Former Saint Francis Ministries CEO Robert Smith exploited a lack of financial controls and board oversight to drain the nonprofit’s resources on an IT project and escalating management expenses that included use of taxpayer funds for personal travel, liquor and entertainment.
A new audit released by the Kansas Department for Children and Families details how close the foster care provider came to financial ruin while serving 10,000 children and families across six states.
By June 30, 2019, the nonprofit was down to just $10,816 in cash and approaching its $10 million borrowing limit from Intrust Bank. Smith kept the organization afloat with a separate $10 million loan from the Paycheck Protection Program in April 2020, even though the nonprofit wasn’t eligible for the federal pandemic relief with its nine-figure budget and 1,600 employees.
Smith left the organization in November 2020, after a newly hired chief financial officer notified the board of financial irregularities.
Based on the new audit findings, DCF is asking Saint Francis to repay $22,913 for Smith’s personal expenses that were charged 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 weren’t accounted for in 2019.
DCF balked at the request, and it isn’t clear how the financial dispute will be resolved.
“We do not discuss private communications that occur with our state partners,” said Morgan Rothenberger, spokeswoman for Saint Francis. “Child welfare reimbursement is a complex system, and, as with any contract in the states in which we operate, there are many factors to consider as we work with our partners to provide quality care.”
DCF commissioned the Topeka-based BT and Co. accounting firm to evaluate the financial stability of Saint Francis and allegations of reckless spending that surfaced in an anonymous whistleblower’s letter to DCF in November 2019.
The firm began the audit in January 2020 and examined spending between July 1, 2018, and Sept. 30, 2019.
“I recognize that new leadership is making progress in many of the areas identified in the audit report, including taking steps to address their financial position, implementing effective internal controls and improved board involvement in financial management and key decisions,” DCF secretary Laura Howard said in a statement for this story. “DCF will continue to foster an enhanced monitoring and reporting relationship to ensure ongoing concerns are addressed. Saint Francis remains a valued partner in our work to improve the Kansas child welfare system.”
The audit details a severe decline in Saint Francis’ assets during a three-year period under Smith’s leadership.
In June 2016, the nonprofit held $7.3 million in cash and had just $21,000 drawn on its line of credit. Total assets were valued at $29.7 million. Three years later, with little cash and rising debt, assets were down to $16.7 million.
Still, in the summer of 2019, Smith entered into a severely underbid contract to expand child placement services into Nebraska, knowing it would cost Saint Francis millions. When staff objected, according to an investigator’s report, Smith said, “God will provide.”
Smith arrived at Saint Francis in 2014 as a priest ordained by the Episcopal Diocese of Chicago. The church has disciplined Smith for using poor judgment while running Saint Francis, and it reinstated his priesthood earlier this month in part because no new allegations were expected to surface in the DCF audit.
BT and Co. reviewed a sample of more than 200 expenditures totaling $934,210 from the fiscal year that ended June 30, 2019 — out of $103,234,435 in total expenses. Auditors discovered there was no approval or review of Smith’s expenses, and every statement of his was missing receipts.
“There were travel costs and hotel charges in nearly every month viewed in the sample, many of these seeming excessive for very nice hotels, first class flights, and several charges for meals and entertainment,” the audit report said.
Saint Francis didn’t employ a chief financial officer or financial controller between January 2018 and September 2020, which the audit identified as a mistake. The audit found no evidence that the board of directors ever reviewed Smith’s credit card purchases or expense reimbursements. Policies requiring approval of $1,000 purchases and dual signatures for $5,000 expenses were not always followed.
Smith’s travel expenses included trips with no business purpose to Oregon, London, Dublin and Florida. A trip to Chicago, which coincided with a board meeting, included limousine services, Chicago Cubs tickets and expenses at the University Club of Chicago.
Smith also used his American Express card issued through Saint Francis to pay for Sirius XM subscription fees, Salina Community Theatre tickets, alcohol from Brooks Liquor Store in Salina, Apple iTunes charges and Amazon purchases. There were more than $21,000 in charges for NFL and MLB tickets.
Smith arranged a deal on Sept. 9, 2019, to wire $65,000 to an unnamed “third-party agent” to purchase Chicago Cubs playoff tickets — four seats and reserved parking passes in the Maker’s Mark and 1914 Club sections, a total of eight tickets. Under the agreement, Saint Francis authorized the agent to resell the tickets and split the profits equally. Because of the lack of Saint Francis documentation, auditors were uncertain whether the money was ever advanced to the agent, but the funds would have been returned to Saint Francis when the mediocre Cubs failed to make the playoffs.
Sampling indicated $21,913.25 of Smith’s costs were charged to Kansas but not allowed under the agreement with DCF. Of that amount, Saint Francis says it has provided documentation for $5,923.60 in valid expenses.
Auditors flagged a contract between Saint Francis and WMK Research for its extraordinary cost and the security risk of outsourcing all IT controls.
The IT company’s owner, Bill Whymark, charged $10.3 million to Saint Francis for his IT services between December 2017 and June 2020. Many of the invoices weren’t approved before they were paid, and the rest were approved by Smith by email within minutes of receiving them. They included charges for iPhones, OtterBox cases, and travel for Whymark and his support team. Sequential invoice numbers indicated to auditors that Saint Francis was one of the company’s only customers.
Smith, in statements released after leaving Saint Francis, has tried to distance himself from Whymark by denying the two were ever business partners. Auditors describe Whymark as “a related party” to Smith.
When the IT system crashed in 2019, it wiped out financial records for a six-month period. Saint Francis has worked with five consultants to restore the data and ended its relationship with Whymark earlier this year.
Auditors also flagged accounting problems with the spreadsheet Saint Francis used to track service fees. The auditors found numbers hard keyed over formulas to make debits and credits balance. The accounting was prepared and reviewed by the same person, an “improper segregation of duties,” the audit report said.
BT and Co applied several metrics to assess nonprofit finances. The cost of services provided by Saint Francis slipped from 87% of total costs in 2016 to 83% by 2019. The goal is to be above 85%. Meanwhile, management expenses increased from 12% of total costs in 2016 to 16% in 2019. For nonprofits, management expenses should stay below 12.5%.
Rothenberger, the spokeswoman for Saint Francis, said the organization has “closed this chapter” and is focused on progress made under current leadership.
“We are pleased with the BT and Co. report, as the report shows that state and federal dollars have been used as intended,” Rothenberger said. “The final report provides assurance to DCF and our external stakeholders that Saint Francis is properly spending and accounting for state and federal funds.”
Howard, the DCF secretary, formally notified Saint Francis of the audit findings in a letter dated Oct. 8.
She asked for confirmation that the organization had addressed problems identified in the audit.
“DCF acknowledges the progress made in several organizational and financial areas, including addressing financial stability of the organization,” Howard said. “Continued progress in these areas, specifically regarding timely and accurate monthly financial reports and related documents, will be important in our continued partnership.”
Clark, the current CEO of Saint Francis, responded in an Oct. 14 letter that said the organization has a three-year plan to regain financial sustainability. He attached an independent assessment by Connor Consulting Corp. as evidence that proper controls were in place.
“Saint Francis has taken numerous steps over the past year to address both the financial position of the organization and overall management,” Clark wrote. “We have worked diligently to ensure more effective controls, processes, procedures and oversight are in place.”
However, he refused Howard’s request to repay nearly $22,000 for Smith’s personal expenses. Instead, Saint Francis expects to be paid $4.6 million for services provided in 2019, he said.
“Given the large financial loss, we do not intend to provide any form of reimbursement to the state,” Clark wrote.
Mike Deines, a spokesman for DCF, said the agency doesn’t owe additional funds to Saint Francis and no other contractor has made a similar request.
The status of a $10 million PPP loan used by Saint Francis early in the COVID-19 pandemic is unclear.
Most business can expect the U.S. Small Business Administration to forgive PPP loans, but the program was restricted to businesses with fewer than 500 employees, or those with a net worth of less than $15 million and net income of less than $5 million.
The audit report said Saint Francis consulted with an attorney who indicated the organization wasn’t eligible for the loan and would have to return the money.
Rothenberger said the loan is “considered paid in full,” but a database maintained by ProPublica shows the SBA has forgiven the loan, including $151,667 in interest.
“The fact that it is settled is as much as we are open to discussing,” Rothenberger said in response to a question seeking clarity on the issue.
After this story was published, Saint Francis provided the following statement about the PPP loan:
“Saint Francis Ministries, in partnership with our lender, followed the prescribed process for PPP forgiveness. Eligibility was reviewed during the forgiveness process and Saint Francis received approval. We qualified for the PPP based on the alternative size standard.”
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Story from Sherman Smith / Kansas Reflector