Dept. of Social Services Continues Moving Forward to De-Designate HOPE

In a letter dated September, 9, 2013, Margaret Ross Schultze, Commissioner of the Virginia Department of Social Services (DSS), informed HOPE Community Services that DSS would be moving forward to formally de-designate HOPE as a community action program.

Schultze goes on to say that HOPE has 30 days to request a review by the Secretary of the Department of Health and Human Services, otherwise HOPE will lose their designation.

A second letter from Schultze was included, written to Dr. James W. Gray at the Office of Community Services in the U.S. Department of Health and Human Services, outlining the findings from the July 13, 2013 public meeting. The letter concludes, “Given its history of deficit spending, significant debt, insufficient cash and cash equivalents needed to operate on a cost reimbursement basis, the inability or unwillingness of the Board of Directors to provide effective financial oversight and governance, the loss of most of its grant funding (Head Start, Weatherization and Homeless Assistance, Project Discovery, and all county funding) and related services, and failure to effectively implement its Corrective Action Plan dated September 29, 2011, the Virginia Department of Social Services hereby recommends termination of HOPE Community Services’ designation as a community action program.”

Editor’s Note: As this story develops, we expect to add more details, including HOPE’s response and plans for the coming months.

Both letters are reprinted below.

Sept. 9, 2013

Dear Mr. Bennett:

Attached is the letter concerning the finding of the July 13, 2013 public meeting concerning termination of HOPE Community Services’ designation as a community action agency. In accordance with Section 678C of the Coats Human Services Reauthorization Act of 1998 (Public Law 105-285) and Section 2.2-5407D of the Code of Virginia, The Virginia Department of Social Services is moving forward to formally de-designate HOPE Community Services as a community action program.

In accordance with 45 CFG 96.92, HOPE has 30 days following notification by the state of its final decision to request a review by the Secretary of the Department of Health and Human Services (HHS). To ensure that requests are received in time for Federal review, it is strongly recommended that requests be sent via overnight mail with a signed certification of receipt. Requests for review must be sent to the attention of the Division of State Assistance in the Office of Community Services at the following address:

Address Redacted.

Sincerely,

Margaret Ross Schultze

September 9, 2013

Dear Dr. Gray:

Per Section 676(c) of the CSBG Act, Virginia Department of Social Services (VDSS) desires to de-designate HOPE Community Services as a community action agency for failure to comply with the CSBG Virginia State Plan, standards or requirement. HOPE Community Services is the community action agency for the counties of Amelia, Buckingham, Cumberland, Lunenburg, Nottoway, and Prince Edward in the Commonwealth of Virginia.

The decision to rescind for cause HOPE’s community action designation is a result of several factors: failure of the agency to implement effective budget controls leading to successive years of deficit spending, significant debt, and insufficient reserves to meet the agency’s cash-flow needs; failure of the governing board to provide effective oversight of the agency’s financial operations; and failure to provide a wide array of services evidenced by the termination of the agency’s Head Start program, Project Discovery, county contributions and the loss of Weatherization and Homeless Prevention grant funds.

While HOPE Community Services (formerly Central Piedmont Action Council) has a long history of financial management problems dating back over ten years, based on recent audit reports the agency’s financial health has significantly deteriorated over the last five years. HOPE Community Services ended four of its last fiscal years with budget deficits: $98,977 in FY 2008, $125,345 in FY 2010, $133,057 in FY 2011, and $47,559 in FY 2012 (note: HOPE ended FY 2009 with a surplus of $33,359). In addition, the most recent Balance Sheet provided to the Board of Directors indicates that as of January 31, 2013, HOPE’s financial health has continued to deteriorate with total assets of $156,315 and total current liabilities of $424,873, indicating HOPE is likely to again end FY 2013 with a significant budget deficit.

Deficit spending has in turn led to several other serious problems: HOPE exceeded its $100,000 line-of-credit causing the bank to convert the balance to a loan/note supported by a lien on property owned by the agency; HOPE’s failure to remit payroll taxes to the IRS during the last quarter of 2011 resulted in a debt of $106,841.77 as of September 25, 2012 excluding penalties and interest (note: the IRS has agreed to a monthly payment plan); and the suspension of HOPE’s FY 2013 CSBG contract effective September 7, 2012 for violating the terms of its CSBG contract in submitting reimbursement requests for payroll taxes in the amount of $3,333.04 which had not been paid (note: HOPE refunded VDSS $3,333.04 in CSBG funds on September 10, 2012 and its CSBG contract was reinstated.)

It should also be noted that HOPE’s CSBG contract was suspended effective April 1, 2011, for failure to submit its FY 2010 audit report and again effective April 1, 2013, for failure to submit its FY 2012 audit report in accordance with federal regulations and the terms of its CSBG contract (note: these contracts were reinstated when the audit reports were received.) Most recently, the contract was

suspended on June 14, 2013 for an unacceptable A-133 audit, no proof of liability insurance, allegations of fiscal mismanagement, and no current Board minutes, as required.

HOPE serves a large geographic area which borders eight community action agencies. These agencies, along with other community action agencies in the network, have offered training, technical assistance and service provision to residents of HOPE’s service area. Former HOPE staff that previously provided Project Discovery services are now contracted directly by Project Discovery. Project Discovery made special arrangements to have the employee housed at the Prince Edward High School. HOPE Community Services no longer has any contractual arrangement with Project Discovery; however, services are still being provided to the community by both Project Discovery and other community action agencies.

On August 26, 2011, Mark Grigsby, former CSBG Director, and Daniel Deane, CSBG Program Specialist, met with HOPE’s Board of Directors to present and discuss a Financial Analysis prepared by Mr. Deane based on previous audit reports. During the presentation of that analysis, Mr. Deane reviewed HOPE’s record of deficit spending and its accumulating debt and the critical need for actions to address the agency’s financial crisis including the need for strengthened budget controls, improved financial oversight by the Board of Directors, and the development of sufficient cash reserves to address the agency’s cash-flow needs. During this time, VDSS offered the services of Arnold Nye, CSBG Consultant, to provide additional financial training and technical assistance to correct the deficiencies. Mr. Nye’s services were refused by HOPE’s staff and Board of Directors.

In response, HOPE Community Services submitted a Corrective Action Plan on September 29, 2011, to address its financial crisis including staff furloughs and a reduction in work hours for administrative staff, several planned fundraising events, the opening of “HOPE Construction” to offer fee-based construction and repair/rehabilitation services to the general public, the operation of HOPE House (a licensed residential program designed to serve up to six developmentally disabled adults) expected to generate a net income of $40,000 per month, the acquisition and opening of a second residential facility similar to HOPE House, improved budget controls particularly for Head Start, and improved financial oversight by HOPE’s Board of Directors.

It should be noted that subsequent to this presentation, HOPE Community Services failed to remit in a timely manner payroll taxes for the months of November and December of 2011, resulting in a debt to the IRS of $106,841.77.

On June 29, 2012, Daniel Deane sent an email to Rev. Kitty Smith, Executive Director of HOPE, to schedule a follow-up visit to review the agency’s progress in achieving the goals outlined in the 2011 Corrective Action Plan and to assess the agency’s current financial situation. This follow-up visit occurred on July 18, 2012, attended by Daniel Deane and Dottie Avalon, CSBG Financial Specialist. In order to better coordinate with our state partners, Mr. Deane and Ms. Avalon were joined by Brett Jackson and Carrie Naumann, Weatherization Program Specialists from the Virginia Department of Housing and Community Development (VDHCD), in completing this follow-up review.

Ms. Bobbie Thomas, HOPE’s Finance Director reported mixed results in implementing the previous Corrective Action Plan. Ms. Thomas stated that while budget controls were strengthened to prevent future deficit spending, other elements of the Corrective Action Plan were either ineffective or minimally effective.

Preliminary data indicated that net discretionary revenue from fund-raising efforts and from local government appropriations for FY 2012 totaled slightly over $8,000. While HOPE House was in fact licensed and opened, during FY 2012 only one resident was served and then only for a total of three months, while staff hired to run HOPE House were retained and assigned other duties. HOPE’s planned construction business scheduled to open by October 15, 2011, did not materialize. HOPE also failed to secure and open another residential facility similar to HOPE House.

Ms. Thomas reported the accounts payable balances run between $150,000 and $160,000 monthly with approximately 50% of those payables older than 60 days. Ms. Thomas also reported that with the exception of the 4^th quarter of 2011, all other payroll taxes were current although payroll tax payments were often delinquent which resulted in over $15,000 in penalties and interest paid to the IRS during FY 2012. Ms. Thomas reported that because of the lack of sufficient cash reserves needed for cash-flow purposes, decisions are made on a daily basis as to which payments can be made and which would be held resulting in deteriorating relationships with HOPE’s vendors. During this visit training and technical assistance was provided to the staff and Board of Directors. Also at this time the Virginia Community Action Partnership (VACAP) offered several trainings to the statewide network. HOPE staff and/or Board of Directors did not participate in the training opportunities offered. A group of other community action directors offered peer training and on the established date/time was turned away at the HOPE door by the Director. The deficiencies were ignored by the staff and Board of Directors and HOPE remained out of compliance with federal and state law, contract agreement, OMB A-122 and the Virginia State Plan.

HOPE’s FY 2012 audit report completed by Robinson, Farmer, Cox Associates was received by the Office of Community Services on May 7, 2013. (Please note that this audit report was received over 30 days after its due date.) HOPE’s FY 2012 audit report included a “qualified” opinion on compliance for major programs and four findings including (1) its failure to remit payroll taxes and withholdings to the IRS by the due date (HOPE owes the IRS $107,233 for back taxes, including withholdings, penalties, and interest); (2) drawing down $44,596 in Head Start grant funds prior to incurring the expenses allowable for the Head Start program; (3) drawing down $11,199 in ARRA Weatherization grant funds prior to incurring the expenses allowable for the program; and (4) requesting reimbursement of ARRA Weatherization grant funds prior to paying those expenses (16 of 25 invoices examined were requested for reimbursement prior to payment of those invoices by HOPE.) Furthermore, the audit report documents that HOPE ended fiscal year 2012 with a deficit of $47,559 (change in net assets), with current assets totaling $261,477 and current liabilities totaling $574,048. This in turn led the audit firm to include “Note 9 — Going Concern” which reads as follows:

In December 2012, the Organization lost its Head Start grant. Also, as of March 21, 2013 the Organization is no longer receiving Weatherization grant funds from DHCD. With the loss of these significant grant funds, along with a continuing negative working capital, these conditions raise substantial doubt about the Organizations ability to continue as a going concern. Management is current exploring its options for other revenue sources.

With significant deficit spending in four of the last five fiscal years, cash and cash equivalents at the end of the year totaling only $13,832, and debt totaling $265,847 (unrestricted net assets), HOPE’s FY 2012 audit report documents an organization that is functionally bankrupt.

On June 25-27, 2013, Ms. Avalon conducted an onsite CSBG monitoring that revealed multiple findings. VDSS defines “Findings” as instances of non-compliance with statutes, regulations, policies, or procedures established by the agency itself, the Commonwealth of Virginia, or federal agencies. Findings included:

1. Board does not meet according to the schedule in the By-Laws.
2. The agency does not remit Board and Committee minutes to the Office of Community Services in a timely manner.
3. The agency does not follow its Accounting & Financial Policies and Procedures Manual.
4. The agency does not follow its Personnel Policies.
5. The agency does not employ fiscal staff.
6. The agency has lost all funding through HHS and DHCD due to misuse of funds.
7. Audit reports for the past two years have been submitted to OCS after the deadline.
8. The agency failed to remit payroll taxes to the IRS.
9. The agency requested and received CSBG funds to pay payroll taxes but did not remit the money to IRS.
10. The agency has allowed its liability insurance coverage to lapse.
11. The agency’s audit included a “Going Concern” note to the financial statements.
    1. The agency provided no evidence that policies and programs are evaluated annually. No recommendations were provided from the Board concerning the improvement of the administration neither of the agency nor to the local governing bodies within the service area.
    2. As required by 22VAC40-901-30, the agency does not meet the requirement to provide a local share from nonfederal sources equal to a minimum of 20% of the CSBG grant awarded.
    3. The agency provided no evidence that public meetings were convened to provide low- income and other persons the opportunity to comment on public policies and programs to reduce poverty.

On July 10, 2013, in accordance with Section 30-138 of the Code of Virginia, a joint request for a criminal investigation was issued from VDSS and VDHCD. Several whistleblower allegations from Board minutes, correspondences, media stories and conversations suggested fraudulent actions occurred regarding funds under the control of both VDSS and VDHCD. An active criminal case was established by the Virginia State Police and the criminal investigation is ongoing. VDSS and VDHD also made reports to the Office of Inspector General and the Virginia Auditor of Public Accounts. Also during this time the HOPE Executive Director resigned, the Board of Directors became split resulting in police being called twice to disband the meetings. It is currently unclear if the current Board of Directors was elected by a quorum and meets the required tripartite Board structure. Several county administrators have questioned the legitimacy of the current Board of Directors.

Specific allegations include misappropriation of Weatherization funds from VDHCD and state and CSBG funds from VDSS. Allegedly, HOPE drew down federal funds administered by VDHCD for eligible activities but the funds were not used to pay for those activities. Additionally, the local media and former HOPE employees are reporting allegations of fraud and abuse by former Executive Director, Finance Director and HOPE’s Board of Directors. Creditors who have come forward were connected with the Weatherization program and VDHCD is addressing each creditor.

A public hearing was held in Farmville on August 14, 2013. Jack Frazier, VDSS Deputy Commissioner, presided as the hearing officer. Margaret Ross Schultze, VDSS Commissioner, rendered the hearing decision. Jasper Hendricks, a member of the newly formed HOPE Board of Directors, indicated that the Board was currently engaged in creating: a county advisory committee in each locality, Board of Director’s training with Longwood University; new financial manual, a community needs assessment, updated Board of Director’s minutes, and revised personnel policy. It was apparent that the Board had worked hard in the month since all staff had left the agency (July 5, 2013); however, during the hearing it was noted that (1) no staff was employed; although they were hoping to hire a part-time financial officer who would work for minimum wage; (2) funding had been lost from Project Discovery and all county governments. The only funds that were coming into the agency were pass-through funds from Virginia Dominion Power to provide energy assistance; (3) there was no budget; (4) no financial statement was provided; (5) HOPE estimated that the organization had approximately $250,000 in assets and over $400,000 in current liabilities; (6) there was $67,000 in credit card charges that had not been disclosed at the June 25-27, 2013 monitoring visit; (7) VDHCD had allowed HOPE to keep several older vehicles. HOPE anticipates the sale of these vehicles will provide some working capital; and (8) HOPE confirmed that a Board of Director’s quorum had been reached on August 8, 2013 which is the first quorum since November 2012. It is uncertain if the current Board of Directors was properly elected and legitimate. On July 1, 2013 six of the former board members either resigned or rotated off the Board of Directors which left the organization with only eight board members. Since July 25, 2013 eight individuals have been elected to the Board. In a recent correspondence with HOPE, it remains unclear that the organization understands the requirements of a tripartite Board of Directors. They explain that the new HOPE Board has members with a variety of strengths and expertise. These include:

• Business owners
• Financial experts
• Community leaders
• Experienced in managing state and federal programs
• Experience working with the poor
• Leaders of ministerial organizations
• Leaders of health organizations
• A candidate for the Virginia House of Delegates
• Housing professionals
• Social Service workers
• Counseling specialists
• Sorority and Fraternity members

HOPE testimony at the hearing spoke of many meetings and plans HOPE intended to accomplish but the agency did not demonstrate that corrective actions taken by the Board had produced results that rectified organizational deficiencies. The agency had produced no new funding sources, no staff had been employed, and very limited services were being provided by volunteers. Finally, the Board did not provide an updated financial statement and spoke of agency funds in terms of “approximately” which led VDSS to question the ongoing issue of Board of Directors financial understanding and oversight. Community members who spoke supported the new Board of Directors and all were in agreement that services were needed in the region.

Since the public hearing, several county administrators and local social service directors have contacted VDSS with concerns of HOPE’s testimony along with its organizational capacity and ability to provide services to their community. These comments from two community leaders summarize much of the concern:

A few weeks ago I read in the newspaper that HOPE is under new management and that the new management said they were going to contact HOPE’s community partners in an effort to get HOPE back on its feet. To date I have not been contacted by anyone from HOPE and meanwhile our citizens remain without the critical services HOPE was providing to fill gaps for those living in poverty. I am not optimistic that an organization with HOPE ‘s track record and with some of the same leaders at the helm can be a viable community partner.

Several years ago the service office in our county was closed without notice to my agency. We learned of the closure in attempting to make referrals. Then HOPE/CPAC lost the Head Start program. About two years ago we noticed that referrals were often not receiving any assistance from HOPE/CPAC. During the past year there were only two or three instances of people this agency referred receiving any assistance and that was through Virginia Power’s Energy Share program operated through HOPE/CPAC in this area. In short, from the perspective of this agency, over the past several years there was an ongoing degradation in HOPE/CPAC’s ability to function as an effective partner. Recently, I have seen news reports of deeply dysfunctional actions and behaviors by people associated with HOPE/CPAC to the extent that a forensic investigation is underway.

On August 23, 2013, HOPE emailed VDSS a response to the monitoring findings and a corrective action plan; however, VDSS has notified HOPE that they do not accept the corrective action plan given that HOPE’s deficiencies are multiple, widespread and cannot feasibly be corrected to bring the organization back into legal compliance with all requirements. Given its history of deficit spending, significant debt, insufficient cash and cash equivalents needed to operate on a cost reimbursement basis, the inability or unwillingness of the Board of Directors to provide effective financial oversight and governance, the loss of most of its grant funding (Head Start, Weatherization and Homeless Assistance, Project Discovery, and all county funding) and related services, and failure to effectively implement its Corrective Action Plan dated September 29, 2011, the Virginia Department of Social Services hereby recommends termination of HOPE Community Services’ designation as a community action program.

Also included is notice of public hearing, transcript of public hearing along with a list of participants, and evidence presented at the hearing from HOPE Community Services. Should you have any questions, please contact Fran Inge at (804) 726-7604.

Sincerely,

Margaret Ross Schultze