Where is our money going?
How accurately is the state tracking salaries earned by human services contractors in Massachusetts?
We looked at state fiscal reports, known as Uniform Financial Reports (UFR’s), which were filed by three of the largest contractors to the Department of Developmental Services, and we think these records raise that question.
In each case — the May Institute, Vinfen, and Seven Hills — the UFRs for the Fiscal Year 2009 listed lower salaries and other compensation for the same executives than did 2009 IRS tax filings for the same firms (Form 990s available on GuideStar). The UFR’s also listed a lower number of executives earning high levels of compensation than were listed on the Form 990s for the same firms.
Why might this be a problem? Because the state Operational Services Division (OSD) depends on the information in the UFRs to determine how much in state funds to apply to that compensation. By regulation, state funds going towards an indivdual contractor executive’s compensation are capped at $143,986 a year, according to OSD.
Take the May Institute, for instance. According to its UFR, the nonprofit contractor took in roughly $105 million in revenues in 2009, of which about 66 percent came from the Department of Developmental Services and a variety of other government agencies in Massachusetts. About 79 percent of the total revenues came from all government sources.
As of April 8, 2011, the online UFR states that Walter Christian, the May Institute CEO, made $509,798 in salary and other compensation in the year ending June 30, 2009. Based on that number and on information from OSD, we calculate that OSD would have been required to “disallow” about $366,000 of that total compensation, meaning that amount would have to come from other sources than the State of Massachusetts.
However, the IRS Form 990 for the May Institute for the same 2009 fiscal year lists Christian’s total compensation as $1.087 million. That’s a difference of more than half a million dollars between Christian’s compensation as listed on the state’s UFR and on the IRS 990 form. If Christian really earned $1.087 million in compensation, we calculate that the state should have disallowed more than $940,000 of it, not just $366,000 of it.
All of this suggests that based on the 2009 UFR, the commonwealth may mistakenly think that more than half a million dollars in potential state funds went into direct care or other operations at the May Institute, when it really went toward Christian’s compensation.
I would note that the UFR website stated as of April 8, 2011, that the latest online version of the May Institute 2009 UFR had been submitted by the contractor on March 22, 2010, more than a year ago, and still hadn’t been reviewed by OSD. A previous version of the UFR had been submitted in December 2009. The website stated that there were “no issues pending” regarding that version.
On March 21, I submitted a written question to OSD about the discrepancy in the listing of Christian’s compensation on the UFR and Form 990, and followed up with a phone call and an email on April 5, saying I was preparing a blog post about the issue. I still haven’t received a response.
An OSD official told me in the April 5 phone conversation that he had been too busy to get an answer to my question (and a few related questions about the UFR) and was going on vacation the following week. He said he didn’t know when he would be able to get the answers.
It’s not just with Christian’s compensation that there are discrepancies between the UFRs and the Form 990s, however. The May Institute UFR lists only Christian and one other executive as making over the $143,986 compensation threshold, above which compensation must come from sources other than the state. The Form 990 lists a total of 13 employees of the May Institute as making over that threshold amount. The discrepancy in listed compensation between the two forms was $3.4 million.
For Vinfen, the 2009 Form 990 listed a total of 10 employees as making over the threshold compensation for a total of $2.2 million, whereas the UFR lists a total of only four employees making only $997,000 — a difference of $1.2 million.
The UFR website stated as of April 8, 2011, that the latest online version of the Vinfen 2009 UFR had been submitted by the contractor on December 10, 2010, and was found by OSD to be “deficient.” No further information was provided.
For Seven Hills, the 2009 Form 990 lists four employees making over the threshold, for a total of $1.2 million in compensation, compared with the UFR, which lists only two employees making a total of $816,000. That’s a difference of $385,000.
The latest online version of the Seven Hills 2009 UFR was submitted to OSD on April 21, 2010. The OSD website stated that there were “no issues pending.”
Last month, The Globe published a letter I wrote on behalf of COFAR, suggesting that Governor Patrick scrutinize the salaries of human services contractors as part of an overall crackdown he had announced on salaries in the state’s independent agencies.
In response, Michael Weekes, president of the Providers’ Council, accused me of attempting to “smear the leaders” of the human services sector and of “making scurrilous attacks that distort the facts and mislead taxpayers.” Weekes said my concern over executive compensation was “moot” because state law caps the amount of state funds that can be applied to executive compensation. He added that my “real concern” should be over the low pay of direct-care workers in the human services contract system, many of whom only make $12 an hour and have gone three years with no increase.
I agree with Weekes that we should be concerned over the low pay to those direct care workers. That’s exactly why we’re asking these questions about the salaries of executives making as much as $1 million or more a year, and whether those executives’ salaries may be soaking up state funds that should be going to the direct care workers.
COFAR blog 
It stands to reason that more money funneled toward compensating executives means less money available for direct care workers. Regarding the reporting discrepancies, I’m wondering why the state uses UFRs instead of the IRS information in its calculations?
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I think part of the answer to your question is that the UFRs are much more detailed about sources of revenues and areas of expenses than are the IRS Form 990s. All the more reason that the UFR information should be accurate.
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Leaving aside technical issues (Does one system include fringe benefits, the other not, one demand all organizational salaries, the other only those working on state-contracted areas?) the discrepancy is impressive for these large and presumably carefully audited organizations; the overall leval of top salaries is becoming a scandal as public opinion turns into taking the Great Recession seriously; and the problem of top executives moving from government agencies that are now primarily contractors to private non-profits or for=profit companies that are primarily funded by government contracts — is what President Eisenhower warned us against 50 years ago. We have a do-gooder industrial complex in which privatization of government services has paid the short-term dividend and is now extracting the long-term inefficiency. There is no real competition among private contractors because they are so interlocked with the government grantors, and because they have grown and combined to make it a buyer’s market — a remarkable situation in an era of cutbacks. One would think that dwindling government revenues would give the state a strong position in pushing back on inefficient providers, but the contrary seems to be true — the providers are pushing on the state to reduce its oversight by reducing caseworkers and inspectors and writing down regulations.
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To answer your questions: Both the UFR’s and Form 990s appear to consider revenues from all sources and expenses in all areas. For instance, the May Institute UFR for Fiscal Year 2009 lists total revenues of $104.9 million and expenses of $105.2 million. The Form 990 lists total revenues of $100 million and expenses of $101.9 million. The numbers don’t match exactly, but are in the same ballpark. Interestingly, the UFR lists the higher total revenues and expenses, so it’s all the more surprising that the compensation for executives is lower in the UFR and the number of executives making over the threshold amount is also lower than on the 990 form.
Both the UFR and Form 990 appear to list all sources of compensation for the highest-paid employees. The UFR has two reporting lines for compensation — one labled “salary” and the second labeled “other.”
The state regulation capping state funding of employee compensation [808 CMR 1.05 (5)] states that “non-reimbursable costs” or costs ineligible for state funding include “those salaries, wages, and consultant compensation considered to be excessive by (OSD), in light of salaries, wages and consultant compensation of other comparable Contractors” (my emphasis). In other words, it appears from the language of the regulation that OSD bases its reimbursement decisions on the employee’s total compensation package, including salaries and fringe benefits, and the UFR numbers are intended to reflect those total compensation packages.
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Mark,
You are right that the State is reducing oversight and the ability to oversee what is going on. The vendors are playing their part but the Department is the biggest offender. So why are we not fighting that fight? Rather than advocate for no budget cuts to DPPC why are we not advocating for an increased budget for DPPC?
Based on the lack of oversight and control a very serious situation has happend at Hogan and I just found out it has happened at Wrentham also. Like Wrentham the Administration at Hogan does not seem to take the issue very seriously. In fact, did all it could do to sweep it under the rug. We need to start looking at the entire system not just one part. The entire system is broken. ICF/MR’s, State Operated and Vendor operated group homes are all in serious trouble.
I have said it before the rule and regulations DDS has are good but the problem is that they do not follow their own rules and regulations and therefore why should anyone else.
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Dave–can you provide any details on the serious situation at Hogan and Wrentham without sacrificing confidentiality issues? Perhaps it is something that needs some light shed on it.
I agree, to a point, with your opinion of the rules and regulations. I haven’t decided if they are good or not. I agree that DDS doesn’t follow them. In my experience the reason they don’t follow them is because the way they are written there is always a way for them to weasel out of following them. So while they never seem to be “binding” on the Department, they are ALWAYS BINDING, on the consumer. And the reality is the consumer has no where to go to protest that is free from the influence of the department or the current political policy.
The entire system is broken and with the current politics/politician, I fear it will only get worse.
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THIS IS VALUABLE RESEARCH AND i AM PROUD TO BE PART OF SUCH CAREFUL FACT FINDING. WE ARE ALL IN THE DARK PLAYING GAMES WITH PEOPLE WHO ARE PAID TO KNOW THIS INFORMATION AND TO RESPOND TO TAXPAYERS AND USERS.
I FIND IT SO APPAULING IN OUR AVAILABILITY TO THE INTERNAT AND SOURCES OF FACTS THAT OUR MASSACHUSETTES EMPLOYEES ARE NOT ANSWERING REASONABLE QUESTIONS ABOUT BUDGETS AND SERVICES. tHY GET AWAY WITH NOT EVEN A COURTESY RESPONSE.
MUST BE THEY FEEL WE ARE ATTACKING THEIR HANDSOME SALARIES!
aLL THE WHILE DIRECT CARE STAFFMAKE SO LITTLE SALARY THEY CAN NOT AFFORD A HOME FOR THEIR CHILDREN.
NOT GOOD!
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As an employee of the May Institute who actually works with the students the organization was founded to serve, it is also interesting to note that those of us who work directly with students are not subject to raises (at least in the past 5 years), we are unable to move up to higher positions because that requires a higher level of education and company-provided education benefits have been cut due to economic hardship. Besides this, we are asked twice a year to help fundraise for the institution.
As well, the clinicians (those who work out of offices and do not work 100% hands-on with the students) have received 20% cost of living raises where the majority of my co-workers (those who work 100% of the time with the students) try to work as much overtime as possible to make ends meet.
Our job is dangerous: we get beaten, bruised, sprained, and occasionally limbs are broken. We work at this job because we think the students are valuable people, but the organization offers little to no support.
It is appalling that there is so much money in the organization, but it only gets used for areas that are in the public eye: not the residential houses, not the overworked staff, not for activities that the students enjoy (they receive plenty of academic activities but unconstructive downtime is NOT allowed except in 5-15 breaks until bedtime.)
I have no power and I have to keep my job to financial survive, but I agree that this organization needs to be investigated from top to bottom and the investigation should include more than just the managers.
You do not need ridiculous amounts of money to assist people with autism – there are several successful programs running on shoestring budgets. Where is all this money going? I can promise you that it is not going to the students and technically the funding belongs to them.
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These are legitimate observations worthy of a second look, but please know the disclosures are different in the 2 reporting formats. The 990 discloses calendar w-2 wages even though the return may be a non-calendar year-end, for instance. There could be several other reasons for the discrepancies, although it’s always possible there is actually something wrong. Please refer to the instructions for both the 990 and the ufr and update your analysis.
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Chris, thanks for your comment. FYI, we have updated this post, based on information we received about the issue from the state Operational Services Division (see our update at https://cofarblog.wordpress.com/2011/05/16/administration-admits-to-discrepancies-in-vendor-salary-info/)
OSD acknowledged there are some differences in the compensation numbers reported in the two sets of reports, and they were seeking explanations from the vendors involved. They did offer explanations for some of the differences, but none of the explanations completely satisfied our concerns.
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It smells of corporate greed. Those who are merely figureheads reap the benefits while those who toll the hardest receive the least. As a taxpayer I’m appalled. It’s easy to understand why young people are taking it to forums, such as marches and sit-ins. It seems these corporate fat-daddy’s just can’t get enough. mr. Christian and his yes men/women should be ashamed of themselves.
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