Kansas Hospitality Care Provider Audit Examines Financial Controls, IT Costs, CEO Travel, PPP Loan
TOPEKA – Former Saint Francis Ministries CEO Robert Smith exploited a lack of financial controls and board oversight to drain the nonprofit organization’s resources on an IT project and increase spending on management which included the use of taxpayer funds for personal travel, alcohol and entertainment.
A new audit released by the Kansas Department for Children and Families details how the foster caregiver fell into financial ruin as it served 10,000 children and families in six states.
As of June 30, 2019, the nonprofit only had $ 10,816 in cash and was approaching its borrowing limit of $ 10 million from Intrust Bank. Smith kept the organization afloat with a separate $ 10 million paycheck protection program loan in April 2020, even though the nonprofit was not eligible for federal aid in pandemic with its nine-figure budget and 1,600 employees.
Smith left the organization in November 2020, after a newly hired CFO informed the board of financial irregularities.
Based on the new audit findings, DCF is asking Saint Francis to reimburse $ 22,913 for Smith’s personal expenses that were billed to the state. The CEO of the new Saint Francis, William Clark, responded by asking the state to provide an additional $ 4.6 million to pay for services that had not been accounted for in 2019.
DCF hesitated at the request, and it is unclear how the financial dispute will be resolved.
“We are not discussing the private communications that occur with our state partners,” said Morgan Rothenberger, spokesperson for Saint Francis. “Child welfare reimbursement is a complex system and, as with any contract in the states in which we operate, there are many factors to consider when working with our partners to provide quality care. “
DCF tasked Topeka-based accounting firm BT and Co. to assess Saint Francis’ financial stability and the allegations of reckless spending that surfaced in an anonymous letter to DCF in November 2019.
The firm began the audit in January 2020 and reviewed spending between July 1, 2018 and September 30, 2019.
“I recognize that the new leaders are making progress in many areas identified in the audit report, including taking steps to improve their financial situation, implementing effective internal controls and improving the board’s participation in financial management and key decisions, ”said DCF Secretary Laura Howard. in a statement for this story. “DCF will continue to foster an enhanced monitoring and reporting relationship to ensure that ongoing concerns are addressed. Saint Francis remains a valued partner in our work to improve the Kansas child welfare system. “
The audit details a severe decline in Saint Francis assets over a three-year period under Smith’s leadership.
As of June 2016, the association had $ 7.3 million in cash and had drawn only $ 21,000 on its line of credit. Total assets have been valued at $ 29.7 million. Three years later, with little cash and growing debt, assets had fallen to $ 16.7 million.
Yet in the summer of 2019, Smith made a heavily underbid contract to expand child placement services in Nebraska, knowing it would cost Saint Francis millions. When staff objected, according to an investigator’s report, Smith said, “God will provide.
Smith arrived in Saint Francis in 2014 as an ordained priest of the Episcopal Diocese of Chicago. The church disciplined Smith for showing lack of judgment in managing Saint Francis, and she reinstated her priesthood earlier this month in part because no new allegations were expected in the DCF audit.
BT and Co. examined a sample of over 200 expenses totaling $ 934,210 for the year ended June 30, 2019 – out of $ 103,234,435 of total expenses. Auditors found that there had been no approval or review of Smith’s expenses and that all of his statements were missing receipts.
“There were almost monthly travel and hotel costs seen in the sample, many of which seemed excessive for very nice hotels, first class flights, and several costs for meals and entertainment, ”the audit report said.
Saint Francis did not employ a CFO or financial controller between January 2018 and September 2020, which the audit identified as an error. The audit found no evidence that the board of directors ever reviewed Smith’s credit card purchases or expense reimbursements. Policies requiring approval of $ 1,000 purchases and double signing for $ 5,000 expenses were not always followed.
Smith’s travel expenses included non-business trips to Oregon, London, Dublin and Florida. A trip to Chicago, which coincided with a board meeting, included limo services, tickets to the Chicago Cubs, and expenses at the University Club of Chicago.
Smith also used his Saint Francis-issued American Express card to pay for Sirius XM subscription fees, Salina Community Theater tickets, liquor from the Brooks Liquor Store in Salina, Apple iTunes fees, and Amazon purchases. There was over $ 21,000 in fees for NFL and MLB tickets.
Smith made a deal on September 9, 2019 to wire $ 65,000 to an anonymous “third-party agent” to purchase Chicago Cubs playoff tickets – four seats and reserved parking passes in the Maker’s Mark and 1914 sections. Club, a total of eight tickets. Under the agreement, Saint Francis authorized the agent to resell the tickets and share the profits equally. Due to the lack of documentation from Saint Francis, auditors were unsure whether the money had already been advanced to the agent, but the funds were said to have been returned to Saint Francis when the mediocre Cubs failed to qualify for the playoffs.
Sampling indicated that $ 21,913.25 of Smith’s costs were charged to Kansas but were not authorized under the agreement with DCF. Of this amount, Saint Francis says he provided documents for $ 5,923.60 of valid expenses.
Auditors reported a contract between Saint Francis and WMK Research for its extraordinary cost and the security risk of outsourcing all IT controls.
Computer company owner Bill Whymark billed Saint Francis $ 10.3 million for its IT services between December 2017 and June 2020. Many invoices were not approved until they were paid, and the rest were was approved by Smith via email within minutes. receive them. They included charges for iPhones, OtterBox cases, and travel for Whymark and his support team. Sequential invoice numbers told listeners that Saint Francis was one of the company’s only clients.
Smith, in statements released after leaving Saint Francis, attempted to distance himself from Whymark by denying that the two had never been business partners. Listeners describe Whymark as “a related party” to Smith.
When the computer system crashed in 2019, it erased financial records for a period of six months. Saint Francis worked with five consultants to restore the data and ended its relationship with Whymark earlier this year.
Auditors also reported accounting issues with the spreadsheet used by Saint Francis to track service charges. Listeners found numbers typed on formulas to balance debits and credits. The accounts were prepared and reviewed by the same person, an “inappropriate segregation of duties”, according to the audit report.
BT and Co has applied several metrics to assess the finances of nonprofit organizations. The cost of the services provided by Saint Francis fell from 87% of the total costs in 2016 to 83% in 2019. The objective is to be above 85%. At the same time, management fees fell from 12% of total costs in 2016 to 16% in 2019. For associations, management fees should remain below 12.5%.
Rothenberger, spokesperson for Saint Francis, said the organization has “closed this chapter” and is focusing on progress made under current leadership.
“We are happy with the BT and Co. report because the report shows state and federal dollars were used as intended,” Rothenberger said. “The final report provides assurance to DCF and our external stakeholders that Saint Francis is spending and accounting for state and federal funds correctly.”
Howard, the secretary of DCF, officially informed Saint Francis of the audit findings in a letter dated October 8.
She asked for confirmation that the organization had addressed the issues identified during the audit.
“DCF recognizes the progress made in several organizational and financial areas, particularly with regard to the financial stability of the organization,” Howard said. “Continued progress in these areas, especially with regard to timely and accurate monthly financial reports and related documents, will be important in continuing our partnership. “
Clark, the current CEO of Saint Francis, responded in an Oct. 14 letter saying the organization has a three-year plan to regain financial viability. He joined an independent appraisal of Connor Consulting Corp. as evidence that appropriate controls were in place.
“Saint Francis has taken many steps over the past year to address both the financial condition of the organization and the overall management,” Clark wrote. “We have worked diligently to ensure that more effective controls, processes, procedures and oversight are in place. “
However, he refused Howard’s request to reimburse nearly $ 22,000 for Smith’s personal expenses. Instead, Saint Francis expects to be paid $ 4.6 million for services provided in 2019, he said.
“In view of the significant financial loss, we do not intend to provide any form of reimbursement to the state,” Clark wrote.
Mike Deines, a spokesperson for DCF, said the agency did not owe Saint Francis additional funds and that no other contractor had made a similar request.
The status of a $ 10 million PPP loan used by Saint Francis at the start of the COVID-19 pandemic is unclear.
Most businesses can expect the U.S. Small Business Administration to cancel PPP loans, but the program was limited to businesses with fewer than 500 employees or those with net worth less than $ 15 million and net income of less than $ 5 million.
The audit report says Saint Francis consulted with a lawyer who said the organization was not eligible for the loan and should return the money.
Rothenberger said the loan is “considered paid in full”, but a database maintained by ProPublica shows that the SBA canceled the loan, including $ 151,667 in interest.
“Having this fixed is as much as we are open to discussion,” Rothenberger said in response to a question aimed at clarifying the issue.