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Auditor was looking at CAO's use of Head Start money when work stopped

A special accounting firm hired by concerned board members at the Community Action Organization was seeking specific records on the agency's use of federal dollars for Head Start programs when it halted work on its forensic audit.

While the CAO's chief executive has publicly asserted that the auditor was never hired, a contract and emails obtained by The Buffalo News show that Chiampou Travis Besaw and Kershner, or CTBK, began its "engagement" with the completion of a contract in early December and a request for records one week later.

But CTBK never issued an audit. The firm ended its work in January, days after CAO's president, treasurer and four other directors were dismissed from their positions. At least four of the dismissed directors had tried months earlier to fire the longtime CEO because, internal correspondence shows, they wanted more data than he typically provided about the agency's $51 million in annual spending.

On its website, CTBK tells prospective clients about its ability to perform forensic audits, which are intended to detect fraud. But the Community Action Organization's CEO, L. Nathan Hare, argues that the agency's regular accounting firm, Szymkowiak and Associates, examines the agency's books every year and provides its reports to state and federal regulators. 

Szymkowiak each year accounts for the nonprofit agency's income and expenses, assesses its client's own internal controls and suggests improvements. Szymkowiak's audit for the fiscal year that ended Feb. 28, 2018, which is the most recent audit that CAO has made public,  identified no problems with the agency's internal controls, but it was limited in scope.

However, some CAO board members, suspicious about the use of some funds, decided in late 2018 they wanted the agency to undergo a forensic review.

Hare has criticized The News for reporting — wrongly, he says — that the board hired a second firm to further examine the finances. "No second outside audit was started," he said in a letter to his staff addressing the newspaper's articles.

When The News asked for a copy of the contract with CTBK, Hare said there wasn't one.

"CAO never signed such a contract and has never seen such a contract," he told the newspaper in an email on March 19. "If anyone entered into such a contract, it would be an illegal act against the CAO."

When told Tuesday that The News has a copy of the contract, Hare said he now knows there was one. But he contended that its signing was illegal because, he said, the board never voted to hire CTBK.

"The contract was illegally negotiated and signed by Jenine Dunn on Dec. 5, 2018," Hare said in an email to The News. "The board never voted to hire CTBK.  In fact, the board never even considered such a hiring."

Former board treasurer Jennifer Shank and one other former board member, who asked to remain unidentified, have told The News that the board voted Oct. 4 — the day members also voted to fire Hare — to hire a forensic auditor.

In his email to The News on Tuesday, Hare said he has reported the existence of the illegal contract to "regulators" and asked for "guidance on any consequences for the former board members for this illegal behavior."

He went on to say, "We are confident that Head Start grant funds are being spent as required by the granting source." He also pointed out that Shank and Dunn never reported such concerns to the federal Department of Health and Human Services, which provides grant money for Head Start, or the State Department of State, which checks for compliance with community services block grants and monitors board governance matters at the CAO.

The contract, called an engagement letter, is dated Dec. 5. In it, the firm says it will assess whether the millions of federal dollars provided for CAO-run Head Start and Early Head Start programs were spent according to the grants' provisions. CTBK agreed to review other spending to determine the source of the money.

While Hare has said the cost of a forensic audit could have run into six figures, the firm said in its letter that its service would cost no more than $10,000.

CTBK said in the letter that it would "continue the engagement" as soon as the board's president at the time, Dunn, signed a statement agreeing to the terms. She did so Dec. 6.

A week later, one of the firm's certified public accountants, Matthew J. DeVincentis, sent Dunn an email asking for six specific financial records, including reports on Head Start spending and a home improvement grant. According to the email, DeVincentis told her that once those were received, he would "do detailed testing" at CAO headquarters.

DeVincentis never did receive the documents, said Shank, who served as the board's treasurer until her dismissal. Neither Shank nor Dunn had the records he was looking for, so they would have to obtain them from the CAO's Finance Department. DeVincentis then scheduled a meeting to arrive at the CAO offices on Jan. 10 to meet Finance Department staff, an email indicates. Shank, who intended to accompany DeVincentis, said he expected to receive the financial reports at that time.

Before the meeting could happen, Dunn, Shank and some other members received letters, dated Jan. 8, telling them they were no longer on the board. There had been a defect in the way they had been appointed, CAO attorney Adam W. Perry wrote, telling each to "refrain from representing yourself as a member." Perry has never publicly explained the defect.

When Dunn told CTBK's DeVincentis about the challenge to her status as a board member, the visit was called off, Shank said. The firm was unwilling to move forward while Dunn's position with the CAO was in doubt because she had signed the engagement letter, Shank said.

Hare suggested Tuesday that CTBK partner Kelly G. Besaw had another reason for ending the contract. "When Besaw discovered an audit by another firm was nearing completion, he moved to break contact with CAO immediately, which we learned weeks later."

Besaw would not comment on the contract with the CAO.

The board members who had been dissatisfied with Hare faulted him for providing them with too little financial information, among other things. "It is of the utmost importance we receive adequate, timely financial communication to carry out our fiduciary responsibilities," the board told him in a memo in January 2018. "Any further acts of noncompliance will not be tolerated." Among the board's concerns, Shank said, was that grant money devoted to Head Start and Early Head Start was being diverted to other CAO needs.

In October, the board told Hare in writing that he was being fired. Based on its memo, the members were still dissatisfied with the financial data they were given. "We have yet to receive consistent timely monthly (not year to date) finance reports on the deadline set by you. Timely reporting to funding sources is still an issue," it said.

But Hare never left the job. He returned to work the next business day, a Monday. Perry had nullified the decision to fire Hare by stating the board had failed to give adequate notice of its meeting, Shank said. Perry, a partner at the Hodgson Russ law firm, has not publicly explained why the vote was nullified.

In criticizing The News, Hare has focused on its reporting about the forensic audit. In various emails and letters, he has said no auditor was hired and no audit begun. And if no audit began, he has said, how could one be stopped as a consequence of the removal of certain board members?

The CAO's website now features a statement that CTBK's Besaw gave to an attorney with Perry's Hodgson Russ law firm. It echoes Hare's point: "We were contacted in November 2018 by the Chairperson and the Treasurer of CAO's board. Their intention was to engage us to perform a forensic investigation of certain matters at CAO. Ultimately, this forensic engagement was never commenced. Accordingly, our engagement was not stopped because it had not begun."

The News asked Besaw about the letter indicating that CTBK's engagement would be underway with Dunn's signature and the emails showing that one of the firm's CPAs was gathering records about Head Start spending and scheduling a meeting. Besaw refused to comment on those details.

Hare maintains that certain board members tried to hire a forensic auditor without seeking competitive bids through a "request for proposals."

But Shank said the board was not using state or federal money to pay for the audit. It was using non-regulated proceeds from the annual fundraising dinner held in 2018, which had generated some $41,000. The board had budgeted no more than $10,000 for the audit, and CTBK agreed it could complete the work for that sum, she said.

While the forensic audit never materialized, the CAO faces new scrutiny. The News has confirmed that both the FBI and the Office of the state Attorney General are inquiring about CAO matters.

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