State audit finds that Northeast Center for Youth and Families misspent money
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EASTHAMPTON - The Northeast Center for Youth and Families misused $1.2 million in public funds - money that should have been returned to the commonwealth to serve the state's neediest youths, a new state audit shows.
In addition, the inquiry found that the nonprofit agency doled out nearly $1 million in questionable staff bonuses over three years. That money, distributed to scores of employees, is getting further review.
"Findings like these shake the public's confidence," State Auditor Suzanne M. Bump said Thursday at her western regional office in Chicopee. "But when they come to light, they should be remedied by the board of directors, management and those who provide oversight."
One week after identifying $1 million in public assistance fraud by 163 people who cheated the state, Bump described the findings at the Northeast Center as "another side of the coin of waste, fraud and abuse."
Northeast Center for Youth and Families
Bump said the state seeks to recover nearly $1.2 million of misused taxpayer dollars from the Easthampton center, while the state's Operational Services Division and Department of Youth Services will review how much of the $918,000 in employee bonuses must be returned.
Formally known as Tri-County Youth Programs, the Northeast Center is a publicly funded human services agency with an $18.8 million annual budget that serves more than 600 emotionally disturbed or mentally ill children and adolescents in Massachusetts and Connecticut. It operates an array of therapeutic and educational programs that include residential treatment, in-home support, foster care, special education and after-school programs. The agency also operates the Tri-County Schools for special-needs youth in Easthampton, which serves up to 120 students annually from many local communities, which also provide funding, as well as a residential home for troubled youth on Grove Street in Northampton.
The agency issued a statement Thursday afternoon, hours after the audit was released, saying it has changed its policies and practices and is now in compliance with state requirements and best practices for human service agencies. The agency says it will continue to cooperate with the state concerning its finances and controls designed to safeguard public funds.
"We will review the final report that has just been issued and will pursue resolution of any outstanding issues through the avenues available to us," the agency wrote. "It is possible that we will continue to disagree with one or more of the auditor's findings."
Paul Rilla, the agency's executive director since 2005, did not return phone calls seeking comment Thursday. Attempts to reach Philip Pohlmeyer, who served as the agency's chief financial officer during the audit period, were unsuccessful.
Gary Bernhard, chairman of the center's board, said it's difficult to be a nonprofit in Massachusetts, where state regulations are complex and continuously changing. He said the agency does not have $1.2 million to pay back the state. Despite the findings, he said, the agency provides outstanding service to hundreds of children each year.
"At this point, what we're going to do is work with the state to get through this thing and get on with serving kids," said Bernhard, who has served on the board for the past decade. "There was no intention to defraud anybody in this agency. There were mistakes. We've corrected the mistakes."
Start of review
State auditors began reviewing the agency's finances after an April 2009 Gazette report raised questions about the agency's financial affairs following the departures of Pohlmeyer and other administrators. Months before that published report, Pohlmeyer resigned after refusing to authorize payments to Ann Robinson, an employee who drew a paycheck while also billing the center as a consultant through her company, Tectonic Inc. Pohlmeyer and Rilla clashed over the matter, internal correspondence shows, and the payments also caused disruption on the board of directors, which investigated more than $35,000 in questionable payments uncovered by an accounting firm.
Robinson, a former director of special projects for the agency, is among four consultants cited in the state audit who received questionable payments. State auditors also found that she received $24,625 in salary advances, money that agency officials said was provided to help cover her family medical expenses and school tuition expenses.
In a July 29, 2008, memo to the board of directors obtained by the Gazette, Rilla wrote, "the arrangement with Ann R. and Tectonics is a good example of how consulting-type relationships can become too comfortable over an extended period of time."
In total, auditors found $53,950 in unallowable and undocumented contract expenses paid to consultants, including a corporate counsel and former director of educational services, David Jamieson, who was retained as an educational consultant under a $45,000 contract while living in Fairhope, Ala.
Bonuses and severances
The state audit found that the agency allocated $148,000 in severance payments to nine senior staffers with state money that must be returned. The severances included a combination of extended medical benefits, bonuses and salary payments that ranged from $5,471 to $53,784 under what auditors called questionable bonus guidelines.
Among those who received the biggest bonuses were former associate executive director Karen DeSalvio, who received $53,784 in benefits; Pohlmeyer, who received $39,961, including a $5,000 bonus; a former assistant director of foster care services who received 16 weeks salary and a $2,250 bonus; Howard Byfield, a former chief financial officer, who received $21,106 in benefits; and former executive director Hal Gibber, who received a $16,422 severance package when he resigned in 2005 for reasons the agency declined to discuss.
In addition, the audit found that over three years the agency gave employees $918,000 in bonuses in apparent violation of state regulations that call for a board-approved policy on bonuses that rewards performance. The bonuses were awarded agencywide, including to upper managers. In 2008, for example, the agency distributed $343,433 in employee bonuses that ranged from $48 to $7,500. While it had an established plan for distributing bonuses, it failed to follow that plan and ran afoul of state requirements.
"If an agency like this is going to award these (bonuses) then they have to do so in accordance with the rules," Bump said Thursday.
She said the bonuses seem to have been awarded specifically to spend an annual surplus of state contract revenues the agency collected. That money should have been returned to the commonwealth.
Some former agency employees and board members said they are not surprised by the findings identified in the state audit.
"They've been doing unethical things for years," said Cecile Guilbault, who was a bookkeeper for 27 years at the agency and was laid off in 2009 without a severance package during a reorganization of the fiscal department.
"I'm glad that finally, after all these years, the state has finally caught up with them," she said. "I blame the board of directors. They're supposed to be the overseers of the organization and they let it happen and that was a big mistake. It's taxpayer money, and it's an awful lot of money."
Bernhard, the board chairman, said the audit has "certainly raised some issues," but he said the internal control problems that led to the financial irregularities have been rectified during the past several years. He said the agency's 11-member board has recently added two members with accounting backgrounds and he stressed that it will stay apprised of management's negotiations with the state concerning the requested $1.2 million in restitution.
"I really have no idea how that's going to play out," he said.
In a related matter, the agency's annual financial filings with the state show that the highest-paid employees in the organization have taken recent salary cuts, which Bernhard said was part of cost-cutting measures. The salary of Rilla, the executive director, for example, was $128,217 in the year ending June 30, 2010, down from $150,598 the previous year, while other program directors also took significant pay cuts, filings with the attorney general's office show.
$1.2 million owed to state
The audit released Thursday also found that the center overbilled the Department of Youth Services $651,221 for two foster care programs and misused $406,360 in state funds to cover operating losses incurred for three residential treatment programs the center ran in Connecticut, which violates state regulations.
Bump said she found the diversion of state taxpayer dollars to programs in Connecticut particularly troublesome.
She said her office will explore whether other recipients of state funding made the same mistake.
"They agree to play by the rules the state sets ... to use properly taxpayer dollars," Bump said of nonprofits like the center. "We entrust these contractors with the money and the needs of vulnerable families."
Bernhard said the agency was surprised to learn that the money used in Connecticut was of such significance.
"We didn't think that that would be an issue," said Bernhard, a former longtime director of the University Without Walls program at UMass Amherst. "It's all going to help kids. I think that was the thinking. It wasn't conceived of as a misuse of funds."
During one year, the center allowed its worker's compensation insurance to lapse for 21 days, during which time an employee was injured on the job and was paid $52,073 to cover medical expenses, lost wages and a settlement.
In that case, state auditors determined the agency misused more than $7,000 in state funds to pay the claim. In addition, the agency also did not properly account for employee retirement plan contributions to the tune of $260,000, some of which also may need to be returned to the state.
Dan Crowley can be reached at dcrowley@gazettenet.com.
