Annual revenue at the Surfing Madonna Oceans Project slumped by more than 10 percent last year, slicing tens of thousands of dollars from the Encinitas charity’s bottom line. The amount of grants it awarded dipped by a similar amount.
But the down year in contributions and ticket sales to the nonprofit’s two signature events did not stop charity officials from boosting the chairman’s annual salary — or the money paid to his wife.
According to the Surfing Madonna Oceans Project most recent federal tax filing, nearly one-third of the charity’s proceeds in 2018 were paid to board Chairman Robert Nichols and his wife, Megan McCarthy, who serves as the board secretary.
The tax-exempt organization reported income of $676,986 in 2018 , a decline of more than $77,000 from what it collected in 2017.
Meanwhile, Nichols’ salary climbed by more than $27,000, to a total of $112,249, a 31 percent raise. McCarthy, a friend and coworker who married Nichols in 2017, in 2018 received a 34 percent pay raise for a salary of $97,700.
Combined, the husband-and-wife nonprofit leaders took home 31 percent of the charity’s revenue for the year.
Nichols said the pay increases were deserved because of the work it takes to run the organization and to host the two main fundraisers: the Surfing Madonna Beach Run each fall and a half marathon every spring. He also said he had no role in setting his or his wife’s salary.
He said 2018 was the only year in which executive compensation exceeded 30 percent of annual revenue.
Nichols also cited several other local charities run by husband-and-wife teams who receive salaries from the organizations they manage and said his and his wife’s salaries are on the “bottom end” of what those event directors are paid.
“The IRS says salaries should be fair and reasonable,” Nichols said in a telephone interview. “For anybody that brings in the amount of money that we have, that is absolutely reasonable. We let our board decide whether our salary should go up or down.”
He followed up with an email saying, “Our entire board voted, with the exception of Megan and myself, voted unanimously to provide a fair and reasonable salary for the job we do. There’s no question that we earn every penny of our organization. We have built an organization from $0 to over $400,000 in the bank and have donated over $500,000 and all of this since 2013. That’s a lot of work and we’ve done a 5 star job for this organization.”
While the executive pay was increasing by nearly one-third last year, the amount of money the Surfing Madonna Oceans Project distributed to charities and agencies declined significantly. In 2017, the charity awarded $128,819 to community groups; its grants last year totaled $94,892, a 26 percent dip.
Brad Hanson, another Surfing Madonna Oceans Project board member who serves as the charity’s treasurer, said the salary-setting process he and other directors employ is objective and reasonable.
He also said the organization had planned to distribute tens of thousands of dollars in additional grants.
“We had $135,000 in donations that fell through,” Hanson said in a telephone interview.
Hanson, who was paid $5,400 from the Surfing Madonna Oceans Project in 2018, said more than half of the anticipated grant funding was designated for the Encinitas Arts, Culture and Ecology Alliance — a charity organized to repurpose the former Pacific View Elementary School site into a community arts and cultural center. He said the donation was withheld due to the alliance’s governance issues.
According to its 2018 tax filing, the Surfing Madonna Oceans Project donated $39,325 to the alliance, where Nichols was also a board member. It also gave $20,000 to the city of Solana Beach and $15,000 to the YMCA.
Nonprofit experts say there are two primary ways for charities to establish and maintain public trust: by clearly identifying conflicts of interest and creating transparency with respect to executive compensation.
“From the tax forms provided, it is evident that this organization has self-disclosed that they do not require conflict of interest statements, and they do not have an IRS-supported process for determining executive compensation,” said Laura Deitrick, director of the Nonprofit Institute at the University of San Diego.
Nicolas Duquette, who teaches nonprofit economics at the University of Southern California, said the Surfing Madonna Oceans Project tax filings could mean the young charity is growing and gradually shifting its co-founders from working for free or part-time to working full-time.
“If their governance and bylaws implement best practices and their revenue shortfall is well-explained (maybe a grant that wasn’t renewed), then it’s not necessarily a sign of anything nefarious,” Duquette said in an email.
Nichols said his responsibilities as chairman of the Surfing Madonna Oceans Project board are different from his duties organizing the beach runs, managing surf camps that helped more than 1,200 special-needs families over the years and promoting other charity projects.
“People see what we do, and organizations are really happy to receive donations from us,” he said. “We’ve changed so many people’s lives through our organization and none of that would be happening without the work Megan and I are doing.”
According to its bylaws, the Surfing Madonna Oceans Project board shall include between one and 10 members, each serving one-year terms that can be renewed indefinitely. Six years of tax filings show significant board turnover.
In 2013, the charity reported three directors — Nichols, McCarthy and artist Mark Patterson. Three others joined in 2014, and Nichols and McCarthy were the sole board members reported in 2015. They reported salaries then of $29,000 and $27,500, respectively.
Patterson has been listed as a board member every year except 2015.
The board grew to six members in 2016 and then to seven in 2017, although several directors arrived and departed, according to charity tax records.
“People come and go,” Nichols said about the board turnover.
The Surfing Madonna Oceans Project was created to help preserve the “Surfing Madonna,” a 10-foot stained-glass mosaic depicting Our Lady of Guadalupe on a surfboard. It appeared overnight beneath a train bridge east of Highway 101 back in 2011.
No one knew at the time who created the eclectic work of art, which also features the message “Save the Ocean” along the side.
City officials complained that the piece was illegal and threatened to remove it. Patterson came forward as the mystery artist after city officials ordered the art removed. The piece was put into storage before landing in its current location on an exterior wall of Leucadia Pizzeria.
The Surfing Madonna Oceans Project originally was organized to raise money to pay costs that piled up in the wake of the guerilla art project, which over the years has become a proud fixture in the Encinitas culture.
The project’s mission broadened as the artwork found a permanent home along Encinitas Boulevard.
“We are helping to expand our community of ocean advocates through youth education programs, ocean conservation project grants, marine mammal rescue/ recovery initiatives and helping children with special needs experience the healing power of the ocean,” it now states.
The Surfing Madonna Beach Run is typically held in the fall. The upcoming Encinitas Half Marathon & 5K is scheduled for March 29, 2020. The 2018 beach run had 3,700 or so participants. The half marathon this past spring had about 6,500.