Women's Advocates, Inc.

Women's Advocates, Inc.
Financial Audit Division
The Office of the Legislative Auditor (OLA) is a professional, nonpartisan office in the legislative branch of Minnesota State government. Its principal responsibility is to audit and evaluate the agencies and programs of state government (the State Auditor audits local governments). OLA's Financial Audit Division annually audits the state's financial statements and, on a rotating schedule, audits agencies in the executive and judicial branches of state government, three metropolitan agencies, and several "semi-state" organizations. The division also investigates allegations that state resources have been used inappropriately. The division has a staff of approximately fifty auditors, most of whom are CPAs. The division conducts audits in accordance with standards established by the American Institute of Certified Public Accountants and the Comptroller General of the United States.

Consistent with OLA's mission, the Financial Audit Division works to:
Promote Accountability, Strengthen Legislative Oversight, and
Support Good Financial Management.
Through its Program Evaluation Division, OLA conducts several evaluations each year and one best practices review.

OLA is under the direction of the Legislative Auditor, who is appointed for a six-year term by the Legislative Audit Commission (LAC). The LAC is a bipartisan commission of Representatives and Senators. It annually selects topics for the Program Evaluation Division, but is generally not involved in scheduling financial audits.

All findings, conclusions, and recommendations in reports issued by the Office of the Legislative Auditor are solely the responsibility of the office and may not reflect the views of the LAC, its individual members, or other members of the Minnesota Legislature.

This document can be made available in alternative formats, such as large print, Braille, or audio tape, by calling 651-296-1727 (voice), or the Minnesota Relay Service at 651-297-5353 or 1-800-627-3529. All OLA reports are available at our Web Site: http://www.auditor.leg.state.mn.us

If you have comments about our work, or you want to suggest an audit, investigation, evaluation, or best practices review, please contact us at 651-296-4708 or by e-mail legislative.auditor@state.mn.us

Representative Tim Wilkin, Chair
Legislative Audit Commission

Members of the Legislative Audit Commission

Mr. Rich Stanek, Commissioner
Department of Public Safety

Ms. Kathleen H. Corley, Interim Executive Director
Women's Advocates, Inc.

Members of the Women's Advocates, Inc. Board of Directors

We have conducted a special review of Women's Advocates, Inc.'s, financial management of per diem and grant funding from the Department of Public Safety, for the period July 2000 through September 2002. Women's Advocates, Inc., is a private nonprofit organization whose primary mission is to help women successfully leave violent relationships. For fiscal years 2001 through 2003, the state awarded nearly $5 million of per diem and grants to the organization.

We conducted the review in response to concerns identified by the Department of Public Safety during a site visit of the organization. The department questioned several of the organization's management practices and was concerned about the support for and the appropriateness of the organization's use of state funds. Based on preliminary information obtained from the organization, we decided to pursue the matter further and issue this special report. The following summary highlights our objectives and conclusions. We discuss the issues more fully in the individual chapters of the report.

Pursuant to Minn. Stat. Section 3.975, we have referred this report to the Office of the Attorney General. The Office of the Attorney General has the responsibility to ensure the recovery of state funds, and in fulfilling that role, may negotiate the propriety of individual claims.

This report is intended for the information of the Legislative Audit Commission and the management of the Department of Public Safety. This restriction is not intended to limit the distribution of this report, which was released as a public document on September 5, 2003.

/s/ James R. Nobles /s/ Claudia J. Gudvangen

James R. Nobles Claudia J. Gudvangen
Legislative Auditor Deputy Legislative Auditor

Report Signed On: September 2, 2003

Table of Contents
Report Summary
Chapter 1. Introduction
Chapter 2. Per Diem and Grant Administration
Auditor's Comments on Women's Advocates, Inc.'s Response
Women's Advocates, Inc.'s Response
Department of Public Safety's Response
Audit Participation

The following members of the Office of the Legislative Auditor prepared this report:

Claudia Gudvangen, CPA Deputy Legislative Auditor
Cecile Ferkul, CPA, CISA Audit Manager
Marla Conroy, CPA, CISA Director of Investigations
Jean Mellett, CPA, CFE Investigator

Exit Conference

The following representatives from Women's Advocates, Inc., and the Department of Public Safety participated in the exit conferences held on July 28, 2003, and July 31, 2003:

Women's Advocates, Inc.:

Michael McGrane Chair Kathleen Corley Interim Executive Director
Barbara Leigh-Kaplan Board Member Kathryn Bishop Attorney
Mary Ann Jurney Board Member Ed Magarian Attorney
Patricia Banks Board Member Katie Pfeifer Attorney

Department of Public Safety:

Mary Ellison Executive Director, Center for Crime Victim Services
Sue Perkins Grants Specialist Coordinator
Lou Powell Per Diem Coordinator
Robert Erickson Accounting Supervisor Principal

Report Summary

We have conducted a special review of Women's Advocates, Inc., a private, non-profit organization that received per diem and grant payments from the Minnesota Department of Public Safety. Women's Advocates, Inc. was incorporated in 1972 to help women successfully leave violent relationships, to teach children and youth to use non-violent alternatives when relating to others, and to change community attitudes about domestic violence through information and education. For fiscal years 2001 through 2003, the state provided the organization nearly $5 million as per diem or grant awards.

Our objective in conducting this special review was to answer the following question:

Did Women's Advocates, Inc. have appropriate internal controls to ensure that it expended grant funds in accordance with legal requirements and grant contract provisions and in a reasonable and prudent manner

Key Conclusions

Women's Advocates, Inc. did not have appropriate controls to ensure that it spent state funds for reasonable and necessary costs of the program and in accordance with legal requirements and grant contract provisions. As explained in Finding 1, the board did not adequately oversee the operation of the organization to ensure that state funds were spent for the benefit of the program. The board's lack of sufficient controls allowed the executive director to borrow $30,000 for short-term personal use. The board also did not set or monitor the executive director's compensation. The board did not formally evaluate the executive director's performance for at least two years and was not aware that the executive director had not evaluated other management staff. The board did not establish guidelines to ensure the appropriateness of expenditures. The organization expended $1,300 for unauthorized political contributions and unreasonable home office furnishings that were not recovered. The board may need to repay the state for these transactions.

As discussed in Finding 2, the former executive director of Women's Advocates, Inc. supplemented her compensation by determining her own salary increases and bonuses, setting the employer contribution amount paid to her retirement fund, and cashing in excessive paid-time-off hours. The board recovered $21,500 from the retirement fund as unauthorized compensation. She also supplemented the compensation of other staff by paying bonuses and allowing them to cash in excessive hours of paid-time-off beyond the terms agreed to by the board. From January 1, 2000, through September 30, 2002, staff received unauthorized compensation totaling nearly $194,474. Women's Advocates, Inc. needs to repay the Department of Public Safety for the unauthorized and unreasonable costs.

Chapter 1. Introduction

Background

We have conducted a special review of Women's Advocates, Inc., a private, non-profit organization that received the majority of its funding from per diem and grant payments through the Minnesota Department of Public Safety. Women's Advocates, Inc. was formed in 1972 to help women successfully leave violent relationships, to teach children and youth to use non-violent alternatives when relating to others, and to change community attitudes about domestic violence through information and education. The organization is licensed for 50 beds and is usually at capacity.

In 1977, legislation was passed establishing funding for maintenance and security costs for battered women's shelters through the general assistance program at the Department of Human Services. Effective July 1, 2000, the per diem program went from an entitlement program funded through general assistance to a capped General Fund appropriation currently administered by the Department of Public Safety's Crime Victims Services Division. Laws of Minnesota 2000, Chapter 445, Article 2 defined the per diem rate and program operations as follows:

Section 22, Subd. 6 Per Diem Rate:

"Per diem rate" means a daily charge per person for providing food, lodging, safety, and 24-hour coverage for battered women and their children.
Section 23, Subd. 1 Purpose:
The purpose of the per diem program is to provide reimbursement in a timely, efficient manner to local programs for the reasonable and necessary costs of providing battered women and their children with food, lodging, and safety. Per diem funding may not be used for other purposes. [Effective July 1, 2000]

Before 2001, the state required battered women's shelters to complete a per diem application that included a budget of allowable costs. At that time, the shelter's budget was used to determine its per diem rate. The budget document listed allowable costs and provided an explanation of what these costs included. For example, the budget allowed for food, further defined as "cost of food for all shelter residents, including formula and baby food." The budget also allowed for security and maintenance salaries and fringe benefits as follows:

Salaries of staff providing security and 24-hour coverage for women and children in the shelter.

Salaries of staff responsible for the upkeep of the facility and grounds, purchase of groceries and supplies, preparation of food, bookkeeping, and clerical duties.

Fringe benefits include costs, other than salary, related to security and maintenance staff. Includes: social security, workers compensation, unemployment, health, life, and disability insurance, retirement plans, and other benefits.

The budget also provided for indirect costs which were defined as costs that were incurred for a common or joint purpose and which could not be readily and specifically identified with a particular project or activity. The indirect costs included salaries and fringe benefits of employees who did not separate hours worked by day or by project. A portion of the total indirect costs of a shelter could be allocated to the per diem budget.

Beginning in 2001, the state no longer required shelters to complete a per diem application or budget document when the funding changed from general assistance to a capped General Fund appropriation. Rather than each shelter providing budget information to calculate a per diem rate, the Center for Crime Victims Services determined the shelters' per diem rate based on the available funding. The center established a rate for metro area shelters and a rate for shelters located in greater Minnesota.

Representatives from the Department of Public Safety stated that although the method for determining the per diem rate changed over time, the purpose of the program and what the funds were to be used for had not. In March 2002, the Department of Public Safety held a training seminar for battered women's shelters. Before the training, the department had sent the training materials to Women's Advocates, including a "Program Guide For Allowability of Costs." The guide provided a list of budget line items that were either allowable or unallowable under the state and federal funded programs. The allowable and unallowable costs did not significantly vary from those identified prior to 2001. No staff from Women's Advocates attended the training.

The 2002 legislative session changed the per diem program to a grant program effective July 1, 2003.

For fiscal years 2001 through 2003, the Women's Advocates per diem rate was approximately $80 per bed, or about $1.5 million annually. The Department of Public Safety also provided a supplemental general operating grant of $103,000 annually, partly funded by a federal program. In fiscal year 2001, the department provided additional federal funds to the organization through the Victims of Crime Act grants. The organization also received non-state funding through gifts and grants from foundations.

The organization received, on average, 80 percent of its funding from state per diem and grant payments. Table 1-1 summarizes state payments to Women's Advocates, Inc. for fiscal years 2001 through 2003.

Table 1-1
State Payments Disbursed to the Women's Advocates, Inc.
Fiscal Years 2001 through 2003

2001 2002 2003 (1)

Per Diem $1,681,900 $1,563,245 $1,419,215
Supplemental Operating Grant
(Federal/State)
103,000
103,000
103,000
Victims of Crime Act Grant
(Federal)
164,000
0
0

Total $1,948,900 $1,666,245 $1,522,215

Note 1: Although the scope and review of transactions was through September 30, 2002, the table reflects fiscal year 2003 transactions through August 14, 2003, for comparison purposes.

Source: Minnesota Accounting and Procurement System.

The organization uses over half of its total funding to pay staff for program and managerial services. Other major expenditure areas include food and household services for shelter residents, professional fees and consultant expenses, insurance, utilities, and printing costs. The organization had an annual audit of its financial statements.

Since fiscal year 2000, state per diem funding to battered women's shelters has decreased. In fiscal year 2000, Women's Advocates received a state per diem of $101 per resident. In fiscal year 2001, the state paid the organization a per diem of approximately $80 per resident, resulting in Women's Advocates projecting a budget deficit of $258,000. At its January 9, 2002, board meeting, the executive director's report indicated that the state would reduce funding by $1 million dollars to battered women's shelters statewide. As a result of these proposed budget reductions, Women's Advocates laid off two employees and did not fill a vacancy. At its February 6, 2002, board meeting, the executive director provided members a copy of the fiscal year 2002 operating budget, which again projected a shortfall totaling $129,000. At this time, the board discussed a possible need to use a portion of the organization's $800,000 reserve to cover any deficit.

In September 2002, the Department of Public Safety asked the Office of the Legislative Auditor to review concerns it had resulting from a site visit at Women's Advocates, Inc. The site visit concerns were mainly about the lack of oversight by the organization's board, the compensation of staff, and the support for various expenditures. In response to the request, we conducted a preliminary assessment to determine whether the issues warranted further review. Based on preliminary information obtained from the association, we decided to pursue the matter further and issue a special report.

Objective and Methodology

Our objective in conducting this special review was to answer the following question:

We examined the accounting records of Women's Advocates, Inc. and interviewed selected employees, contractors, the board's attorney, and the current board chair. We reviewed relevant documents, including the grant agreements and reports. We also obtained additional information from the Department of Public Safety's Crime Victims' Services Division. Our review was not a full audit of the organization's financial records.

Women's Advocates, Inc. was able to provide supplemental information to alleviate some of the Department of Public Safety's concerns. However, as explained in Chapter 2, the organization lacked sufficient board oversight to ensure that it spent funds for reasonable and necessary costs of the program and in accordance with legal requirements and grant contract provisions. As a result of the lack of sufficient board oversight, the executive director supplemented her compensation and the compensation of other staff without board authorization. Our concerns relate primarily to the use of per diem funds.

Chapter 2. Per Diem and Grant Administration

Chapter Conclusions

Women's Advocates, Inc. did not have appropriate controls to ensure it spent state funds for reasonable and necessary costs of the program and in accordance with legal requirements and grant contract provisions. The board did not adequately oversee the operation of the organization to ensure that it spent state funds for the benefit of the program. The former executive director of Women's Advocates, Inc. inappropriately supplemented her compensation by determining her own salary increases and bonuses, setting the employer contribution amount paid to her retirement fund, and cashing in excessive paid-time-off hours. She also supplemented the compensation of other staff by paying bonuses and allowing them to cash in excessive hours of paid-time-off beyond the terms agreed to by the board.

Pursuant to its by-laws, the Women's Advocates' board of directors consists of between seven and fifteen members. The board fills vacancies through evaluation of candidates nominated by board members. Historically, several staff members had served on the board. While this is generally not a good business practice, it does not violate legal requirements or grant agreements. The board generally met quarterly to discuss the organization's programs and to plan future operations. The board received budgetary and expenditure information, but appeared to rely extensively on the executive director in the conduct of its financial operations.

The executive director was a founding member of the organization and became its first executive director in 1985. She served in that role for nearly 17 years. In August 2002, the board placed her on temporary suspension as a result of the questions raised by a grant site visit by the Department of Public Safety. The board terminated the executive director's employment in September 2002.

Conclusions

Women's Advocates, Inc. did not have appropriate controls to ensure it spent state funds in a reasonable and prudent manner and in accordance with legal requirements and grant contract provisions. As explained in Finding 1, the board did not adequately oversee the operation of the organization to ensure that state funds were spent for the benefit of the program. As discussed in Finding 2, the former executive director of Women's Advocates, Inc. inappropriately supplemented her compensation by determining her own salary increases and bonuses, setting the employer contribution amount paid to her retirement fund, and cashing in excessive paid-time-off hours. She also supplemented the compensation of other staff by paying bonuses and allowing them to cash in excessive hours of paid-time-off beyond the terms agreed to by the board.

1. The Women's Advocates, Inc.'s board did not adequately oversee the operation of the organization.

The Women's Advocates, Inc.'s board did not adequately oversee the actions of the executive director relating to financial operation of the organization. As its appointee, the executive director is accountable to the board. However, the executive director was able to borrow funds from the organization without notification to or authorization from the board. In addition, the board did not set or monitor the executive director's compensation. The board also did not formally review the executive director's performance, was not aware that the executive director had not evaluated staff, and had not established guidelines to ensure the appropriateness of expenditures. Although the organization's by-laws provided the executive director with general and active management authority, this authorization did not relinquish the board from its fiduciary responsibilities.

When unable to access personal funds on September 11, 2001, due to the terrorist attacks, the executive director borrowed $30,000 from the organization for a personal real estate transaction scheduled for that day. She did not seek authorization from the board nor did she inform the board about the transaction. She repaid the loan on September 24, 2001. The executive director, regardless of the extenuating circumstances, should not have used organization funds for a personal purpose, even on a temporary basis. The board could have established controls, such as requiring a board member's signature on checks over a certain amount, which would have better protected the organization's funds from unauthorized use.

The board did not set or monitor the executive director's compensation. The lack of board oversight allowed the executive director to set her own compensation at an unreasonably high level. For example, in fiscal year 2002, the executive director's total compensation, including her base salary, pension contributions, and other unauthorized compensation, exceeded $170,000. We discuss the unauthorized and unreasonable compensation paid to the executive director in more detail in Finding 2.

The board had not formally reviewed the executive director's performance for at least two years. An integral part of an organization's annual cycle of review and planning should include a review of the executive director's performance. The board, in partnership with the executive director, should decide the process, time, and form of this review. An assessment of the executive director's performance may have included discussions with other organization staff, review of key financial indicators of the organization, and review of the executive director's hours, commitment, and compensation. Through such discussions, the board may have learned if there were staff concerns relating to the executive director's management practices. The board also may have learned of the compensation practices that increased the executive director's pay to unreasonable levels.

The board was not aware that the executive director had not evaluated other management staff. It should have requested information about these other performance appraisals to ensure that the executive director regularly performed them. Conducting these performance appraisals is an important part of the executive director's responsibilities. Had the board been aware that the executive director had not conducted the performance appraisals, it could have intervened to ensure that the evaluations were completed. Also, the lack of evaluations may have served as a key indicator of the performance of the executive director. The organization's employee handbook provides that performance evaluations are scheduled to take place during February and March of each year.

The board did not establish guidelines to ensure the appropriateness of expenditures. Some purchases were for items that had questionable benefit to the organization and were made when the organization faced decreased state funding and budget deficits.

In September 2001, the executive director purchased approximately $4,600 of furniture and equipment for a home office before obtaining board approval. Even though the board subsequently authorized the executive director to purchase items for a home office, it did not anticipate the extent of the purchase. (After the executive director's termination, the board returned the furniture and obtained a partial credit on the organization's corporate credit card of about $3,500.)

In May 2002, Women's Advocates, Inc. made a $100 contribution to a political campaign. In June 2002, the organization reimbursed the executive director an additional $100 for a contribution she made to the same campaign. The organization made these payments from program accounts that received state funding. Political fundraising or lobbying activities are not a permitted use of state funds.

The executive director also used the corporate credit card to pay for lunches. While she usually provided a receipt for the meal, she did not always indicate who attended the lunch with her, what the purpose of the meeting was, or why it was necessary to meet during a meal. This may have been an inappropriate use of state funds. On at least one occasion, the meal included alcoholic beverages, which are generally not a permitted use of state funds.

Staff purchased a digital camera for $435 and provided gift cards to selected residents as part of a reward system. In addition, the organization compensated a former resident $900 for belongings it had discarded. While these may have been legitimate expenditures, the board should have guidelines establishing the allowability of these costs or staff should have sought express approval due to the unusual nature of the transactions.

Had the board established guidelines or procedures requiring its authorization for major or sensitive purchases, it could have questioned, and possibly, disallowed some or all of the expenditures.

The board is responsible to ensure that the organization spends state funds in accordance with the grant agreement for reasonable and necessary expenses of the program. Money that the organization spends that does not contribute to the mission of the organization results in fewer funds being available for battered women and their children. The state and other supporters need to be confident that the board will manage their donations and gifts exclusively to further the organization's stated mission and objectives.

The executive director's long history with the organization may have distorted her relationship with the board. The executive director was an original founder of the organization and began her term as executive director in 1985. At least some of the problems may result from the inability of the organization to make a transition from a "founder driven" to a "board guided" organization.

After learning of the concerns raised by the Department of Public Safety, the board took immediate action. In August 2002, the board placed the executive director on an involuntary and indefinite leave without pay and took steps to prevent her access to the organization. The board subsequently terminated the executive director's employment in September 2002. The board also retained an attorney to represent the organization. They reorganized the composition of the board, removing staff from the board. They sought training for the board to better understand its role and responsibilities. They instituted a policy requiring two signatures on checks over $500, with one signature being a board member. They hired an interim executive director, setting the salary range at about half of what the former executive director had been compensated. They curtailed the practices of allowing staff to cash in paid-time-off hours and receive bonuses. Based on these actions, the board appears to be taking appropriate steps to improve the operations of the organization.

Recommendations

The Department of Public Safety should monitor the progress of the Women's Advocates' Board of Directors to ensure that it continues to provide appropriate oversight to the organization, and that it expends state funds for their intended purposes.

The Department of Public Safety should recover from Women's Advocates the state funded portion of the following unauthorized and unreasonable costs:

Political contributions totaling $200.

Home office furniture totaling $4,600. (The department may want to consider allowing the organization to use the $3,500 credit to provide future services.)

2. The former executive director inappropriately supplemented her compensation
and the compensation of other staff without board authorization.

The former executive director of Women's Advocates, Inc. supplemented her compensation by determining her own salary increases and bonuses, setting the employer contribution amount paid to her retirement fund, and cashing in excessive paid-time-off hours. She also inappropriately supplemented the compensation of other staff by paying bonuses and allowing them to cash in excessive hours of paid-time-off beyond the terms agreed to by the board. While the board generally granted the executive director broad management authority, it did formalize its personnel management policies in an employee handbook, approved in April 2000. The handbook allowed staff to cash in a limited number of paid-time-off hours and did not discuss or authorize staff bonuses.

The board did not set or monitor the executive director's compensation. The lack of board oversight allowed the executive director to inappropriately supplement her salary. Starting in 2000, the executive director determined her own salary increases. Effective January 1, 2000, the executive director increased her base salary by $5,000. Effective January 1, 2001, she increased her base salary by an additional $15,000.

The executive director also determined the amounts the organization would contribute to her 403(b) retirement fund. She directed the organization to make contributions to her retirement fund consisting of ten percent of her salary plus $20,000 to be paid in 12 equal installments, effective January 1, 2001. Representatives of Women's Advocates told us that the executive director approached the board chair and requested the additional contributions to her retirement fund, indicating that it was a way to catch-up on inadequate contributions made in the past. At that time, the board chair told the executive director to consult with the organization's attorney, however the executive director did not follow the board chair's instructions and proceeded with the unauthorized contributions. In February 2002, she reduced the retirement fund contribution by the organization to ten percent of her salary. After her termination, the board was able to recover $21,500 from the retirement fund as unauthorized contributions.

The executive director cashed in excessive amounts of paid-time-off hours. The employee handbook, approved by the board in April 2000, allowed employees to cash in 80 paid-time-off hours in any fiscal year. In fiscal year 2002, the executive director cashed in 520 hours of paid-time-off hours, often before she earned those hours.

The paid-time-off benefit provides hours for employees to use at their discretion for vacation, personal business, and, in certain circumstances, for illness or injury. The employee handbook allows staff 20-52 days of paid-time-off annually, based on years of seniority. The employee earns the paid-time-off hours on a bi-weekly basis. The employee can use paid-time-off after it is earned. At the end of a year, staff can carry over to the next year up to 80 hours of unused paid-time-off. An employee can also request to exchange up to 80 hours of earned paid-time-off for cash during any one fiscal year. (A revision to the policy, effective August 12, 2002, allowed an employee to cash in up to half of their earned but unused paid-time-off. However, board minutes do not indicate that the board discussed or approved this significant policy change.) Upon termination, an employee is paid for all earned, but unused, paid-time-off.

The executive director also determined and authorized her own bonuses. Although bonuses were reflected in budget documents, the board's personnel handbook did not discuss bonuses as a form of compensation. In addition, we found no evidence of the board specifically approving the executive director's bonuses at the amounts paid. In fiscal year 2002, the executive director received eight weeks pay as a bonus.

Table 2-1 shows the executive director's unauthorized and unreasonable compensation that she initiated for herself in fiscal year 2002. While the executive director's compensation in other periods included unauthorized amounts, during fiscal year 2002 the compensation clearly exceeded reasonable and necessary levels.

Table 2-1
Summary of the Executive Director's Unauthorized and Unreasonable Compensation
July 1, 2001, through June 30, 2002

Salary Increases (1) $20,000
Pension Contribution 21,500
Paid-Time-Off (2)(3) 23,269
Bonus (3) 16,923
Total $81,692

Note (1): Salary increases include a $5,000 increase effective January 1, 2000, and an additional $15,000 increase effective January 1, 2001.
Note (2): The paid-time-off amount reflects the hours, in excess of the 80 hours allowed for by the employee handbook, that were cashed in during the fiscal year.
Note (3): Paid-time-off and bonus amounts total $40,192. This amount is also reflected in Tables 2-2 and 2-3.

Source: Auditor prepared schedules based on Women's Advocates, Inc.'s payroll information.

The executive director also supplemented the salaries of other staff beyond the terms agreed to by the board. Three managers and six other staff cashed in excessive amounts of paid-time-off hours. The managers cashed in between 360 and 420 paid-time-off hours. Other staff that exceeded the allowable 80-hour limit cashed in 120 and 240 paid-time-off hours. Employees seem to have used the paid-time-off benefit as a way to supplement their salaries rather than as intended, to allow flexibility for vacation or personal time off.

Compensation to the managers and other full-time staff also included bonuses. In fiscal year 2002, three managers received six weeks pay as a bonus; and other full-time staff received two weeks pay.

Table 2-2 summarizes the unauthorized compensation and Table 2-3 summarizes the unauthorized compensation by staff position. As the tables show, the executive director benefited the most from this unauthorized compensation, receiving nearly three times as much as the next highest paid staff.

Table 2-2
Summary of Unauthorized Compensation
January 1, 2001, through September 30, 2002

Time Period Cashed in Paid-Time-Off
in Excess of 80 Hours
Bonuses Unauthorized Compensation
1/1/01 thru 6/30/01 $21,718 $ 34,930 $ 56,648
7/1/01 thru 6/30/02 (1) 54,604 52,974 107,578
7/1/02 thru 9/30/02 0 30,248 30,248
Totals $76,322 $118,152 $194,474

Note (1): The amounts include the $40,192 paid to the former executive director in paid-time-off and bonus during fiscal year 2002.

Source: Auditor prepared schedules based on Women's Advocates, Inc.'s employee accrual records.

Table 2-3
Summary of Unauthorized Compensation, by Key Position (1)
January 1, 2001, through September 30, 2002

Position 1/1/01
thru 6/30/01 7/1/01
thru 6/30/02 7/1/02
thru 9/30/02
Totals
Executive Director (2) $19,709 $ 40,192 $ 4,231 $ 64,132
Manager 1 6,877 13,997 1,975 22,849
Manager 2 4,979 14,318 2,100 21,397
Manager 3 5,741 8,936 1,846 16,523
All Other Staff (3) 19,342 30,135 20,096 69,573
Totals $56,648 $107,578 $30,248 $194,474

Note (1): Amounts include payments to staff of paid-time-off in excess of 80 hours and/or bonuses.
Note (2): As shown in Table 2-1, for the period July 1, 2001, through June 30, 2002, the $40,192 paid to the executive
director includes the excessive paid-time-off and unauthorized bonus.
Note (3): Nineteen other staff received cash for paid-time-off in excess of 80 hours and/or bonuses. The average unauthorized compensation of these staff was nearly $3,700.

Source: Auditor prepared schedules based on Women's Advocates, Inc.'s employee accrual records.

Although the organization received non-state funding for some of its activities, it charged most payroll costs to the state-funded per diem or supplemental operating grant program.

In August 2002, the board suspended the practices of cashing in paid-time-off and bonus compensation. The board's reaction indicates that it did not concur with the practice and did not consider it a part of the staff compensation as anticipated in the employee handbook. The board did not, however, pursue recovery of unauthorized compensation from staff. It is within the board's discretion to pursue or not pursue recovery of the unauthorized compensation. However, pursuant to state law, the purpose of the per diem program is to provide reimbursement for the reasonable and necessary costs of providing battered women and their children with food, lodging, and safety. Per diem funding is not to be used for other purposes. Therefore, the board should repay the unauthorized and unreasonable compensation to the Department of Public Safety.

Recommendation

The Department of Public Safety should recover the state funded portion of the following unauthorized and unreasonable compensation:

The former executive director's salary increases which she initiated on her own behalf, beginning January 1, 2000, through her date of termination.

The former executive director's retirement contribution totaling $21,500. (Since the Women's Advocates, Inc. recovered these funds from the retirement account, the department may want to consider allowing the organization to use these funds to provide future services.)

Bonuses and paid-time-off paid to staff during 2001 and 2002, totaling $194,474.

Auditor's Comments on Women's Advocates, Inc.'s Response

Members of the Legislative Audit Commission:

Normally, an organization that has been audited by OLA responds directly to our report. In
this case, Women's Advocates had Mr. Edward B. Magarian of Dorsey & Whitney LLP respond, and Mr. Magarian raised a wide range of objections. He argues against our conclusions and recommendations and asserts that Women's Advocates has been subjected to an illegal examination by the Legislative Auditor.

We do not think it necessary to respond to Mr. Magarian's arguments against our conclusions and recommendations. However, we do want to briefly address his assertion that the Legislative Auditor lacks legal authority to examine Women's Advocates use of state money.

OLA's principal audit focus is state agencies. However, some state agencies spend a large share of their budgets and accomplish their program objectives through contracts, grants, and reimbursements to non-governmental organizations. OLA's authority to examine how these non-governmental organizations use state money is firmly established in law and past practice. Indeed, without that authority, the Legislative Auditor could not fulfill the statutory mandate to "see that all provisions of law respecting the appropriate and economic use of public funds are complied with." That is undoubtedly why Minnesota Statutes 3.978, Subdivision 2, says:

All public officials and their deputies and employees, and all corporations, firms, and individuals having business involving the receipt, disbursement, or custody of public funds shall at all times afford reasonable facilities for examinations by the legislative auditor, make returns and reports required by the legislative auditor, attend and answer under oath the legislative auditor's lawful inquiries, produce and exhibit all books, accounts, documents, and property that the legislative auditor may desire to inspect, and in all things aid the legislative auditor in the performance of [the legislative auditor's] duties.

Because there are so many "corporations, firms, and individuals" beyond state agencies and employees that receive, disburse, or have custody of public funds, OLA makes very limited use of this authority. We typically act only when we obtain evidence of significant impropriety. As a general rule, we expect state agencies to ensure accountability for the money they spend through grants and contracts.

Sometimes, and often at the request of a state agency, OLA does review how a non-governmental organization has used public funds. Commission members may recall, for example, that earlier this year OLA examined how the Minnesota Waterfowl Association, a private, non-profit organization, had used state grant money. That review was requested by the Legislative Commission on Minnesota Resources.
Members of the Legislative Audit Commission

Being a recipient of public funds entails accepting a measure of public accountability, even if you are a private, non-profit organization. As a recipient of a significant amount of public funding from the state, Women's Advocates cannot evade that obligation. It needs to make a constructive response to this report and establish a governance structure and administrative controls that protect public funds from misuse.

James R. Nobles Claudia J. Gudvangen
Legislative Auditor Deputy Legislative Auditor

August 26, 2003

James R. Nobles, Legislative Auditor
First Floor, Centennial Building
658 Cedar St.
St. Paul, MN 55155

RE: Special Review of Per Diem Funds Provided to Women's Advocates

Dear Mr. Nobles:

The Office of Justice Programs in the Minnesota Department of Public Safety is grateful to you and your staff for your work on the Women's Advocates special review and the opportunity that we had to discuss the results.

We concur with the findings in the report and plan to implement the recommendations. We are currently withholding in excess of $190,000 in funds that would have been paid to Women's Advocates at the end of the 2003 fiscal year pending final negotiations with the Board of Directors.

Finding 1: The Women's Advocates, Inc. board did not adequately oversee the operation of the organization.

Recommendations:

The Department of Public Safety should monitor the progress of the Women's Advocates Board of Directors to ensure that it continues to provide appropriate oversight to the organization, and that it expends state funds for their intended purpose.

The Minnesota Office of Justice Programs, Crime Victim Services will continue to monitor the operations of Women's Advocates to insure compliance with fiscal, administrative and programmatic requirements of the programs for which they receive funding. This will include monitoring the oversight provided by the agency's board of directors. The monitoring will be done by structured on-site visits as well as desk audits of claimed expenditures. Training and technical assistance will be offered as appropriate.

Person Responsible: Cecilia Miller, Director of Crime Victim Grants
Timeframe: Current and on-going

The Department of Public Safety should recover from Women's Advocates the state funded portion of the following unauthorized and unreasonable costs:

Political contributions totaling $200

Home office furniture totaling $4,600 (The department may want to consider allowing the organization to use the $3,500 credit to provide future services).

The Minnesota Office of Justice Programs, Crime Victim Services will collect up to $4,800 in state funds used for ineligible and unreasonable costs. Consideration will be given to allowing the organization to use the $3,500 mentioned above to provide future service. The amount determined to be owed the state will be deducted from funds that are currently being withheld from the organization.

Person Responsible: Cecilia Miller, Director of Crime Victim Grants
Timeframe: In progress.

Finding 1: The former executive director inappropriately supplemented her compensation and the compensation of other staff without board authorization.

Recommendation:

The Department of Public Safety should recover the state funded portion of the following unauthorized and unreasonable compensation:

The former executive director's salary increases which she initiated
on her own behalf, beginning January 1, 2000 through her date of
termination.

The former executive director's retirement contribution totaling
$21,500. (Since the Women's Advocates, Inc. board recovered
these funds from the retirement account, the department may want
to consider allowing the organization to use these funds to provide
future services.)

Bonuses and paid time off paid to staff during 2001 and 2002, totaling $194,474.

The Minnesota Office of Justice Programs, Crime Victim Services will determine the total state funded portion of the listed unauthorized and unreasonable compensation paid to employees of Women's Advocates. When the amount is determined, negotiations with the board of directors of the organization will be conducted to determine if any of the repayment amounts may be used to provide future services. The amount will then be deducted from funds that are currently being withheld and any additional amount will have to be repaid by the organization.

Person Responsible: Cecilia Miller, Director of Crime Victim Grants
Timeframe: Amounts determined, negotiations conducted and repayment made by November 1, 2003.

Again, thank you for your assistance in resolving this matter. Should you have any questions in regards to our response, please contact me at 651-297-7883.

Sincerely,

/s/ Mary Ellison

Mary Ellison
Acting Deputy Commissioner, Minnesota Department of Public Safety
Executive Director, Minnesota Office of Justice Programs

Cc: Commissioner Rick Stanek, Minnesota Department of Public Safety
Claudia Gudvangen, CPA, Deputy Legislative Auditor
Cecile Ferkul, CPA, CISA, Audit Manager
Cecilia Miller, Director, MCCVS Grant Unit