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Redbanks' shortcomings not limited to nursing home [The Gleaner, Henderson, Ky.]
[September 14, 2014]

Redbanks' shortcomings not limited to nursing home [The Gleaner, Henderson, Ky.]


(Gleaner, The (Henderson, KY) Via Acquire Media NewsEdge) Sept. 14--HENDERSON, Ky. -- An outside audit presented to the board of Redbanks Skilled Nursing Center in December 2013 provided a scathing view of past management and accounting practices at the nonprofit nursing home.



But board members learned months earlier that administrative controls at Redbanks Towers and Apartments next door were feeble as well, with issues ranging from employees getting pay raises without evidence of proper approval to the organization lacking proper segregation of financial-related duties.

Blank checks weren't locked up, according to a report in July 2013 from Redbanks' longtime accountant, Eugene Hargis of Hargis & Associates in Russellville, Kentucky. Rent checks weren't deposited daily. There was a lapse in the facility's workers' compensation insurance coverage -- even questions about whether employees were charging personal expenses to company credit cards.


Such issues raise additional questions as to how effectively the board of directors of the various entities known as Redbanks have governed the organizations over the years.

What prompted the report? Precisely what triggered the review of the senior apartments' financial practices in the summer of 2013 isn't clear.

In an unsigned written statement on Friday attributed to Redbanks board President Tim Williams (but sent via email to The Gleaner -- and to Williams himself -- by Terri Anderson, the interim administrator at Redbanks Skilled Nursing Center), the "recommendation to the board to conduct the review was made jointly by Hargis & Associates and newly appointed Redbanks Towers & Apartments executive director Wendy Orr, and the board authorized the review.

"Upon taking the helm as director in May 2013, Wendy did what any good director would do and began to examine the operations of the business with the assistance of Hargis & Associates," the statement declared. "She noticed several areas that could stand improvement and worked with Hargis & Associates to review and evaluate them." However, in his report dated July 18, 2013, Eugene Hargis wrote: "The review was conducted in conjunction with a cash flow assessment prompted by the organization fully reimbursing Redbanks Nursing Home for expenses." No mention was made in his report of Orr requesting such a review.

The person who was beginning to press for the nursing home to be reimbursed millions of dollars it had loaned to other Redbanks organizations was Mark Chumbler, the then-new executive director of Redbanks nursing home.

Despite their similar names and common board of directors, the various entities known as Redbanks are, for the most part, owned by separately incorporated nonprofit entities -- and managed, day-to-day, by different executive directors.

When Chumbler was hired as executive director of Redbanks nursing home in May 2013, Orr -- who had been assistant administrator at the nursing home -- was promoted to executive director of Redbanks Towers & Apartments (RTA).

At that time, RTA owed the nursing home $120,727, according to Hargis' report.

The first thing Hargis acknowledged in his report was that RTA had "not been timely reimbursing Redbanks Nursing Home" for loans that helped the apartment building cover its payroll and other expenses.

By mid-July, he reported, RTA had repaid $100,422 that it had borrowed during the proceeding years, leaving a debt to the nursing home of $20,422 -- about half of which had been loaned five years earlier to help the senior apartments with payroll.

But Hargis' review of RTA went on to reveal a host of fundamental administrative weaknesses at Redbanks' senior apartments -- during a year in which RTA's parent organization, Henderson County Health Care Corp. Two, lost $207,115, according to publicly available IRS Form 990.

Issues at Redbanks Towers Among the issues highlighted in the 10-page report: Employee pay increases: Eight pay increases were submitted for six salaried employees between July 1, 2012, and June 14, 2013, totaling from 9.76 percent to 23.08 percent per employee. But most of the payroll authorization forms lacked the proper signatures, according to Hargis.

The paperwork for pay increases at RTA required an "authorization signature" and an "approval signature." But of the eight forms submitted during that fiscal year, one didn't have the executive director's authorization signature "and six forms requesting wages increases did not have any type of approval signature," according to the report.

Hargis recommended that all salary increases be approved by the board of directors, with evidence of approval by both the board and the executive director kept in employees' permanents personnel files.

Further, the personnel file for the retired executive director couldn't be found. Hargis advised that personnel files are the property of RTA and shouldn't be removed.

Checks being prepared before deposits received: Checks were being written on RTA's operating fund account before rent checks had been deposited to cover the checks.

Hargis recommended that such a practice be discontinued and that checks shouldn't be written or disbursements made unless there was sufficient money in the operating fund.

Lapse in workers' compensation insurance: The organization wasn't covered by worker's comp insurance -- which reimburses employees injured on the job -- for more than three months because the policy had lapsed on March 1, 2013.

The policy was reinstated by June 25, 2013.

Lack of segregation of duties: The same person at RTA received and opened mail; received tenants' rent checks; entered and deposited rent checks; reconciled bank statements; received and entered invoices and billing statements; and wrote checks.

Hargis advised that the person collecting rent checks and other payments shouldn't be the person who records cash receipts and prepares the deposits. While he said it wasn't feasible to fully separate the tasks in RTA's current framework, he recommended that the person who records the cash receipts shouldn't also be the person who reconciles the bank statement -- and mail shouldn't be opened by the person recording payments.

In short, "The responsibilities for reviewing, approving and preparing checks for invoices should be separated," Hargis wrote in his report. "The determination for intercompany transfers should be identified and approved by the (executive) director (of RTA). Approval for invoice payments should not be made by the person who prepares disbursements checks. Reconciliation of bank statements should be performed by someone other than the employee that receives the checks." He drafted a plan that would divide various financial-related duties between a receptionist, the property manager, the bookkeeper, the executive director and the treasurer of the board of directors.

Lack of safeguards: Checks weren't being stamped as "For Deposit Only" immediately upon receipt, as RTA's Operating Procedures Manual directed. Additionally, deposits weren't made daily and no log was kept of mail and checks that were received.

The lack of safeguards went on in Hargis' report: "Blank checks are not maintained in a secure area. Numeric sequence of checks did not appear to be accounted for on (a) regular basis. All employees have access to petty cash fund. It could not be determined what personnel are authorized to use company accounts and credit cards ...

"Invoices/bills are not reviewed and approved by management prior to entering transaction into accounting system and prior to preparing and printing check(s) ... It could not be determined if documentation was reviewed and approved on a consistent basis before checks were signed and mailed." And just one person was responsible for intercompany billings and transfer of funds.

Hargis presented a host of recommendations, from proper safeguarding of undeposited funds and making daily deposits to protecting business computers with passwords.

Additionally, he advised: "Management should identify all credit cards and company accounts and determine what employees are authorized to use the cards/accounts. Only personnel authorized by management should have access to company credit cards and company accounts. Company credit cards and accounts should be used for business purposes only." Employee timesheets: "An honor system for timekeeping is utilized ... There does not appear to be a system in place to actually verify the employee's attendance." Hargis recommended that RTA consider using a time clock.

Pay and benefits after retirement: A former employee of RTA was paid for 80 hours of comp time and eight hours of holiday time that followed their retirement; the former employee's life insurance premiums were paid for a while afterward as well.

Guest fees not reimbursed: An RTA credit card statement indicated that expenses for guests of two employees who attended an out-of-state business conference were charged to the RTA card, and while there was a notation on the statement saying the employees would reimburse the organization for their guests' expenses, "(n)o evidence was found that the guest fees were reimbursed by the two employees." Hargis advised that employees' personal expenses shouldn't be charged on company credit cards, and management should evaluate its policy on guests attending business functions.

Bookkeeper revisions: A bookkeeper made revisions to RTA's system of accounts for the three Redbanks senior apartments -- Redbanks Towers and Apartments, Pleasant Pointe and Redbanks Regency Apartments -- that were contrary to the procedures outlined by the U.S. Department of Housing and Urban Development for HUD-insured and HUD-held properties.

The bookkeeper also changed RTA's accounting procedure. The Hargis report said it wasn't clear if any of the changes were authorized by the executive director.

Such shortcomings were discovered at a time when Redbanks Towers & Apartments' parent organization, the nonprofit Henderson County Health Care Corp. Two, had lost money for at least four consecutive years, according to IRS Form 990s. Over that time, the organization suffered net losses totaling just over $1 million.

"After the Hargis & Associates review, Wendy and the board followed many, if not most, of the recommendations regarding business practices at Redbanks Tower & Apartments," the written statement attributed to board President Tim Williams said. "But many of the issues discussed in the report were remedied before the report was issued. " ___ (c)2014 The Gleaner (Henderson, Ky.) Visit The Gleaner (Henderson, Ky.) at www.courierpress.com/news/gleaner Distributed by MCT Information Services

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