TOPEKA – Former Saint Francis Ministries CEO Robert Smith took advantage of the lack of financial controls and regulatory agencies to drain the nonprofit’s resources on an IT project and increase administrative expenses that included using taxpayers money on personal travel, alcohol and entertainment included.
A new exam released by the Kansas Department for Children and Families shows how close the care provider was to financial ruin while serving 10,000 children and families in six states.
By June 30, 2019, the nonprofit had fallen to just $ 10,816 in cash and was nearing its $ 10 million credit limit from Intrust Bank. Smith kept the organization afloat in April 2020 with a separate $ 10 million loan from the Paycheck Protection Program, even though the nonprofit, with its nine-digit budget and 1,600 employees, was not eligible for federal pandemic aid.
Smith left the organization in November 2020 following a newly hired CFO informed the board of directors about financial irregularities.
Based on the new exam results, DCF is calling on Saint Francis to repay $ 22,913 for Smith’s personal expenses billed to the state. New Saint Francis CEO William Clark responded by asking the state to provide an additional $ 4.6 million to pay for services that were not accounted for in 2019.
DCF declined the request and it is not clear how the financial dispute will be resolved.
“We do not discuss private communications with our government partners,” said Morgan Rothenberger, spokeswoman for Saint Francis. “Child benefit reimbursement is a complex system, and as with any contract in the states we operate in, there are many factors to consider when working with our partners to ensure quality care.”
Smith’s editions
DCF hired auditing firm BT and Co., based in Topeka, to assess Saint Francis’s financial stability and reckless spending allegations that surfaced in an anonymous whistleblower letter to DCF in November 2019.
The company began auditing in January 2020 and audited expenses between July 1, 2018 and September 30, 2019.
“I acknowledge that the new leadership is making progress in many of the areas identified in the audit report, including taking steps to improve their financial position, implementing effective internal controls, and improving board involvement in financial management and key decisions,” said DCF Secretary Laura Howard in a statement on this story. “DCF will continue to promote an improved monitoring and reporting relationship to ensure that ongoing concerns are addressed. St. Francis remains a valued partner in our work to improve the child welfare system in Kansas. “
The audit shows a sharp decline in Saint Francis’ assets over a three year period under Smith’s leadership.
In June 2016, the nonprofit held $ 7.3 million in cash and had only drawn $ 21,000. Total assets were estimated at $ 29.7 million. Three years later, with little cash and rising debt, net worth had dropped to $ 16.7 million.
Still, Smith stepped in in the summer of 2019 a badly undercut contract to expand child placement services to NebraskaKnowing that it would cost Saint Francis millions. When the staff disagreed, loudly an investigator’s report, Smith said, “God will see to it.”
Smith came to Saint Francis in 2014 as a priest ordained by the Episcopal Diocese of Chicago. The church has disciplined Smith for poor judgment while he was presiding over Saint Francis, and earlier this month his priesthood was reinstated, in part because the DCF exam was not expected to raise new allegations.
BT and Co. reviewed a sample of 200+ issues totaling $ 934,210 for the fiscal year ended June 30, 2019 – out of $ 103,234,435 total expenses. The auditors found that there was no approval or review of Smith’s expenses and receipts were missing from each of his bank statements.
“Almost every month we sampled there were travel and hotel expenses, many of which seem excessive for very nice hotels, first-class flights, and several fees for meals and entertainment,” the audit report said.
Saint Francis did not employ a chief financial officer 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 that required approval of $ 1,000 purchases and duplicate signatures for $ 5,000 spending weren’t always followed.
Smith’s travel expenses included non-business travel to Oregon, London, Dublin, and Florida. A trip to Chicago that coincided with a board meeting included limo service, tickets to the Chicago Cubs, and expenses for the University Club of Chicago.
Smith also used his American Express card issued by Saint Francis to pay for Sirius XM subscription fees, Salina Community Theater tickets, alcohol from the Brooks Liquor Store in Salina, Apple iTunes fees, and Amazon purchases. NFL and MLB tickets were charged more than $ 21,000 in fees.
Smith arranged a deal on September 9, 2019 to transfer $ 65,000 to an unnamed “third party agent” Buy Chicago Cubs Playoff Tickets – Four seats and reserved parking permits in the Maker’s Mark and 1914 Club areas, a total of eight tickets. Under the agreement, Saint Francis authorized the agent to resell the tickets and split the profit equally. In the absence of Saint Francis documents, the examiners were unsure whether the money would ever have been paid to the agent, but the money would have been returned to Saint Francis if the mediocre Cubs failed to make the playoffs.
Sampling revealed that $ 21,913.25 of Smith’s Costs was billed to Kansas, but is not allowed under the agreement with DCF. From this amount, St. Francis claims to have submitted receipts for valid expenditures in the amount of US $ 5,923.60.
Accounting problems
The auditors highlighted a contract between Saint Francis and WMK Research because of the extraordinary cost and security risk of outsourcing all IT controls.
IT company’s owner Bill Whymark billed Saint Francis $ 10.3 million for its IT services between December 2017 and June 2020. Many of the bills weren’t approved before they were paid, and the rest were approved by Smith via email within minutes. to receive them. This included fees for iPhones, OtterBox cases, and travel for Whymark and its support team. Running invoice numbers showed auditors that Saint Francis was one of the company’s only customers.
Smith has attempted to distance himself from Whymark in statements released after he left Saint Francis by denying that the two were ever business associates. Auditors describe Whymark as “a related party” to Smith.
When the IT system crashed in 2019, it deleted the 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.
The auditors also reported accounting issues with the spreadsheet St. Francis used to keep track of service fees. The auditors found numbers that were typed in using formulas to balance the debit and credit balance. The accounts were drawn up and checked by the same person, an “improper separation of duties”, it says in the audit report.
BT and Co used several metrics to evaluate the finances of nonprofits. The cost of Saint Francis’ services has decreased from 87% of the total in 2016 to 83% in 2019. The goal is to be above 85%. Meanwhile, administrative costs increased from 12% of total costs in 2016 to 16% in 2019. For non-profit organizations, administrative costs should stay below 12.5%.
Saint Francis spokeswoman Rothenberger said the organization has “closed this chapter” and is focused on the progress made under its current leadership.
“We are pleased with the report from BT and Co. because the report shows that state and federal dollars were used as intended,” said Rothenberger. “The final report reassures DCF and our external stakeholders that St. Francis is properly spending and accounting for state and federal funds.”
Unresolved issues
Howard, the DCF secretary, officially informed Saint Francis of the exam results in a letter dated October 8th.
She asked for confirmation that the organization had addressed the issues identified during the audit.
“DCF recognizes the progress that has been made in several organizational and financial areas, including the financial stability of the organization,” said Howard. “Continuous progress in these areas, particularly with regard to timely and accurate monthly financial reports and related documents, will be important to our continued partnership.”
Clark, the current CEO of Saint Francis, responded in an October 14 letter saying the organization had a three-year plan to restore financial sustainability. He submitted an independent evaluation from Connor Consulting Corp. as evidence that adequate controls were in place.
“Saint Francis has taken numerous steps over the past year to improve both the financial health of the organization and overall management,” wrote Clark. “We have worked carefully to ensure more effective controls, processes, procedures and oversight.”
However, he denied Howard’s request to repay nearly $ 22,000 for Smith’s personal expenses. Instead, St. Francis expects $ 4.6 million for services rendered in 2019, he said.
“In view of the great financial loss, we do not intend to provide the state with any form of reimbursement,” wrote Clark.
Mike Deines, a spokesman for DCF, said the agency did not owe Saint Francis any additional funding and 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 companies can expect the U.S. Small Business Administration to provide PPP loans, but the program was open to companies with fewer than 500 employees or those with net worth less than $ 15 million and net income less than 5 Million US Dollars Limited.
The audit report states that Saint Francis consulted an attorney who said the organization was ineligible for the loan and must return the money.
Rothenberger said the loan is considered “paid in full,” however a database managed by ProPublica shows that the SBA canceled the loan, including interest, of $ 151,667.
“The fact that it is enclosed is as open to us as we are discussing,” replied Rothenberger when asked to clarify the subject.
