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This is where our money is going
Inspector General Gregory Sullivan has alleged numerous financial abuses in the state-funded Merrimack Special Education Collaborative, which coordinates special education programs among several school districts in Massachusetts.
Meanwhile, State Auditor Suzanne Bump is investigating whether the case is part of a larger pattern of abuse in the special education system in the state. And Sullivan’s findings are being reviewed by Attorney General Martha Coakley’s office.
While as many as three state agencies are now investigating this matter and potentially other special education contracts, it’s clear that state oversight of the special education system in Massachusetts has been lacking. The system has allowed one man, John Barranco, to allegedly fleece taxpayers of more than $10 million. The allegations include using a credit card for tens of thousands of dollars in personal items, gifts to a family member, and a no-show job to a lobbyst caught up in the Cognos software scandal involving former House Speaker Sal DiMasi.
We’ve just looked at the federal and state financial filings of the Merrimack Special Education Collaborative and related, nonprofit Merrimack Education Center, both of which Barranco allegedly controlled. These two organizations are clearly interrelated in a troubling way; and, as in the cases of some other contractors we’ve looked at, state and federal records don’t appear to match up with each other regarding the salaries of Barranco and other executives of the Special Education Collaborative and Education Center.
For instance, the federal IRS Form 990 for the Merrimack Education Center listed Barranco’s total compensation as $464,411 in FY 2009 and $525,198 in FY 2010.
However, the state Operational Services Division listed Barranco’s total compensation as $427,909 in FY 2009 and didn’t list any compensation for him in FY 2010 on its Uniform Financial Reports on the Merrimack Special Education Collaborative. (The OSD does not appear to have a UFR on file for the Education Center.) Is OSD unaware that Barranco apparently received more than a half million dollars in state-funded compensation in FY 2010?
According to the Globe, Barranco retired as executive director of the Special Education Collaborative in 2005 and appointed John Fletcher and Donna Goodell in 2007 as co-executive directors. Both Fletcher and Goodell were listed on OSD’s UFR for the Special Education Collaborative in FY 2009 as making over $200,000 each, and in FY 2010 as making about $150,000 each. In FY 2009, Barranco, despite his alleged retirement, was still listed on the UFR for the Collaborative as a third executive director.
The UFR and Form 990 reports raise numerous other questions about the financial accounting practices of both the Center and the Collaborative. For instance, although the OSD uses the UFR to disallow state funds for salaries of vendor executives in excess of $143,900, the 2009 UFR for the Collaborative indicates that no funds were disallowed for the Collaborative in 2009, even though five executives of the Collaborative — including Barranco, Goodell, and Fletcher — were listed as making over the threshold amount that year.
The FY 2009 and 2010 UFRs state that the Collaborative received $24.5 million from “Massachusetts local and quasi-governmental entities” (apparently the 10 member school districts in the Merrimack Valley) in FY 2009 and $15.9 million in FY 2010. In addition, the Collaborative received over $800,000 each year from the Department of Developmental Services.
Senate President Therese Murray has promised to introduce legislation to increase oversight of the special education collaboratives. But these collaboratives are only a part of the vast human services contracting industry in Massachusetts, and their alleged abuses are not unique to special education. The entire $2.6 billion vendor system needs better oversight.
Administration admits to discrepancies in vendor salary info
Patrick administration officials appear to be admitting we may be on to something when we pointed out the state may be getting different information than the federal government gets about salaries earned by human services contractors in Massachusetts.
In an email sent to us on May 11, Terry McCarthy, director of audit in the state Operational Services Division (OSD), acknowledged there were discrepancies between executive salary information provided to the OSD and to the federal Internal Revenue Service for the same contractors.
McCarthy stated that the OSD will “reexamine the cited (federal and state salary reports) for proper compensation disclosures,” and will seek explanations from two of the contractors we identfied for apparent discrepancies in their numbers.
At the same time, McCarthy put forward at least three explanations for the discrepancies, none of which fully satisfy our concerns about them.
First, a bit of background. Concern has mounted around the country about salaries of executives of nonprofits. In Massachusetts, that concern has largely centered around the pay of executives of hospitals and health insurers, but it has also extended to the hundreds of nonprofit vendors that contract with the state to provide human services to people with disabilities.
The OSD, which oversees the contracts with these vendors, requires them to provide detailed financial reports that disclose, among other things, the salaries made by their executives. In addition, a state regulation caps the amount of state funding that goes to pay these salaries at $143,986 a year, meaning that sources other than the state would have to fund salaries higher than that amount.
One of the purposes of this regulation capping executive salaries is to ensure that an adequate amount of state funding is put towards wages of direct-care workers.
COFAR examined state Uniform Financial Reports (UFRs), which are filed with the OSD, and Form 990s, which are filed with the IRS, for the May Institute, Vinfen, and Seven Hills, three of the largest contractors to the Department of Developmental Services. In each case, 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.
The UFRs also listed a lower number of executives earning high levels of compensation than were listed on the Form 990s for the same firms. These discrepancies imply that OSD may be unaware of the total amount of state funding potentially being used to pay salaries of these executives.
In his response, McCarthy acknowledged that the total compensation of four of five identified Vinfen executives appeared to be underreported on the UFRs by $101,539, while the compensation of two executives of Seven Hills appeared to be underreported by $18,509. McCarthy said OSD will seek explanations from those contractors about those differences.
COFAR also reported that the 2009 IRS form for Seven Hills listed four employees making over the $143,986 threshold, while the state UFR listed only two employees making over that amount. The difference in reported compensation between the two forms was $385,000.
For Vinfen, the 2009 IRS form listed a total of 10 employees earning more than the threshold compensation amount, while the UFR listed only four employees earning more than that amount. The difference was $1.2 million.
McCarthy, as noted, stated that the OSD will reexamine the compensation disclosures made by these vendors. However, he also offered two explanations for the differences in the numbers of executives listed on the state and federal forms. One is that there are different filing deadlines for the two forms: the IRS forms lag behind the UFRs.
That may be, but it doesn’t seem a sufficient reason to list different salary numbers on each report or to report salaries for more people on the 990 forms than on the UFRs. Moreover, the 2009 Form 990 for Vinfen was signed by its president on May 14, 2010. The UFR was first submitted to OSD in November 2009 and refiled in April 2010 and then in December 2010. Again, there’s no apparent reason why the final UFR, which was submitted after the Form 990, would have less executives listed and lower salaries than the Form 990.
The second explanation offered by McCarthy was that the Form 990 has “more expansive” compensation disclosure requirements than the UFR. McCarthy said the UFR is limited to including individuals in policy making positions, and would therefore not include a highly paid clinician, for instance.
That doesn’t seem to jibe, however, with the OSD’s reimbursable cost regulation, which doesn’t say anything about exempting non-policy making individuals from the salary cap.
Also, all of the 13 individuals listed in the May Institute Form 990 as making over $150,000 are executive-level employees, starting at senior vice presidents on up to the president and CEO. Those people are all clearly policy-making individuals, yet only two of them are listed on the UFR.
Finally, McCarthy addressed our finding that there was more than a half million dollar difference in the reporting of the compensation of the CEO of the May Institute on the state and federal forms in 2009. This, he said, appeared to be largely due to a one-time $682,343 distribution to the CEO on a vested deferred compensation plan that had been previously reported annually as deferred compensation.
It wasn’t clear, however, whether McCarthy was saying that because this was a one-time distribution on a previously reported deferred compensaton plan that it didn’t need to be reported on the 2009 UFR. But even if the CEO’s compensation isn’t counted, the difference between the total compensation for the 12 other May Institute executives listed on the IRS form and the compensation for the one other executive listed on the state UFR is $2.8 million.
We’re glad the OSD will go back to these three vendors and check to see that their UFRs were filled out accurately. But we’re concerned that there is a potentially larger problem here. It seems OSD does not have the capacity to adequately oversee the contracting system in this state. One indication of that is 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, yet it still hadn’t been reviewed by OSD as of today’s date.
This administration needs to get a better handle on the human services contracting system in Massachusetts.
Seeking a chance to speak truth to power
State Rep. Anne Gobi (right) listens to Joan Douty (center) talk about her daughter's experience at Glavin
The administration, which also has no time to listen to people like Joan Douty, claims Glavin and the other centers must be closed because they’re too expensive to operate. But COFAR has maintained that the administration’s claimed cost savings in closing the centers appears to be based on an apples-to-oranges comparison of the average community-based resident and the average facility-based resident. Developmental center residents are older, more medically involved and more intellectually disabled on average than community-based residents.
Moreover, as COFAR and other advocates have noted, the centralized services model of the developmental centers is highly cost-efficient when compared to the dispersed clinical, medical, and day services that characterize the community system.
COFAR has called since last year for an independent study of the cost of closing or maintaining the developmental centers because previous budget amendments have resulted in flawed analyses done by the administration itself, concluding, of course, that the facilities should be closed.
But here’s the problem. In the Massachusetts Legislature, a handful of people make all the decisions, and Rep. Dempsey is one of them. There was no floor vote this week on Rep. Gobi’s amendment for the independent study. In a closed-door meeting in his office, Dempsey simply ordered that Gobi’s amendment be scuttled. It was not included in a catch-all budget amendment boosting human services line items that will be voted on this week.
Among those who Rep. Dempsey apparently has been listening to are the human service vendors in Massachusetts, who run most of the community-based group homes in the state and who are seeking more business when the developmental centers are closed. In a letter sent to Dempsey and other legislators a day before Gobi’s amendment was thrown out, the Association of Developmental Disabilities Providers continued to pump out misinformation about the developmental centers.
The ADDP letter called for rejection of Gobi’s amendment and repeated the dubious claim that the developmental centers are “expensive and inefficient to operate.” So why not agree to an independent study which would settle the question as to which system is most efficient? To that, the ADDP letter made the ridiculous assertion that “this issue has been the subject of study for 30 years.”
Among the other pieces of misinformation in the ADDP letter was the claim that the developmental centers aren’t needed because “families overwhelmingly choose community settings for their loved ones.” The ADDP letter didn’t mention that that’s because admissions to the developmental centers have been effectively blocked since the 1980s.
The fact is that families that are being transferred from the developmental centers targeted for closure have overwhelmingly chosen to be placed at other developmental centers or in state-operated group homes. They are avoiding the vendor-run system because they know it is beset with problems of poorly paid and under-trained staff.
The Senate now remains the only real hope for this sorely needed independent cost study. We believe the study should be done by a non-governmental entity selected by either the State Inspector General or State Auditor. Once again, though, the question remains whether Senate leaders will allow such an amendment to be debated in the light of day or whether they will do what the House did and quietly kill it in the proverbial smoke-filled room.
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 