Affiliate review finds governance, financial-reporting and compensation problems at Carmel Christkindlmarket; city and market sign operations agreement

The Affiliate Review Committee heard a city presentation that detailed governance shortcomings, inconsistent financial reporting and executive-compensation practices at Carmel Christkindlmarket, Inc. (CCI), the nonprofit that runs the annual Christkindlmarket. Committee members and city staff emphasized the market’s cultural value while outlining steps to reduce taxpayer subsidies and strengthen oversight.

The committee’s city-led review recommended clearer board governance, standardized financial statements and stronger compensation controls after finding examples it said were inconsistent with CCI’s status as a Type 1 supporting organization. “CCI has provided an incredible amount of documentation,” committee presenter Marilee said, adding the review would report retroactively on issues found and that many had already been corrected.

Why it matters: The city estimates its cumulative investment in the market at about $8,500,000 since CCI’s 2017 formation. The review flagged both the scale of indirect city support — the streets department logged roughly 8,000 hours supporting the market in 2024, with 37 employees exceeding an executive order’s 75-hour volunteer threshold — and gaps in CCI’s financial reporting that limited the city’s ability to evaluate the nonprofit’s capacity to reimburse those costs.

The review found four main areas of concern. First, governance: as a Type 1 supporting organization CCI must be “operated, supervised and controlled” by the city, including mayoral appointment authority for board directors. The city flagged minutes and proposed bylaw changes in 2024 that, in the reviewers’ view, showed CCI leadership did not consistently understand those restrictions. Marilee told the committee the city would retain the key reserved powers typical for a Type 1 relationship.

Second, financial reporting: the city team said CCI repeatedly provided different figures to different audiences (board packets, council presentations and IRS filings). The committee reported CCI’s cash on hand rose from about $750,000 on 03/31/2023 to roughly $1.5 million on 03/31/2024 and that net assets rose from roughly $1.2 million to almost $2.0 million over the same interval. The review also noted that CCI’s statement of activity supplied during the audit period lacked a balance sheet; city staff recommended comprehensive financial statements (profit-and-loss plus balance sheet) be provided on a standardized cadence so all stakeholders see the same numbers.

Third, compensation and pay-setting process: reviewers cited board minutes and emails showing prior bonus structures tied to “net proceeds,” which the city said is a poor practice for 501(c)(3) organizations. Committee materials show the board approved raises that, in aggregate, increased personnel costs by about $780,000 in the 2024 budget cycle. The review documents that the board approved raising the president/CEO’s base to $226,000 effective January 2023 and approved a retroactive payment of about $97,000; filings later reflected higher 2024–25 totals reported for that position (documents cited figures up to about $286,000 for the period). The city recommended following the IRS’s intermediate-sanctions process (advance approval, comparability data, documented debate and recusal for interested directors) and removing executives from negotiations over their own pay. As the presenter put it, “When we’re setting compensation, it should be prospective.”

Fourth, operational dependency and “ghost employment”: city reviewers said the streets department provided large amounts of labor support that created potential ghost-employment exposure unless the event is legally a city event. The authors of the review said the October 2024 operations agreement designates the market an event of the city, which, they said, mitigates criminal ghost-employment risk; the agreement also required CCI to begin directly covering some expenses (the city cited about $284,000 in such direct costs in the past six months).

CCI’s board members and staff addressed the committee in public comment. Maddie Augustus, identified as CCI board chair, told the panel: “We are really truly grateful for the opportunity to collaborate with the city … We understand the importance of working towards long-term self sustainability.” In contrast, former CCI board chair Susan McDermott said she and other volunteer directors who conducted corporate-hygiene work were dismissed by the mayor and that she resigned in October after concerns she raised were, she said, later adopted into the agreement.

Committee direction and next steps: the presentation listed practical recommendations the city and board are pursuing: a signed operations agreement (the city said the parties executed an updated agreement for 2025), improved tracking of city staff hours devoted to the market, clearer financial disclosures to the city and council (including balance sheets), using independent legal and accounting counsel for affiliates, adopting compensation policies that align with IRS best practices, and an IP inventory and protection plan for market trademarks and related assets. “The city signed…a new operations agreement in October of 2024, and has now executed the new operations agreement for 2025,” Marilee said.

No formal committee vote on policy changes was recorded at the meeting; the session ended after public comment and the panel set further agenda items for upcoming meetings to review other affiliates.

What remains unresolved: the committee and city staff said CCI must present a clearer multi-year plan showing how it will increase revenues or reduce expenses so it can begin reimbursing the city for staff time. City staff and the committee discussed requiring standardized annual or quarterly financial reporting timed to the city’s budget process so councilors can evaluate affiliate funding requests before appropriation.

The committee’s report frames the market as a widely valued community event while emphasizing the need for durable governance fixes and transparent finances to protect taxpayers and enable the market to move toward self-sufficiency.