October 18, 2012; Source: Knoxville News Sentinel

Some nonprofit scandals are more complex than others, and the saga of Community Health Network, Inc. (CHN), is a case in point. On the surface, the organization’s former CEO and assistant director were indicted for stealing grant funds from the nonprofit. Beyond the allegation that former CEO Keith Williams stole more than $60,000 and the allegation that Paul Monroe, the assistant director, stole more than $10,000, there is a more complicated story. CHN was established as a nonprofit to help healthcare providers implement information systems allowing for telehealth—delivering healthcare in rural areas using video and computer technology. To accomplish this mission, CHN (which NPQ previously took note of in 2011 when charges surfaced) received various grants, but an audit from the State of Tennessee’s comptroller cited five major problems with the way the organization handled grant money:

  1. “CHN failed to account for $250,000 advance payment, obtained $347,458 for ineligible expenditures for a combined total of $597,458, and submitted false or misleading documents for a physician connectivity grant…
  2. CHN failed to process applications for funds from physician connectivity grant…
  3. CHN overclaimed $131,163 on a $1.47 million computer information system grant and then failed to utilize the system…
  4. In at least one instance, CHN officials claimed and were reimbursed for the same purchase with grants from two separate sources, a THF [the BlueCross BlueShield of Tennessee Health Foundation] and federal grant….
  5. While employed by CHN, the former CEO made efforts to further the interests of a software company, NextGen Healthcare Information Systems. CHN paid a total of $805,531.21 to NextGen for software and maintenance from which CHN was improperly reimbursed at least $478,621 by the state.”

Williams reportedly resigned from CHN via e-mail in January of 2010, after all of the above allegedly took place. Where was CHN’s board while all this was happening? According to the state comptroller’s investigation, the board deferred to the CEO and lacked routine best practice policies and procedures on issues including financial reporting and CEO evaluation. If the comptroller’s report is accurate, it seems the CEO had almost unfettered authority and license to include—or exclude—pertinent information from board review and decision-making. Board minutes were, the audit states, routed to the CEO for editing prior to distribution to the board.

The comptroller’s report finds that the board’s inattention to the organization’s activities should be remedied by paying more attention to procedures assuring separation of duties for financial transactions, assuring that proper inventory control is in place, and making sure that financial reports are timely, accurate, and complete. Strangely, the comptroller’s report does not explicitly blame the board for any breach of duty in its service to CHN.

In the wake of the indictments, Roane County District Attorney General Russell Johnson says that the FBI and the Department of Health and Human Services are “looking into potential prosecution for the misuse of grant funds and other charges”—an unsettling thought for any nonprofit executive or board member. –Michael Wyland