By Amy Silverman
By Olivia LaVecchia
By Monica Alonzo and Stephen Lemons
By Chris Parker
By Michael Lacey
By Weston Phippen
Susan and Bill Heywood put Mister Laguna, their red poodle, to sleep on Groundhog Day, 1996. Most people honor a pet's death with a few tears. The Heywoods thought an annual black-tie affair at the Arizona Biltmore would be more fitting.
Several years later, the Scratch & Sniff Awards dinner is one of the most creative events on the Valley social circuit, a definite E-ticket that draws the biggest names and fattest wallets -- local politicians, athletes, socialites and other B-list celebs eager to see their names in lights during the Academy Awards spoof that tops off every Scratch & Sniff. The cast is always impressive. Governor Jane Hull once proclaimed a statewide "Scratch & Sniff Day." Sheriff Joe Arpaio is a perennial favorite in the Nine Lives category. Over the years, the list of honorary chairs and sponsors and award presenters has included Jerry Colangelo, John Teets, Geordie Hormel and Secretary of State Betsey Bayless.
Bill Heywood -- a veteran local radio talk-show host -- always emcees. Susan Heywood is hostess, serving as chairman of the board of Scratch & Sniff as well as the group's executive director.
Like a day at Disneyland, tickets to the Scratch & Sniff Awards will cost you plenty. In the past, a table has gone for as much as $50,000, with some partygoers forking over tens of thousands of dollars at the evening's auction.
The money goes for a good cause, to save cats and dogs in Maricopa County. Over the past few years, Scratch & Sniff has funded many innovative animal-related projects, including a mobile pet adoption unit, and donated to worthy organizations such as the Arizona Animal Welfare League, Animal Benefits Club and Maricopa County's animal control department.
But earlier this year, some Scratch & Sniff board members started asking questions about where the rest of the money -- money not given away in grants -- was going. Unsatisfied with the answers, three have fled the organization in the past few months, with rumors of more resignations to come.
News of trouble at Scratch & Sniff -- and Susan Heywood's angst over it -- has spread among the ladies-who-lunch set more quickly than you can clear a sales rack at Neiman Marcus.
The former board members contend that Susan is mischaracterizing the amount of money going to animal causes. She says it's 70 percent -- she includes at least part of her salary and money spent on promotional materials -- while her detractors say only about 30 percent actually goes to the animals.
And her critics don't like the way the rest of the cash is being spent.
They charge that Susan Heywood has spent Scratch & Sniff's money on tickets to high-end dinner parties that have nothing to do with saving animals; that she lied about the intended use of a donation from the grande dame of Phoenix philanthropists, Kax Herberger; that her hefty salary ($75,000 plus benefits) was never approved by the board; and that she's done little to earn her keep.
There are also concerns about the way Scratch & Sniff is organized. Three of the five members of the board's executive committee are Heywoods (Susan, Bill and Nicole Heywood Cooper, their daughter). The former board members say this is wrong because most decisions are made at the executive level, giving the Heywoods too much control.
One of the most troubling concerns is that Susan put $50,000 of Scratch & Sniff's money in a money market account managed by Cooper, her daughter and the board's secretary.
Even worse, Cooper opened the account, in January 2002, in her mother's name, rather than in the name of Scratch & Sniff. The mistake was not discovered until June, Susan Heywood says, and ultimately not corrected until August.
"That's an ugly one, huh?" Heywood says, when asked why $50,000 of the nonprofit's money was held in her name for eight months.
"We all deeply apologize for that. It is our mistake."
The Heywoods are appalled at the suggestion that they stand to benefit financially from Scratch & Sniff. Although they share the society pages with their wealthy contributors, the Heywoods are the first to describe themselves as "working stiffs." Bill says he gets up at 2:45 a.m. each weekday to go on the radio. Susan insists she closed her lucrative ad agency so she could save cats and dogs for a fraction of her previous salary.
When faced with specific accusations, Susan and Bill Heywood come across as Dumb and Dumber. They deny the charges, but not convincingly.
"I'm not an accountant," Susan says repeatedly, when asked financial questions about an organization that, she continually points out, is her brain child and she purposely closely controls.
She says that since Scratch & Sniff began, the organization has given away $870,000. At first, she says she has no idea how much it has raised, and seems befuddled by the question. Days later, she says the total raised is about $1.5 million over three and a half years. Bill's not sure how long he's been vice president of Scratch & Sniff, and before Susan can stop him, he says he's pretty sure no one ever takes attendance at board meetings.
As for the Heywood majority on the Scratch & Sniff executive committee, Susan sees no ethical problem at all, even though foundation boards packed with family members are usually giving out their own family money, rather than donations from the public.
"That's the way we want it. Make it as clear as I can be," Susan says, leaning across the table, tapping her reading glasses.
"That's our vision."
Although the first board member resigned in June, there's been scarcely a mention of the scandal at Scratch & Sniff in the press. Susan Heywood bragged in a letter to a donor that the Phoenix Business Journal decided against running a story (publisher Don Henninger is a big supporter of Scratch & Sniff), and instead planned to run a positive story about Scratch & Sniff's media campaign.
In anticipation of this story, Heywood put her public relations machine into overload, flooding New Times with calls from animal rights organizations -- even a county supervisor -- who have benefited from Scratch & Sniff dollars over the years. Some were apologetic, explaining they didn't know the details of the board troubles, but wanted to be sure they said nice things about Heywood and Scratch & Sniff, because she'd asked them to.
Few of Scratch & Sniff's current board members had much to say at all. Of the board's 16 current members, at least three (Sonia Falcone, Arizona Public Service vice president Marty Shultz and attorney Rick Ross) are so new to the board they have yet to attend a meeting. Five board members, including Nicole Heywood Cooper, didn't return calls. Carole Machiz and Jennifer Brooks would only say that the whole thing is sad -- then they wanted to talk about their pets. (Machiz has a 20-year-old Siamese; Brooks has 19 turtles.) Linda Pope and Eddie Matney both said they've tried to get off the board -- time constraints, each insists -- but so far have remained on at Susan Heywood's urging.
Treasurer Michael Owens says the Heywoods have his full support.
Jill Alanko, the current board president, left a phone message.
"I would not continue to give $50,0000 of my foundation money to an organization that in any way mishandles anything. . . . I'm sorry there are some disgruntled board members that have been on the board a long time and have seen it all and know it all, and if they were unhappy they should have spoken up a long time ago."
Alanko referred further questions to her attorney, who did return calls.
Heywood, too, castigates the former board members for breaching confidentiality and airing the organization's dirty laundry, but they say it's the only way Scratch & Sniff will ever clean up its act. They fear for the organization's future.
The worst part, the former board members say, is that Susan Heywood ignored their concerns.
"I felt like Susan wasn't being accountable to her board. She wanted a deaf, mute board that had no say in the direction she was going," says Kari Crown, who resigned earlier this month.
Crown, a stay-at-home mom whose ex-husband did very well in the computer business, served on the Scratch & Sniff board for about two years. She donated $30,000 this year and about $25,000 the year before.
Crown didn't like the way former board members Christine Gustafson and Keely Moran were treated. Gustafson, a senior vice president at Morgan Stanley, has served for years on the boards of several Valley charities. Moran, whose husband Bob is an executive with PETsMART (historically, a big corporate sponsor of Scratch & Sniff), had never served on a board, but has a background in accounting.
Independently, the two concluded earlier this year that Susan Heywood was mismanaging Scratch & Sniff, and eventually both resigned. When they (and their concerns) were ignored -- and even derided -- Crown resigned, too.
Of Gustafson and Moran, Crown says, "Two very reputable people with nothing to be gained from a war stood up and asked questions they were entitled to ask and Susan brought down the wrath on them."
Susan Heywood says she has no idea why the former board members are so angry, even as she sits with their detailed letters of resignation before her.
"We're baffled," Bill says.
Adds Susan, "We have a mission and they have a personal agenda."
The history of infighting and backstabbing among animal charities in Phoenix is rich. Only AIDS fund raisers rival dog and cat lovers in their nastiness when it comes to grabbing at ever-shrinking pots of money.
The mom-and-pop rescue groups fight amongst themselves, but the highest profile squabbles have been between the Arizona Humane Society and a coalition of animal rights groups including Maricopa County's animal control department, over who would build and control the biggest, best no-kill shelter in town. The war's gone on for years, and meanwhile about 150 homeless cats and dogs are put to death every day in the county.
Enter Susan Heywood. Originally, she and Bill designed Scratch & Sniff as a fund raiser for the Arizona Humane Society. Reports vary, but that first year the Heywoods' dinner raised at least $200,000. After the tables were cleared, the Arizona Humane Society cut the Heywoods loose, announcing the creation of their own event, the Hair Ball.
"We were very hurt," Susan says.
The reason for the split? "You'd have to ask them," she says.
The Arizona Humane Society did not return calls.
The Heywoods took a break in 1998, then went out on their own, ignoring the Humane Society and donating proceeds to several small animal groups. They founded their own nonprofit corporation and trademarked the name, with the hope of someday spreading the Scratch & Sniff Awards nationwide.
And they just might do it. Love her or hate her, people agree that Susan Heywood is a woman who gets her way.
"She's a bitch. She graduated cum laude bitch, from Bitch College," says Danny Medina, who until last year put out Trends, a monthly in Scottsdale that featured his biting, witty gossip column. He's also the former host of the annual Beat the Heat, a black-tie event featuring his own handpicked Fashionalities, a revolving gaggle of the Valley's top socialites.
Susan Heywood was among the first Fashionalities. She was also the first president of the Trends Charitable Fund, the group that doles out the money raised at Beat the Heat.
Her strong personality makes her enemies, Medina says, but he also contends that it allows her to get the job done.
"She's not one of those silly socialites, if you know what I mean. She really gets down to the nitty gritty. . . . She's a really strong woman, and strong women make enemies."
For years, Medina has been involved with the lighter side of the Scratch & Sniff dinner, but says he's not familiar with the specific financial and management charges made now by former board members.
He hears a lot of gossip, though. "My phone doesn't stop ringing here," he says, laughing.
"Susan will survive this, even with the badmouthing," Medina adds. "She's a tough cookie, but that's how she gets things done."
It was another of Danny Medina's Fashionalities who first started questioning Scratch & Sniff's financial and management record.
Christine Gustafson rivals Susan Heywood, both for her years of public service in the Valley -- on the boards of the Fresh Start Women's Foundation (where she met Heywood), the Herberger Theater and Crisis Nursery -- and her reputation as a tough cookie. Gustafson has been on the Scratch & Sniff board since the organization's inception in 1999. Scratch & Sniff has been good to Gustafson; the Morgan Stanley senior vice president now manages the fortunes of several Scratch & Sniff board members.
This past January, Gustafson wanted off the Scratch & Sniff board. But Susan Heywood put up great resistance.
Not only did Heywood want her to remain on the board, Gustafson recalls, she wanted her to become treasurer. Gustafson agreed, with one caveat. She wanted to see an accounting of Scratch & Sniff's finances.
Looking back, Gustafson and other board members concede it seems incredible that for years they had never seen any sort of financial records -- and never asked to see them. Gustafson does recall an audit of the financials for 2000, which is vague.
But in context, perhaps that's not so odd. There is one board member (local chef Eddie Matney) who admits he hasn't been to a board meeting in about two years. Gustafson and Crown say the full board seldom voted on anything, anyway; almost all decisions were made at the executive level.
The Heywoods refused to provide New Times with a copy of their bylaws or minutes from board meetings.
To further complicate matters, it's impossible to determine who has been on the Scratch & Sniff board, when they served and what positions they held. The letterhead does not match up with annual reports filed with the Arizona Corporation Commission. In fact, the annual reports list Christine Gustafson as treasurer, beginning in 1999. That's news to her, she says.
Susan Heywood did ultimately produce the financial report Gustafson requested -- half an hour before the board meeting at which it was to be discussed, Gustafson says.
Gustafson says she tried to analyze it but didn't have enough time before the meeting, which took place in her Scottsdale office at Morgan Stanley, in April.
Keely Moran, another board member, picked up the financial statement and immediately started asking questions, Gustafson recalls.
Later, Gustafson says, after she'd had time to analyze the figures, she called Heywood with three main concerns.
First, Gustafson questioned an $80,000 expenditure under the category "public information and education." Heywood explained that was her salary, including benefits.
Gustafson was concerned because she had never been asked to vote on the salary. Other former board members confirm this. In early 2001, then-president Michael Owens had asked board members to make Heywood a full-time employee, but the board never took a formal vote and her salary was never discussed, they say. Owens says he did ask each board member personally to approve the amount of Susan's salary.
Gustafson also didn't understand why Heywood's salary was reported under "education" -- which would suggest the money was being spent on education and outreach efforts -- instead of under "administration."
Second, Gustafson says, about $22,000 for a series of videos that celebrated grant recipients was reported as additional grants, rather than as a fund-raising expense. Same with pages from the newsletter that described the grant recipients.
Third, Gustafson says, she noticed that about $6,800 had been paid to purchase seats and tables at other charity benefits. She was bothered by this because money donors had intended for Scratch & Sniff was in fact going to other charities.
Ultimately, Heywood recategorized the grant recipient dollars and moved part of her salary into the administrative category. Some of the money paid to other charities was repaid, Gustafson says, at her insistence.
But Heywood defends the charity purchases as legitimate, saying that she was given an award for her community service by the Crohn's and Colitis Foundation (she was one of seven local women honored), and that a $1,000 donation to the Parkinson's disease Fight Night went directly to service animals, rather than to tickets at the Fight Night event.
In any case, the board apparently never voted to allocate the money. Susan Heywood says she has discretion to spend up to $5,000 at a time. That's written in Scratch & Sniff's "policies and procedures," she says. She refuses to provide a copy to New Times.
The final straw for Gustafson came, she says, when she saw a letter Heywood had written to PETsMART on June 19, soliciting funds. In the letter, Heywood claims that 70 percent of Scratch & Sniff's funds go back into the community.
In a vaguely worded letter dated June 28, Christine Gustafson resigned her position on the Scratch & Sniff board.
"I've been around for a long time and I've looked at a lot of books," she says now. "I've never seen anything as slipshod and as Worldcom as this. I've never seen another charity run as badly in my whole life."
Keely Moran's resignation letter, which followed on July 11, was not at all vague.
Susan Heywood says that Moran was asked to resign her seat on the Scratch & Sniff board because she had agreed to join another animal rights board, but Moran tells New Times she was never asked to resign.
Moran refused to answer further questions, but her letter clearly states her position. Moran reiterates her concern that only about $200,000 of Scratch & Sniff's $650,000 was donated directly to animal charities. She questions the organization's education goal and the justification for $115,000 in salaries to Heywood and an assistant.
Moran also questioned why it cost $111,000 to produce a 10-minute video and a newsletter. And she expressed concern regarding a donation from Kax Herberger. Herberger had donated $136,000 in 2001.
Susan Heywood tells New Times that money was to be used first to produce a newsletter, and then for the organization's "public information and education" goal. Gustafson and others say that Heywood told them at a board meeting that $100,000 of the money was to be devoted to her salary. And the June 19 PETsMART letter mentions that her salary is coming from restricted money, although it does not mention Herberger by name.
The day after Moran resigned, Judd Herberger, Kax's son, who'd caught wind of the controversy, sent a letter to Heywood making clear the money was not necessarily intended for her salary. "The reasoning behind the $136,000 was that $36,000 was to be used to launch your newsletter and that $100,000 was to be used for the general funding of purposes determined by your board in its normal course of its operation."
Judd Herberger, who provided the letter to New Times, says Susan Heywood didn't understand the letter.
"Susan called me and said, 'Explain it to me,' and I said, 'Read it three times.'"
Kari Crown says she resigned her seat in mid-July. But again, Heywood wouldn't let her go so easily. Her resignation letter finally went out on September 10.
Moran and Gustafson's questions provided the board with the perfect opportunity to delve into problems and make the organization even better, Crown wrote. "I saw instead a lot of private correspondences, spin control and more importantly the board was never called together [to] discuss the very serious chain of events. I have made it clear that Susan's censorship and very public chastising of Keely were not befitting an executive director of a public charity."
Keely Moran's resignation from Scratch & Sniff is perhaps the most significant, since her husband is Bob Moran, president and chief operating officer of PETsMART. Scratch & Sniff has a request pending with PETsMART's foundation for a large grant. PETsMART has requested an independent audit of Scratch & Sniff's finances -- a typical request in such cases, Susan Heywood says.
The Heywoods are eager to see the audit, which they say should be ready next month.
The former board members are just as eager.
Other than some filing requirements, there's very little regulation of charities in Arizona. There's no agency that routinely audits or checks into how charitable donations are collected or spent by a nonprofit organization like Scratch & Sniff.
Anyone with a concern can file a consumer fraud complaint with the state attorney general. But often the fraud never comes to light.
And nonprofits can get away with a lot, under the law. Three times, the United States Supreme Court has ruled that nonprofits can't be forced to pass on a certain percentage of what they take in, leaving it to the charity to decide how much it needs for administrative costs and overhead.
Several watchdog groups have suggested guidelines for donors who want to make sure their money is actually getting to the group that needs it. The Better Business Bureau Wise Giving Alliance recommends that fund raising and administrative costs should not exceed 50 percent of the total amount raised.
Valley of the Sun United Way, for instance, says it passes on 90 percent of the money it collects to the organizations it funds, spending only 10 percent on administrative costs. United Way, like Scratch & Sniff, exists mainly to raise money and pass it on to other organizations.
The now-defunct COMPAS (Combined Metropolitan Phoenix Arts and Sciences), another "pass-through" organization with a budget about the same size as Scratch & Sniff's, last year put 44 percent of what it raised back into the community. Its executive director made about $60,000 a year (compared with Susan Heywood's $75,000).
Free Arts of Arizona, a group that promotes art therapy for abused children, put 77 percent of what it raised back into programming last year. The group's executive director earns $64,000 a year.
The American Institute of Philanthropy says fund raising and administrative costs shouldn't exceed 40 percent. Daniel Borochoff, president of the Chicago-based organization, says he hasn't looked over Scratch & Sniff's financial statements, but he spoke with New Times about some of the concerns raised by former board members.
He notes that while it's not illegal for family members to hold the majority of positions on the executive committee of a board of directors, it does create the potential for abuse.
"If you've got family members over breakfast making all the decisions for an organization, that would not instill a lot of trust," he says. "It makes them ripe for abuse, so what could very well happen is that they might be able to make a decision that would lead to something illegal."
And what about Susan serving as both chairman of the board and executive director? "You do see that sometimes. There can be risks with having that setup," Borochoff says. "It's as if one person is getting to make all the decisions."
Borochoff points out that fund-raising tools can often be disguised as educational materials. That appears to be true in the case of Scratch & Sniff. The Heywoods have produced a high-quality video about Scratch & Sniff they say they show to potential donors. The video features short takes on each of the groups Scratch & Sniff gives money to, emphasizing throughout that the groups' work wouldn't be possible without the assistance of Scratch & Sniff and the funds it raises. The video also includes a long segment on the annual black-tie dinner and awards presentations, showing local celebrities having a great time at the swanky affair.
The Heywoods, who gave New Times a copy of the video, are very proud of the tape. Bill Heywood explains up front that this is the video they use for fund raising. But Susan later states it's an education tool.
Scratch & Sniff also has produced a large-format, glossy newsletter that includes some phone numbers and other information for people who have found lost animals or want to spay/neuter a pet. But an entire page is devoted to photos of Scratch & Sniff donors' pets, and additional pages to the awards dinner. There's even an envelope stapled inside, for easy giving.
The last component of the Scratch & Sniff media campaign is a brochure touting the benefits of www.pets911.com, a for-profit group that lists lost pets on its Web site.
Borochoff also did not approve of Scratch & Sniff's purchase of seats at other charity events.
"I wouldn't be thrilled if I gave $100 to protect animals and then I find out the money's being used to fight Parkinson's and colitis," he says.
"You see this stuff going on because [nonprofit directors] want to hobnob."
Christine Gustafson left the Scratch & Sniff board in June, but her quarrels with Susan Heywood continue.
Earlier this month, Heywood wrote to Bob Magel, Gustafson's boss at Morgan Stanley, to report that Gustafson's behavior as a former board member was "extremely unprofessional, inappropriate, and potentially damaging to our organization."
Magel declined comment.
The letter continues: "Chris benefited from our [board of directors] with a couple of clients as well as our own small organization's account. We are deeply troubled that an individual who gained so much from her Board associations with us would then seek to destroy the very organization that provided access to these accounts."
Gustafson has hired a lawyer.
Even with all the headaches, Christine Gustafson isn't sorry she stepped forward.
"When donors give you their money, they're instinctively trusting that this is going to help animals and end euthanasia. And that is not what's happening. And it's hard enough in this era to raise money for charities."
Her only regret?
"I probably should have started asking questions sooner."