Remember in September when we questioned Dismas Charities’ promotion of Bellarmine University’s basketball program?

Am I wrong, or doesn’t this smell like the big dogs at Dismas just wanna use their profits to watch some sports from a fancy box?

Sure, Dismas does some great work. All of the Dismas employees I’ve ever met have been terrific examples of upstanding citizenry. But none of them will ever get to enjoy a luxury box at Yum! Diabetes Center. None of them – the ones busting their rear ends – will get to put their butts in seats in those boxes… like the CEO and the board. So I’m just trying to figure out why on earth anyone can justify this.

An organization would have to have a history of spending large amounts of money on items like this, otherwise the entire board would be freaking out about wasteful spending.

Well… about that. State Auditor of Public Accounts Crit Luallen is today releasing a 77-page audit of the charity. The report examines policies, procedures, controls and the financial activity of Dismas Charities, Inc.

It makes ten findings and offers multiple recommendations for strengthening Dismas’ controls and management oversight.

Let’s dig in to the findings:

1. Dismas Charities Board of Directors’ lack of review and approval weakens control and oversight necessary for accountability. During examination, no evidence was found that any review or approval by the board took place for policy manual adoptions or changes, contract agreements for goods and services, executive staff travel or actual budget expenditures.
2. Several of Dismas Charities’ policies need strengthening to achieve greater accountability. Dismas has a comprehensive set of policies in place but in order to provide accountability required of a nonprofit that receives a majority of its funds from public sources, it’s gotta strengthen nearly everything.
3. Dismas Charities spent funds on sporting and entertainment events with questionable benefit to its mission. Leased a suite at KFC Yum! Center and Papa John’s Cardinal Stadium, rented a hospitality “caboose” for University of Louisville football games, financially sponsored Bellarmine University’s basketball team, hosted various social events including an annual Derby Gala, an annual Holiday Open House and golf outings. The report suggests these were all extravagant social events with little value.
4. Dismas Charities’ Executive Staff received significant compensation through salaries, bonuses, and other provided benefits. The top two executives ranked above the 90th percentile for transition care industry salaries. The personnel committee approved the President/CEO’s incentive bonus but Dismas didn’t have policies requiring the board to review and approve it on an annual basis.
5. Dismas Charities ethical policies for Board members, officers, and employees do not cover all areas of standards. Policies don’t address solicitation of vendors or employee use of Dismas property and equipment. Policies for investigating unethical activity and criteria for discipline are not detailed.
6. Dismas Charities’ whistleblower policy does not provide an avenue for employee concerns to be brought directly to the Board. And there’s no internal audit function that investigates and examines issues assigned by the Board of Directors and that reports directly to the Board.
7. Dismas Charities’ Board members received no formal orientation regarding their legal and fiduciary responsibilities. By-Laws and meeting meetings do not reference a required orientation process when new members are sworn in. Executive STaff says there’s an annual orientation program but no documentation of such a program or manual was ever produced.
8. The Department of Corrections’ Master Agreement with Dismas Charities does not contain standard contract language authorizing the APA access to the contractor’s records. That’s not exactly good news when the majority of funds paid by the DOC to Dismas were paid through the master agreement. There was no language providing access to accounting records, documents or other evidence.
9. Certain contract requirements were not reviewed for compliance. The two minimum halfway house inspections per year didn’t appear to be broad enough to ensure that all of the requirements specified in the contract were reviewed for compliance.
10. A cost analysis was not performed by the Department of Corrections to determine the cost effectiveness of Dismas Charities. Without a cost analysis of what the Commonwealth would incur to operate halfway house facilities in lieu of using Dismas, the DOC can’t determine fair per diem rates that should be paid for housing offenders.

None of this is good news for Dismas and it seems the Commonwealth of Kentucky has a bit to be worried about, as well.

Something tells me you’re going to want to read the rest of this to get the juicy, juicy and review the audit after the jump…

There are several pieces of financial information that need to be highlighted so you understand just how much public money Dismas Charities receives:

• In 2008, Dismas support was $36,596,640. 95.8% of those dollars (minus $1,155,064 in interest and such and $383,303 in other income) were from public funds. In 2009 the amount was $38,924.654 and 97.9% were public funds. The total for those two years was $75,521,294 and 96.9% were public funds.
• In 2009, Dismas spent $1,207,499 on officer compensation, $1,300,342 on other salaries and wages, $2,400,000 on pension plan contributions, $130,495 on employee benefits and $139,076 on executive travel. Unfortunately, the APA didn’t have access to financial records detailing or supporting these numbers and was unable to perform a comprehensive review of expenditures. Meaning there’s no way to know if they were reasonable and necessary.
• Received $23 million over the last three years from the Department of Corrections
• In 2009 received $27 million in federal funds to operate 28 halfway houses in 11 states
• In 2008 the President/CEO made $381,798 and received $114,540 in bonuses. Same for 2009. Total benefits for each year was more than $600,000.
• In 2008 the Executive VP/COO made $296,455 and received $86,346 in bonuses. In 2009 they made $302,384 and received in $88,937 in bonuses.
• In 2008 the VP/CFO made $172,568 and received $50,263 in bonuses. In 2009 they made $176,020 and received $51,771 in bonuses.

Below are all the documents requested but were not provided by Dismas:

• Financial Statements for corporate headquarters;
• Financial Statements for individual Kentucky community correctional centers;
• Lists, records and documentation of income and expenditures made by corporate headquarters;
• Supporting documentation for public relations expenses;
• List and documentation of travel expenses by corporate office employees;
• List and documentation of reimbursements for corporate office employees;
• Breakdown of administrative expenses by corporate headquarters and individual Kentucky community correctional centers;
• List of gift and entertainment expenses for corporate headquarters with name and title of person involved and description detail of necessity of expense;
• Budgets approved by the Board for Dismas Charities for 2008, 2009, and 2010;
• Contract with and documentation of payments made to a company paid to “monitor the Kentucky Legislature on issues related to the state Department of corrections budget and matters related to half-way house and social rehabilitation residences;”
• Copies of consulting contracts;
• List of “consulting” expenditures paid during 2008-2010 – date of expenditure, to whom paid, and for what purpose;
• List of 2008, 2009, and 2010 Gala sponsors and amount of sponsorship;
• List of 2008, 2009, and 2010 Gala expenditures – date, to whom paid, and for what purpose;
• List of vendors during 2008, 2009, and 2010;
• Copy of letters sent out during 2008, 2009, and 2010 seeking participation by vendors in Gala (minutes, January 28, 2008);
• Work hours of staff provided for Gala;
• Dismas Attorney responded that staff hours worked for Gala were not recorded separately from normal work hours;
• 2008, 2009, and 2010 expenditures (date, amount) for the railroad Caboose used at University of Louisville football games;
• List of expenditures (date, vendor, amount, purpose) on Dismas’ Christmas Open Houses and House Holiday Tours for 2008, 2009 and 2010, and follow-up receptions;
• List of expenditures (date, vendor, amount, purpose) for Moonlight and Magnolias held on April 29, 2009.

Guess that $120,000 for UofL suites and $600,000 for tickets is something they felt the need to keep quiet? The same must be ture for the $15,000 to $20,000 for a caboose rental, the $16,500 for Bellarmine and $123,000 Derby Gala.

Absolutely floored.

“Dismas Charities must ensure that the public money it receives is used in a responsible and transparent manner that serves the interests of both the recipients of its services and the taxpayers who ultimately fund the service,” Luallen said. “Because the detailed information we requested wasn’t provided to our office, we could not determine if state and federal funds were spent appropriately and the extent of other excessive or unusual expenditures.”

Click here (Warning: PDF Link) to review the entire 77-page report for yourself.