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Nebraska Attorney General Doug Peterson

Goodwill Omaha executives had a problem.

It was 2013, and the nonprofit’s employees were complaining about a program called “repack” — an innocent-sounding task that symbolized just how far Goodwill had strayed off course.

For years, managers had instructed disabled teens and other vulnerable Omahans to take hair rollers shipped to the nonprofit from a Council Bluffs company, repack them into new containers, and slap on a red, white and blue label.

“Made in the USA,” it said. Except the hair rollers were made in China, a fact not shared with the disabled teens or recently released prisoners doing the actual repacking for little or no money.

When employees voiced concerns about the “repack” program in 2013 — worried that it might be illegal and definitely seemed wrong — Goodwill execs did not end it, according to a blistering new report from the Nebraska Attorney General’s Office.

Instead, they talked about the following problem: What do we do if we get caught?

“These discussions were not focused on correcting the process, by either stopping the practice ... or terminating the contract,” says the report authored by Nebraska Attorney General Doug Peterson and top aides. “Goodwill Omaha employees instead discussed how to explain or handle it if anyone found out what they were doing.”

The repack issue fills but one page in the 44-page report. Those 44 pages paint a picture of a broken nonprofit whose leaders — now ex-leaders — had lost sight of the reason for Goodwill Omaha’s existence.

It also seeks to answer a question, one I have wondered about since reporter Henry Cordes and I uncovered administrative bloat, eye-popping executive salaries, a “store profit-over-programs” mentality and various other ethical breaches during our weeklong 2016 series on Goodwill.

The question is this: How did an Omaha nonprofit get to a place where something like “repack” would ever be tolerated?

The Nebraska Attorney General’s Office investigators devote page after page to answering that question, but I think it can be summed up in a single word: culture.

Its board rubber-stamped decisions by longtime CEO Frank McGree and handed out executive bonuses like candy even as the nonprofit struggled.

The culture there was amicably hands-off, with board members being too disconnected, too personally close to McGree or too trusting of his cheery presentations at board meetings.

“Casualness is its worst enemy,” Peterson said Tuesday. “Casualness, and familiarity with the CEO. I was disappointed, because I thought there were some red flags that should be responded to.

“Ultimately we concluded that the board failed in its responsibility.”

Employees who believed that Goodwill was veering off the rails tried but failed to get it back on track. They were blocked by a culture in which dissent was discouraged and often hidden from the board, the report says.

It quotes employee after employee saying that they felt uncomfortable taking ethical complaints to superiors, and many high-level employees saying that no one but McGree could speak freely to the board.

McGree had instilled a “no snitch” policy at Goodwill Omaha, one senior human resources professional told the attorney general’s investigators. She said the general perception was that the former CEO did not tolerate criticism of himself or other Goodwill executives, and described her discomfort at reporting executive misconduct to him.

Said a senior financial executive to investigators: “(The majority of the executive staff) feared for our jobs. We had seen in the past people that had questioned authority and were let go.”

And, as we uncovered in 2016, the attorney general’s report says Goodwill leaders routinely misled Omahans into believing that the hand-me-down clothes and used appliances we donated to the nonprofit were helping our city’s most vulnerable residents. In reality, the store profits were almost entirely used to pay employees, executives and overhead.

“You started to wonder if this was a nonprofit or a retail operation with secondhand clothing,” Peterson said at Tuesday’s press conference. “Goodwill was very much pushing the line in that regard.”

The culture pushed by McGree and other top executives was a “run it like a business” mantra that emphasized — and then eventually pretended — that more stores and more clothing sold equaled more programs and services for vulnerable Omahans.

There were many problems with this mantra, chief among them this: Goodwill isn’t a business. It’s a nonprofit that is supposed to be devoted to helping Omaha’s most vulnerable people find employment.

Instead, Peterson told me after the press conference Tuesday, “All you saw was, scale up on the number of stores, scale up on the operating expenses, scale up on the compensation. There was no correlation with the number of people served. None.”

So the culture, or maybe more precisely, a mishmash of cultural problems — a compliant board, a stifled workforce and a foolhardy, profit for profit’s sake strategy — led to the repack situation. It led to a situation in which an Omaha nonprofit was telling mentally and physically handicapped people to turn Chinese hair rollers into “American” ones.

It led to this silly, shady, deceitful money grab.

Peterson said Tuesday that he considered pursuing fines or other civil penalties related to potential deceptive trade practices performed by the Iowa company and Goodwill. But the Iowa company is now out of business, and Peterson decided to focus on restructuring Goodwill’s leadership rather than trying to further punish it.

In a 2016 interview, the Nebraska attorney general asked then ousted Goodwill CEO McGree about the hair rollers. McGree told him that he didn’t learn about the practice until August 2016, and canceled the contract immediately.

But the paper trail tells a different story, the report notes:

Goodwill didn’t terminate that repackaging contract with the Iowa company, named Prestige Products, until Oct. 25, 2016. That’s two days after my original column about the Chinese hair rollers that were magically turned into American-made ones.

And that was a single day before McGree at last agreed to answer The World-Herald’s questions and assured us that Goodwill no longer did repacking.

After continuing it for years, Goodwill Omaha canceled the hair roller contract one day before its leader had to speak about it to the public.

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