Agency has at least $1.2M deficit

State office says group repeatedly violated regulations

A local agency that's supposed to be doling out money for programs that help poor families is running a deficit of at least $1.2 million, and now it has a month to pay back $283,000 to the state.

A report released Monday by the state Office of Economic Opportunity says the Berkeley-Dorchester Counties Economic Development Corp. repeatedly violated regulations governing how state and federal grant money should be spent on such programs as the local Head Start.

State officials say they're trying to determine why some employees at EDC were issued large checks without justification. The report says tracking the money is difficult because the agency mingled state and federal grant money, used new grant money to pay old bills, maintained poor and unreliable financial records, took out bank loans, and did all of it without notifying the state agency that provided the grant money.

The EDC must account for the questionable spending and fix 13 problem areas within the next 30 days or possibly lose its contract. The state also has ordered the EDC to return $283,000 in funds that it received in advanced quarterly payments, according to the state report.

Joel Sawyer, press secretary for Gov. Mark Sanford, said federal guidelines require the state to give the agency 30 days to respond and fix the problems. The state then can seek a hearing and terminate the contract if it chooses.

"Obviously, we take these findings very seriously and we want to work with them to get these issues

addressed," Sawyer said.

The governor's office says the $1.2 million deficit includes non-federal money only. Officials say it's possible the agency is also running a deficit in federal Head Start money. The report says the agency appears to be financially unstable, given that its liabilities substantially exceed its assets on hand.

State officials said they've been in touch with federal officials, including the Health and Human Services Department that runs Head Start on a federal level. EDC and state officials met Monday with Health and Human Services in Atlanta for a presentation of the state's findings.

Levy Berry, chairman of the EDC board of directors, said Monday night that the board has not had a chance to study the report and assess the validity of its findings. "We're not saying it's wrong, but we're not saying it's right either," he said.

Patsy Gardner, the Head Start executive director, resigned last week. The agency has refused to release the reason for her resignation. The Post and Courier has requested a copy of her resignation letter through the Freedom of Information Act.

Val Patrick, chairman of the EDC's Policy Council, said the report echoes concern the council has had for two years.

"This is more evidence that the federal funds were misappropriated and that the children and the families could have really benefited from these funds," Patrick said.

The Policy Council, which is made up of parents and community members, has long accused the board of directors of not being up front with its financial records, and nearly refused to sign off on this year's budget, which would have resulted in the loss of federal funding.

The Office of Economic Opportunity's report found much of the same behavior during repeated visits with the agency.

The report says the EDC initially told the state that it received an anonymous private loan that employees borrowed from. The state was later told that the money was actually insurance refunds and not a private loan. The $231,043 from the insurance refunds was put into a separate account, nearly half of which was used to purchase a nine-month CD. The rest was transferred to the operating account and the petty cash fund.

Some of the money from the CD was disbursed via cashiers checks to the agency, the agency's former human resources director and an automobile dealership, according to the report.

The state said the agency has failed to tell them more about where the money came from and where it went, breaching the terms of the grant. The state is also trying to find out more about bank loans the agency took out, which is usually only done when funding is delayed. State officials said all of the agency's funding has been provided on time.

The report says the agency also reduced its board from 21 to 15 and then later to nine without telling the state. It also reports that the staff members who administer the grants do not have thorough knowledge of the rules and regulations.

The report listed several examples of services rendered to clients where files were incomplete, canceled checks were not kept and income calculations were done incorrectly.

Patrick said she's not surprised with the findings.

"I'm just sorry it's taken this long and this much money for it to receive this much attention," she said.

Report overview

The S.C. Office of Economic Opportunity released 13 findings that the Berkeley-Dorchester Counties Economic Development Corporation must rectify in the next 30 days. The OEO found:

1. Both OEO funds and federal Head Start funds were put in the same account and used to cover a deficit of about $1.2 million in non-federal funds.

2. 2008 funds were used to pay 2007 expenditures.

3. State grant money was improperly used to pay attorney fees. Attorneys and accountants were hired without following proper procurement practices.

4. Proper internal controls are not in place. Several transactions lacked proper documentation and appeared to not have been reviewed before checks were cut.

5. The financial records are unreliable.

6. EDC officials have not provided documentation about questionable spending practices. Officials say some EDC employees received large-sum checks without justification.

7. Records were not properly maintained.

8. The EDC appears to be financially unstable due to liabilities exceeding its assets.

9. The EDC did not properly inform OEO of its financial activities, including bank loans.

10. Personnel do not have a thorough understanding of the grant programs' rules and regulations.

11. Financial status reports do not report the "true activities" of the program.

12. The EDC reduced its board from 21 members to 15, and then again to nine members without notifying the OEO.

13. Several examples of services rendered to clients were not in compliance. Files and client logs were incomplete, and canceled checks were not kept.

Reach Andy Paras at 745-5891 or aparas@postandcourier.com.