The Kitchen loses emergency housing funds after state audit finds improper billing

One employee of The Kitchen, Inc. resigned and another was terminated after an investigation by the Missouri Housing Development Commission found the nonprofit tried to use grant funding for apartments that were vacant, overpriced or had overlapping leases.

The investigation, prompted by a whistleblower complaint, found that in early March, The Kitchen inappropriately billed the Emergency Solutions Grant program for $17,830.

ESG funds are intended to assist people "to quickly regain stability in permanent housing after experiencing a housing crisis and/or homelessness," according to the U.S. Department of Housing and Urban Development.

The Kitchen, Inc., which works to prevent and end homelessness by providing housing and stabilizing services, was one of several area organizations to receive the ESG funds through a partnership with the city of Springfield.

The city, which had applied for the funding on behalf of nonprofits including the Council of Churches of the Ozarks, Harmony House, Great Circle and the Salvation Army, received a tip in March about inappropriate billing. City officials told the tipster it would be best if he or she filed the complaint directly to MHDC. The city then followed up the complaint with a phone call to MHDC to answer any questions.

MHDC launched an investigation that included site visits on March 28 and April 1-3 and a review of The Kitchen's files in relation to ESG funds. The investigator took issue with leases and/or units for four households.

The MHDC investigator's findings — obtained by the News-Leader through a Sunshine Law request — found overlapping leases, a lease for a unit that was found to be vacant and fell short of habitability standards, two leases for the same unit reflecting different rent amounts, overlapping leases for an ineligible family and invalid comparisons for rent reasonableness (inflated rents).

As a result of the investigation, MHDC refused payment of $17,830 that had been allocated to the Kitchen for Fiscal Year 2018.

In addition, The Kitchen withdrew its request for $30,000 in FY 2019 ESG funding. The Kitchen's request for $30,000 in FY 2020 funding was denied.

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Some, but not all, of the funding lost by The Kitchen has been reallocated to other local nonprofits: Of the lost FY 2018 funding, $7,135 was redirected to Great Circle. In FY 2019, Great Circle received $9,150 and Council of Churches received $7,800 that had been earmarked for The Kitchen.

The Kitchen: Problems isolated, addressed quickly

Meleah Spencer, CEO of The Kitchen, along with board president Michele Kauffman and board member Richard Russell spoke to the News-Leader on Nov. 8 about the MHDC findings and the nonprofit's efforts to ensure similar problems don't happen in the future.

According to Spencer and the board members, The Kitchen had policies and procedures in place that should have prevented the inappropriate ESG billing. But the two former employees were not following those procedures, Spencer said.

"It was two individuals that were not properly doing their job," she said.

In early March, around the time the problem leases started and The Kitchen's requests for ESG reimbursement were made, The Kitchen was running up against a May 1 deadline to spend its ESG funds for FY2018.

Because of that looming May 1 deadline, the city of Springfield asked MHDC for a 90-day extension to allow The Kitchen time to spend its FY 2018 funds.

If that 90-day extension had been approved, the other local nonprofits receiving ESG funds through the city would have had to wait until the extension was over before getting access to their FY 2019 allocations — a potential delay that raised concerns during an agency meeting in mid-March.

Spencer said she doesn't think the deadline was solely to blame. "I think it was (the two employees) knowing they hadn't done their jobs and trying to cover."

Spencer said prior to the MHDC's investigation, The Kitchen's then-director of programs at the time had looked over the leases and didn't find any problems.

Senior City Planner Bob Atchley said the city's ESG administrative team also had conducted monitoring visits with The Kitchen prior to the state investigation and did not find any issues with leases or units.

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However, the whistleblower complaint filed in March by a former employee of The Kitchen contained specific information about what was wrong with the leases and units, Atchley said. It appears that information helped the MHDC investigator find the problem leases.

Russell, The Kitchen board member, said it's important to note the timeline of nonprofit's response to the MHDC's audit and findings.

There was the unannounced investigation beginning on March 28, Russell said, and MHDC presented its findings on April 9.

"April 15 we had our corrective action plan done. We took this very seriously," Russell said. "We made sure it was a priority for the organization and addressed everything."

"I'll be frank," he continued. "We didn't agree with all those things in there. There are some things we think are gray areas, right? We said we are going to do what they want us to do. We are going to move it forward. We want to get this behind us."

Spencer agreed.

"We acted swiftly and an internal investigation happened," Spencer said. "And within six days including the weekend, we had our corrective action in place and moving forward."

Within that time frame, both employees were placed on administrative leave. One resigned and the other was terminated.

"We've been very open to show our (Continuum of Care) and to the city that we are doing everything we possibly can within our power to make sure that two bad people never affect The Kitchen, Inc.," Spencer said. "Because we are serving a group of individuals that most in this community would rather ignore."

Kauffman, the board president, said MHDC's findings have helped The Kitchen's administration fine-tune its policies and procedures to help ensure this never happens again.

"We are dotting our i's and crossing our t's more and keeping more eyes on everything," Kauffman said."(We) are making more people accountable through other staff looking over what they are doing. We just continue to learn and grow all the time."

'We resolved these problems'

The city of Springfield's ESG Administrative Team conducted its own investigation and concurred with the MHDC findings. In a letter to Spencer dated July 1 and obtained by the News-Leader through its Sunshine request, the team wrote, in part:

"A concern is a practice that, left unattended, could result in a future finding on noncompliance. The ESG Administrative Team would like to note that several files included out of date MHDC forms and several forms were missing The Kitchen, Inc. staff and client signatures. While the ESG Administrative Team greatly appreciates the quick and deliberate corrective actions of The Kitchen, Inc., as enumerated within the Corrective Action Plan that was submitted to both the City of Springfield and the MHDC, we have included recommended corrective actions for addressing additional concerns for your consideration:

"1. Considering the MHDC's findings, it is recommended that an external review of The Kitchen, Inc.'s finances and internal processes be sought to determine if the findings were strictly limited to the ESG funded Rapid Rehousing program. ... "2. Implement a system of checks and balances to ensure that no one person has control over all parts of any financial transaction. ...

Russell said The Kitchen has not yet contracted for an external review of finances and processes, but plans for that to be done as part of its scheduled 2019 financial audit, which will be made available upon request.

"Certainly, for the financial purposes, we feel that is adequate," he said. "We think we've done this through our internal investigation. We resolved these problems."

Russell said he understands the city’s recommendation for a separate audit, but said The Kitchen is “pretty much a shoe-string organization” and “more processes and procedures, more audits, more people, more reviews — that just adds more administrative complexity and costs. …"

“For every dollar we spend over here, it’s one less dollar we spend over here for getting somebody in a house,” he said, noting that The Kitchen helped 543 people obtain housing so far this year.

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According to Russell and Spencer, the two employees at fault did not have anything to do with other programs at the nonprofit.

As far as the city's recommendation to implement a system of checks and balances to ensure that no one person has control over all parts of any financial transaction, Spencer said that has been put in place.

"We've actually taken it a step further to have a third (employee) available if a director is not available," Spencer said. "So if a director does not sign off on it, there is a third person that signs off on it. ..."

"Now there's just even more layers to it so it takes a little bit longer to get a check request through," she said. "But we know that we are doing the right thing."

Another extra layer of protection The Kitchen included in its corrective action plan, Spencer said, is employees now use a video camera to document the conditions of every rental property before a client moves in.

This step was not something required or recommended by MHDC or the city of Springfield, Spencer pointed out.

"That is an added cost out of our own operating funds, out of our own time, out of our own employees' time to help ensure nothing like this happens again," she said. "That was in effect less than 12 hours later (following the MHDC findings report on April 9)."

City no longer involved

Following the incident with The Kitchen, the city of Springfield will no longer apply for ESG funds on behalf of local nonprofits — at least in the immediate future. This is for two reasons, Atchley said.

As the city's grant team examined the ESG program and MHDC's funding formula, they noted that MHDC has a $150,000 cap on how much cities can request in ESG funds, he said.

But if the nonprofits apply for the funding on their own, MHDC caps those requests at $50,000. That means if more than three nonprofits apply for and receive the full $50,000, more ESG money will come to the community, Atchley said.

Also, the city of Springfield was told by MHDC staff that if it were to apply for ESG funds for FY2020, the billing issues with The Kitchen "could be held against the City's application" and therefore impact the other local nonprofits who rely on ESG funds, Atchley said.

"The primary reason (the city won't apply) was because we realistically feel the agencies can actually get a higher level of funding," Atchley said. "But a secondary reason was we also had some concern the MHDC might hold those findings against the city."

"Being kind of blunt, the findings were in regard to The Kitchen," he said. "We didn't feel that should have repercussions on other agencies."

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