Editorial: Vermont Nonprofit’s California Venture Needs Scrutiny

Sunday, June 07, 2015
It’s often said that any big nonprofit organization ought to be run like a business. We agree — just not like a bad business.

This observation is prompted by staff writer Rick Jurgens’ revelations last Sunday that Health Care and Rehabilitation Services of Southeastern Vermont Inc., headquartered in Springfield, took a flier on operating a string of group homes for developmentally disabled people in the Los Angeles area in recent years and lost $1.8 million in the process. That’s Los Angeles, as in California.

HCRS, of course, was in the news earlier this year when it was disclosed that it had paid its former chief executive, Judith Hayward, $686,000 in deferred compensation. What Jurgens’ piece added to the picture was that the losses on the California venture occurred during the final three years of her 17-year tenure, which ended June 30 of last year.

That this development is only coming to light now is attributable to the fact that HCRS operates with approximately the same degree of transparency as the National Security Agency. As a matter of policy, the organization does not make available to the public its governing documents, conflict of interest policy or audited financial statements. This from a nonprofit agency that contracts with the state to provide services to 4,500 mentally ill and developmentally disabled people in Windsor and Windham counties and receives millions of dollars a year in federal and state money, along with additional support from towns in its service area.

In fact, Jurgens was able to piece together the story only by prying HCRS’ audited financial statements and board minutes out of the Vermont Department of Mental Health by way of a public records request, a lengthy and expensive process.

The agency’s California dreaming apparently began at a time when HCRS was looking for growth opportunities and new revenue sources because of uncertainty surrounding funding in Vermont for Medicaid, the federal-state program that provides health insurance for low-income families. Eventually it signed contracts to operate seven small homes within a 50-mile radius of Los Angeles to care for up to 22 people with developmental disabilities. It proceeded to lease residences, purchase vans, get licenses and hire and train staff, in the expectation that the effort would generate $2.8 million in annual revenue.

The reality proved quite different. Once they were up and running, the homes did not fill up with clients as quickly as the agency’s California partners had promised, perhaps due in part to a complicated regulatory and bureaucratic environment with which HCRS was unfamiliar. As losses mounted, California officials apparently declined to bail out the HCRS operation, and by April 2014, the Vermont nonprofit had pulled out. At that point, the red ink amounted to $1.8 million over the three-year period ending June 30, 2014, which contributed to a $1.4 million operating loss for the organization. The only positive to be gleaned from the experience was that the service HCRS provided to clients was rated as excellent by its California partners.

Meanwhile, while HCRS was chasing dollars in the Golden State and preparing Hayward’s golden goodbye, Tropical Storm Irene was transforming the Vermont landscape, physically and fiscally. Among the things it destroyed was the antiquated Vermont State Hospital. The state built a new one for the acutely mentally ill and devoted more money to community-based services — ironically allowing HCRS to initiate new programs and open new facilities.

There may be a good explanation for this seemingly inexplicable adventure, undertaken 3,000 miles from Vermont, but unfortunately the key decision-makers who launched and executed the failed effort in California declined to provide one when Jurgens asked. In the absence of such an explanation, we conclude that the Department of Mental Health should conduct a thorough review of HCRS’ operations to make sure that it was an isolated misjudgment, albeit a big one, and does not reflect a systemic problem in the agency’s finances or operations. Moreover, the state should add a provision to the contracts of large nonprofits that receive public funding requiring them to post their audited financial statements online in a timely manner, a step State Auditor Doug Hoffer favors. And the current board of HCRS ought to commit itself to a new policy of transparency in order to rebuild public confidence. Sound business practices demand at least that much.

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