not properly withholding or paying relevant taxes. 

The Trump Administration is now investigating the $50 million grant to TEC and told The Washington Examiner that it “will take into account how the TEC shares close ties” to the Flower Hill Institute.

Will you help CharityWatch continue our important work?

As the only independent charity watchdog organization in the United States, CharityWatch relies on your support to fund our in-depth research and analysis in order to bring you the unbiased charity ratings and other information you rely on to help you make more informed giving decisions. We are not directly or indirectly funded by nonprofit industry interests.

We hope you will consider making a donation today so that we can continue to speak openly and critically and call out wrongdoing when we see it without concern for special interests cutting our funding. CharityWatch is a small organization and your donations are noticed, needed, and greatly appreciated. Thank you for giving wisely!