Editor’s note: This article is by Rick Jurgens, of the Valley News, in which it was first published May 31, 2015.
[S]pringfield — The decision by Health Care and Rehabilitation Services of Southeastern Vermont Inc. to launch a new venture 3,000 miles away and the resulting $1.8 million flow of red ink attracted little, if any, notice outside the agency. (See main story, “California venture cost HCRS $1.8 million”)
That’s not surprising. HCRS, which receives millions of dollars in federal and state funding, additional support from towns in its service area in Windsor and Windham counties and is exempt from federal income taxes, did not make available to the public key documents that described its money-losing venture.
That’s company policy at HCRS. “The organization does not make its governing documents, conflict of interest policy, or financial statements available to the public,” it says in recent tax returns filed with the Internal Revenue Service.
Allen Dougherty, the former president of the HCRS board of directors, said he did not recall the policy or the reasoning behind it but believed that its intent was not to hide anything but to avoid “unnecessarily publishing something that didn’t have to be published.”
The federal law that exempts nonprofits from income taxes requires them to file tax returns with the IRS and make those returns readily available for public review. Those returns, called Form 990s, provide some details about an organization’s revenue, expenditures, assets, investments and activities. But the Form 990s filed by HCRS while it was exploring and pursuing its California venture, which the agency referred to as HCRS West, did not break out the financial losses incurred there.
Nor, for that matter, did they detail the timing and total of HCRS’ contributions to a “deferred compensation” account from which former Chief Executive Judith Hayward eventually collected $686,000. A portion of what Hayward received is reported but not explained in the agency’s recent Form 990 for fiscal 2013.
Details of both items — the money-losing California venture and the payments to Hayward — were detailed in HCRS’ audited financial statements, which were filed with the state Department of Mental Health.
For example, HCRS filed with the Department of Mental Health a letter from HCRS’ auditor that urged the agency to contact California officials to seek additional money to “share the enormous economic loss” the project had inflicted on HCRS. If California authorities said no, the auditor added, “we recommend you pursue terminating this program as soon as possible. Based on results to date this venture does not appear to be feasible for the agency.”
But that letter apparently was not otherwise available to the public. The Valley News obtained access to the records that included the auditor’s letter by filing a request under the state’s public records law.
But unlike Form 990s, which must be readily available for free public review, public records requests can take weeks and cost hundreds of dollars.
HCRS will stick to its disclosure policy, said George Karabakakis, the chief executive. The audited financial statement “is not a public document,” he said in an interview.
But one board member disagreed. Keith Clark, the sheriff of Windham County who recently joined the HCRS board, said he had “advocated that (the agency’s) audited financial reports be on the website and available to the public.” Clark noted that the board’s decisions to make the large payments to Hayward and undertake the California venture had been made before he joined. “The current board is more cognizant of these issues and concerns,” he said.
The seemingly esoteric distinction between HCRS’ federal tax return and the audited financial statements proved crucial for limiting, if not preventing, public awareness of HCRS West and its mounting losses.
HCRS’ Form 990s for three relevant years — fiscal years 2012, 2013 and 2014 — made no mention of the agency’s venture in California, HCRS West or its losses.
The 990 for fiscal 2013 lists, in addition to Hayward’s $174,000 in base compensation and $17,000 in nontaxable benefits, $323,000 in “other reportable compensation.” That compensation, which is not otherwise described or detailed in the 990, apparently represents a portion of the deferred compensation given to Hayward.
But HCRS’ audited financial statements for the three-year period that ended June 30, 2014, described the California venture and detailed its mounting losses, and detailed the contributions and withdrawals from the deferred compensation account set up for Hayward.
Federal law requires that a Form 990 describe an organization’s disclosure policy for other financial, governance and conflict-of-interest documents.
That’s where HCRS spelled out its policy of not releasing to the public documents that might contain important financial and governance information that complements the information in a Form 990.
In fact, HCRS’ disclosure policy on corporate financial and governance documents was the most restrictive of any of the 10 nonprofit organizations designated to provide mental health care in specified regions of Vermont.
The most recent Form 990s of five of Vermont’s designated agencies specifically promise to make available to the public some or all of the documents that HCRS said it “does not make available … to the public.” The other four make more general statements that their policies are to make “governing documents” or “public documents” available on request.
“Healthy organizations are transparent and responsive,” said Lauren-Glenn Davitian, director of Common Good Vermont, a nonprofit organization that works to strengthen and promote collaboration among the state’s 3,500 public charities. A policy in which financial statements, conflict-of-interest policy or bylaws are not made public is “probably the exception,” she said.
But Vermont law doesn’t require such disclosures. Nonprofit organizations must only renew every other year their registration with the secretary of state that includes the organization’s name, address, officers, directors and “a brief description” of the nature of their activities. “We don’t even check them to see that they filled it out” correctly, said Jim Condos, Vermont’s secretary of state, noting that his office, which he likened to a file cabinet, has only five employees to oversee 100,000 annual transactions.
A recent report by the Vermont state auditor suggested that the state’s monitoring of payments to managers of Vermont’s so-called designated agencies could be improved by requiring those agencies to periodically report executive compensation to the state “in a format similar to that of Schedule J on (Internal Revenue Service) Form 990, which organizes compensation into easily accessible categories.” Vermont nonprofits already must file Form 990s but those Schedule J’s generally list only employees who make more than $150,000 annually.
Said Davitian: “I think it’s important for nonprofit organizations to operate with a level of transparency, particularly if they are receiving state money or public money in any form.”
Some states require that nonprofits make disclosures beyond those required by the IRS. For example, New Hampshire requires that nonprofits provide detailed reports on the amount and nature of all transactions that benefit directors or managers, and show that each transaction was reviewed to make certain that it benefited the organization.
But Davitian said her group did not support adding disclosure or transparency requirements to Vermont’s nonprofit law.
