May 22, 2012; Source: New York Times

When the NPQ Newswire ran a couple of pieces (see here, here and here) on Michael Powell’s investigative reports on the inflated job placement numbers coming from SEEDCO, one of New York City Mayor Michael Bloomberg’s favorite nonprofits—and a well-respected agency within the nonprofit sector—we would never have imagined that the scandal would turn into federal charges of fraud. SEEDCO had done its best to disparage the staff whistleblower that brought the discrepancies between SEEDCO’s reports and its actual performance to light. SEEDCO got support from the City’s oversight agency (the Small Business Services Department) that SEEDCO’s numbers looked okay, and then, after being pressed by the whistleblower’s allegations, finally acceded to a need to clean up its act, dismissing staff who might have been part of the alleged program of generating false job placement numbers.

But federal charges that SEEDCO was engaged in federal-level fraud constitute a new chapter in this constantly metastasizing story of a once powerful and respected agency finding itself in deeper and deeper trouble. Powell’s latest report says that the U.S. attorney for the Southern District has charged SEEDCO with having generated hundreds, potentially thousands, of phony job placement numbers while receiving $8 million from federal agencies to operate job placement centers. “SEEDCO was supposed to provide valuable job placement assistance that was underwritten by the federal government to New Yorkers in need,” according to a statement from Manhattan U.S. Attorney Preet Bharara. “Instead, as alleged, the defendants went to great lengths to manufacture non-existent job-placements to protect their federal contracts and inflate their compensation.”

According to Powell in the New York Times, “The federal lawsuit makes clear that … Seedco easily evaded the verification callers, who asked only cursory questions. By reporting thousands of fake job placements, Seedco collected ‘performance payments’ totaling perhaps as much as $1.6 million over five years.” He notes, however, that some of the evidence of other alleged fraud might be missing, because before 2011, the City had SEEDCO and apparently other job placement organizations shred all job forms. Nonetheless, the cascading charges against SEEDCO have finally built up to enough to warrant a federal investigation.

Looking back over the story, we can see some important lessons emerging, even though the charges against SEEDCO are, for the moment, only federal allegations from which SEEDCO might be able to escape in court for one reason or another:

  1. Slugged around by SEEDCO and by the city government after he made his initial charges, if the charges against SEEDCO are true, then whistleblower Bill Harper should be seen as a nonprofit hero. As of yet, no one has successfully undermined the factual nature of the files and data he brought to Powell at the Times. As NPQ has written in its magazine, nonprofit whistleblowers actually lack the whistleblower protections afforded their peers in government and in the corporate world. If the allegations are true, it took a special brand of courage for Harper to do what he did, and he deserves the public’s gratitude. Savaged by the defenders of SEEDCO inside and outside the agency, Harper now lives in Seattle and has filed his own lawsuit seeking damages from his former employer. At NPQ, we have a special admiration for whistleblowers who stand up for what’s right even though the hit they take is just awful.
  2. When a nonprofit appears to go bad on a government contract, such as the alleged fraudulent record-keeping and reporting of SEEDCO’s job placement programs, the culpable nonprofit usually has a government agency whose lax oversight or political indolence contributed to the problem. If the allegations are true, Mayor Bloomberg’s administration and the City’s Small Business Services office demonstrated exemplary lassitude in oversight.
  3. SEEDCO has routinely sought to downplay these allegations. From the very beginning, SEEDCO appeared to be reluctant to give Harper’s charges any credibility, consistently denying them, suggesting that the errors were tiny compared to the scope of the problems, that it was looking hard at the problems, and that it was tightening its internal oversight procedures. The record is one of SEEDCO appearing to hope that the allegations would blow over, particularly with the stalwart support it received at every step from the Bloomberg administration. Now, with the federal lawsuit, SEEDCO’s president Barbara Gunn said that all the officials named by the U.S. attorney had been fired and all were “midlevel managers and low-level staff.” That’s cheap insulation, especially since earlier this year Gunn accepted the resignation of a senior VP, Barbara Delgado, who Powell says “had dismissed talk of scandal last summer, and tried to cast doubt on Mr. Harper’s truthfulness.” If the federal allegations are true, and if they largely track the findings of the City’s Department of Investigation probe in 2011, SEEDCO may find it difficult to attribute any possible problems to a half dozen rogue
  4. The pressure to show job placements for people participating in these job placement programs is intense. SEEDCO allegedly engaged in practices such as “harvesting” the names of people who came to SEEDCO for tax preparation assistance to claim that they got their jobs through SEEDCO. The Village Voice described some of SEEDCO’s techniques as “claiming to have placed people who were actually still unemployed, convincing businesses to falsely place people, using job websites to pull resumes and claim those people were placed in jobs, and had friends, family members and others fill out intake forms, again, to falsely report job placements to the feds.” The Voice noted that the seven named staff defendants in the federal lawsuit all received promotions from SEEDCO during the time that they were allegedly carrying out fraudulent practices. One suspects that the placement numbers that government agencies expect (and that nonprofits sometimes say they can meet) are lacking in substance given the joblessness of the people who come to them for help and the condition of the job markets not being particularly open to unskilled, long-term unemployed people. There may be a practice of systematic inflation of job placement expectations that leads job placement organizations to feel a need to fake placement numbers.

If the allegations are true, not only does Harper deserve applause for a display of courageous whistleblowing, but credit Michael Powell of the New York Times for dogged investigative work in checking and double-checking Harper’s allegations to pursue potential problems up and down the line of the City’s oversight of its job placement contractors.—Rick Cohen