An audit of REACH of Jackson County’s finances received by the nonprofit’s board last month show the money situation had become even more dicey than was previously made public.
The agency, which worked with victims of domestic violence and sexual assault, shut down last week amid accusations of internal financial irregularities. Jackson County women and children seeking help from abusive situations are now reliant on other counties’ agencies to provide services and emergency shelter.
What primarily triggered the sudden closure was the nonpayment of payroll taxes for three quarters in 2011 to the Internal Revenue Services. The board last week fired the agency’s executive director and finance officer. The seven remaining employees were laid-off.
The audit, reviewed this week by The Smoky Mountain News, reportedly played a huge role in the board’s decision to pull the plug on the 33-year organization. Here were some of the findings of the financial review, which was dated Dec. 28 and prepared by the Waynesville firm of Gahagan, Black and Associates:
• The organization lost $128,216 in net assets for fiscal year 2010-2011.
• At the time of the financial review, REACH’s assets totaled just $58,104, but the agency had current liabilities of $200,863. That included long-term debt totaling $100,789 and unpaid payroll taxes of $76,752 (that number continued to climb, totaling about $81,000, including penalties, by the time the agency closed).
• The situation was so dire the amount of assets held by REACH couldn’t even cover its temporarily restricted obligations of $10,295. These are funds restricted in use, with dollars required to be spent in a certain timeframe or be spent for specific purposes only.
“These conditions make it uncertain as to whether the organization will be able to continue as a growing concern,” the auditors noted.
End was quick following audit release
In an interview last week, fired REACH Executive Director Kim Roberts-Fer said she waited to tell the board about the payroll tax issue until receiving the results of this audit. Roberts-Fer indicated she’d learned about the IRS problem in October. She said that she’d been in contact with the federal agency to try to work out a payment plan.
Roberts-Fer said her delay in relaying what was happening to the nonprofit’s overseeing board was justified because she wanted to give board members a complete picture of the situation, one that included solutions. Roberts-Fer said she had successfully worked out a compromise with the IRS that would have enable REACH to continue serving the community.
REACH’s board still hasn’t made any public comment except for the release of a small, prepared statement last week expressing their regrets over closing the agency.
But the auditor’s findings, coupled with the sudden appearance of an IRS agent who demanded personal financial information from board members, clearly influenced the decision to finally end the protracted death writhing of the virtually financially insolvent group.
According to Roberts-Fer, fired Finance Director Janice Mason was working within a financial system long in place at the agency. Mason has declined to comment through her former boss.
The auditor noted the following “client response” to the issue of the nonpayment of IRS payroll taxes: “The client was unaware of how to classify expenses through the accounts payable function and wrote the checks to classify expenses.”
A crisis agency in crisis
REACH’s financial practices encompassed monkeying around with paying various bills because of an ongoing funding crisis that had threatened the agency’s survival for two years. The agency put off paying payroll taxes in hopes of catching up but instead fell more and more behind.
The root of the problem started before then, however. REACH in 2001 opened a $1.1-million transitional-housing complex for victims trying to escape abuse. It was a questionable financial venture from the get-go: The nine-apartment village could not actually generate the funds to pay the loans, much less keep pace with general repairs and upkeep. The loan amount owed was $840,074.
The REACH village went into foreclosure. Recently control of that housing complex shifted to Mountain Projects, a nonprofit that administers programs to benefit the needy and elderly in Haywood and Jackson counties.
The IRS put a lien on the property in early February because of REACH’s nonpayment of taxes. That almost boogered up last week’s scheduled transfer to Mountain Projects. But, the U.S. Department of Agriculture (which was one of the original loan makers to REACH) persuaded the IRS to knock the $81,000 down to $51,000. REACH has agreed to be responsible for that debt if Mountain Projects would go through with taking over the property title.
Additional questions surfaced this week about whether REACH would even have been able to apply for and receive federal and state grants anymore since the agency both defaulted on a government loan and failed to pay the IRS. An estimated 90 percent of the nonprofit’s funding base was dependent on grant money.
Macon bailing out Jackson
In the short term, which could mean at least a couple of years, REACH of Macon County will provide services in Jackson County, including key legal services for domestic violence victims. The agency has been given a temporary office and phone at Jackson County’s social services department.
“It has seemed fairly seamless at this point,” said Ann VanHarlingen, executive director of REACH of Macon County. “We realize that Jackson County and the people of Jackson County will devise a system by which they will take this project back over; we also realize this is a process, not an event.”
REACH of Macon County expects to move into more permanent office space in Sylva March 1. That nonprofit will provide three staff members to Jackson County to ensure a continuation of services, said Andrea Anderson, director of client services for REACH of Macon County.
“The debt of gratitude the people of Jackson County owes REACH of Macon County is quite large right now,” Jack Debnam, chairman of the Jackson County Board of Commissioners, told VanHarlingen and Anderson during Monday’s commission meeting.
For now, victims fleeing abusive homes will be housed in emergency shelters in Haywood, Macon or Swain counties. That could change, however. Bob Cochran, director of the Jackson County Department of Social Services, said Mountain Projects via Patsy Dowling has offered Jackson the free use of the old emergency shelter in the former REACH Village.
VanHarlingen told Jackson County commissioners that it requires 18 to 24 months to fully setup a nonprofit agency to serve victims of domestic violence and sexual assault.
Cochran said in an interview with The Smoky Mountain News that “the dust needs to settle” before the community can chart its best course of action.
“It is still early in determining the status and the final outcome of the current REACH,” Cochran said. “We hope there will be some assets left that can be used toward a rebuilding process.”
Given the audit findings, that scenario seems increasingly unlikely.
In addition to not paying the IRS, REACH failed to pay several months rent for the space housing its thrift store. A lien seeking payment on back rent has been filed with the Jackson County Clerk of Court, and there is the possibility of more creditors seeking payment. Also, some of the employees of REACH are owed back pay.
Asked if Jackson County wouldn’t be better served by simply eliminating REACH and starting anew with a different name and no baggage, Cochran responded that he couldn’t answer that question yet.
“I don’t know. I think that conversation has yet to take place,” he said.