NASHVILLE, Tenn. (WKRN) — The Coffee County Drug Court Foundation has mismanaged its money since at least 2014, the Tennessee Comptroller’s Office has found.
An investigation into the Foundation has revealed what the Comptroller called “major mismanagement” of the nonprofit, which provides inpatient and outpatient therapy, testing and other services. The investigation found eight “serious findings” related to the executive director of the foundation, including some that place the foundation “at risk for penalties, property seizure, refund of grant awards, or other legal action.”
According to the report, the foundation was assessed more than $230,000 in penalties and interest from the IRS for late tax payments.
“Since at least January 2014, the foundation’s executive director consistently failed to pay [Form] 941 payroll taxes and file IRS forms timely, resulting in the IRS assessing the foundation $225,922 in penalties and interest,” the report states.
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By not making any formal arrangements with the IRS for payment of the outstanding taxes, penalties and interest, the report states, the foundation is at risk of property seizure in addition to further penalties and interest.
In addition, the director reportedly spent COVID-19 relief funding improperly, opting to put relief funds toward the delinquent taxes owed rather than “normal operating expenses such as rent, utilities, payroll and supplies.”
In June 2020, the foundation received an Economic Injury Disaster Loan (EIDL) for $150,000. The director then used $118,773 of that money toward late Form 941 payroll taxes, according to the the Comptroller’s report, while the remaining $31,227 was used for allowable purposes.
In April 2021, the foundation received a Paycheck Protection Program (PPP) loan for $105,925, using all of it plus an additional $3,817 for further late tax payments. Per the Comptroller, this is not a permissible use for COVID-19 funds like PPP loans. This could expose the director and/or the foundation to legal liabilities under federal law, the Comptroller’s office said in the report.
The report also found that the director made “questionable discretionary payments” to himself and employees for unused leave and compensatory time balances to the tune of $155,417. From 2016 to 2020, the director these payments while simultaneously owing the IRS for late tax payments.
Additionally, the director made $45,386 worth of “improper” payments to himself and other employees from January 2017 to December 2020, including paying one employee and their spouse as an independent contractor in order to continue employing them and overpaying himself. Per the report, $34,825 was classified as payment for the independent contractor, while the director overpaid himself, a former employee and a current employee $10,561 and did not attempt to recover those funds.
The foundation’s grant payments were also highlighted in the report, with investigators finding the director submitted the same expenses multiple times to at least two different grants and recovered “questionable” grant funds.
“The director knowingly submitted the same expenditures for reimbursement for employee payroll and rent expenses totaling $7,684 on at least two different grants, resulting in grant overpayments to the foundation,” the report states.
Additionally, some grant contracts from the foundation contained “unallowed charges” on some paperwork, was missing some documentation entirely or had voided amounts, all of which totaled $17,381.
The last two findings were related to financial records and other grant contracts, according to the report. The director failed to disclose differences in employees for the PPP loan when the Small Business Administration later forgave the loan in full. Both times, the report states, the director claimed 13 employees, when he only had 12 employees when he applied for the loan and just eight employees when he applied for loan forgiveness. Additionally, the director failed to disclose he had received other COVID-19 relief funding when applying for a separate state grant, which was required as part of the application.
Finally, the report states the director maintained “inaccurate and incomplete financial records within foundation accounting software” for the 2017-2022 fiscal years, including discrepancies in revenue and reported income, unaudited financial statements to grant applications and not recording transactions properly.
The report concluded in part that the board of directors for the Coffee County Drug Court Foundation failed to provide adequate oversight of the foundation’s operations and finances, which largely contributed to the mismanagement of the foundation.
To read the full report, click here.