Volunteers of America Southwest Accused of Double-Billing, Fraud and Conflicts

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Volunteers of America Southwest Accused of Double-Billing, Fraud and Conflicts

Volunteers of America Southwest’s managers engaged in mismanagement, waste, misuse of public funds, conflicts of interest, potential fraud and double-billed some clients, according to interviews, lawsuits and San Diego County auditors.

Illustration by Adriana Heldiz

In October 2018, James McGowan was a financial clerk for a prominent San Diego charity, Volunteers of America Southwest. While working in the company’s accounting software, he noticed some odd payments to new companies he’d never seen.

The charity was paying one company, JER International, for a confusing range of products. JER sold fitness equipment, trash bags, foam skin cleanser, copy paper and even living room sofas, according to receipts obtained by Voice of San Diego from San Diego County auditors.

The closer McGowan looked at the receipts, the more suspicious he became. Some items, like copy paper and fitness equipment, were marked up to more than twice their market value.

McGowan’s colleague in the finance department, James Harrell, also didn’t trust the receipts. Harrell was not aware of any new vendors providing services to Volunteers of America Southwest, according to a lawsuit he filed against the nonprofit in January. In other words, it seemed possible that JER was billing for items, but not providing them.

The two finance workers went into detective mode. They ultimately discovered three companies doing business with Volunteers of America Southwest that seemed suspicious. Harrell searched the California secretary of state’s website to find out who owned the companies and got a shock. The owners, it turned out, were their own colleagues, a recently hired accountant and clerk who also worked in the finance department.

McGowan and Harrell ultimately revealed a web of hundreds of thousands of dollars in suspicious purchases that traced back to the organization’s chief financial officer, Nagham Hakeem, and her two sisters-in-law, who also worked for Volunteers of America Southwest. They brought their findings to the organization’s chief executive officer, Gerald McFadden.

But instead of congratulations, McGowan and Harrell were met with resistance, they say. Despite having worked at the nonprofit for nine and 15 years, respectively, they were both eventually let go.

Volunteers of America Southwest receives millions of dollars each year in government funds to provide housing, mental health services and addiction recovery to veterans, homeless people and other vulnerable citizens. But the charity’s managers engaged in mismanagement, waste, misuse of public funds, conflicts of interest, potential fraud and double-billed some clients, according to interviews with former employees, two separate lawsuits and San Diego County auditors.

The three companies tied to Hakeem’s sisters-in-law billed Volunteers of America Southwest at least $274,000, according to county auditors – who looked into the organization’s dealings because the county was providing Volunteers of America Southwest several million dollars a year to run a rehabilitation center in National City.

But the true extent of the alleged misspending could be far greater. County auditors flagged more than $1 million in charges that were either not allowed or didn’t have supporting documentation to back them up.

Managers at the charity also purchased tens of thousands of dollars in gift cards, billed for conferences they had no proof of attending, charged for unexplained rental car expenses and used company credit cards for what appeared to be personal trips, according to McGowan and county auditors.

Volunteers of America Southwest runs four treatment centers throughout the county that help people with addiction and mental health problems. County auditors found it billed multiple funders – including the county, state and federal government as well as various local hospital chains – for a single patient. A separate lawsuit, filed by a different former employee, makes the same claim.

Volunteers of America Southwest acknowledged some, but not all, of the double-billing to county auditors.

Like most nonprofits, Volunteers of America Southwest is run by a volunteer board of directors. County auditors noted that one member of the board of directors, Philip Curtis, owns a pharmacy that also does business with Volunteers of America. That’s not necessarily a problem on its face: Nonprofit board members are allowed to do business with nonprofit organizations for which they serve.

Curtis did not respond to a request for comment.

The charity sent Voice of San Diego a statement that addressed some, but not all, of the questionable practices.

“This is the first time in our organization’s 40-year history that an issue of this nature has arisen,” the statement says. “Volunteers of America Southwest acknowledges that past accounting practices fell below accepted standards under the previous financial manager, and we have taken corrective actions to remedy the situation.”

Nathan Fletcher is chair of the County Board of Supervisors, which doled out funding to Volunteers of America. He praised county auditors who caught on to the accounting problems and said the organization should be held accountable.

“There is a special place in hell for those who take funding designed to help veterans and the least among us,” said Fletcher, who’s also a former Marine. “To betray the trust of taxpayers and the folks counting on those services that are life or death is a level of evil that is massive.”

McGowan, who signed a separation agreement, spoke out despite a fear of legal retaliation.

“There was a lot of crooked stuff going on there,” McGowan said. “The story needs to be told.”

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Volunteers of America, the national organization, is one of the oldest charities in the United States. It was founded in 1896 by Ballington Booth, the son of the couple who founded the Salvation Army.

Like the Salvation Army, Volunteers of America is a Christian charity and has provided services – from education to meals and housing – to poor and vulnerable citizens. It has dozens of affiliates, including the local branch in San Diego. Each operates independently and is run by its own board of directors.

The southwestern branch brought in $23 million – much of it government funding – in fiscal year 2019, according to its tax returns. Aside from its treatment and housing programs, the local branch also runs several preschools, as well as one charter school in Imperial County and another in San Bernardino County.

The Volunteers of America Southwest building in San Diego / Photo by Adriana Heldiz

Harrell started working in Volunteers of America Southwest’s finance department in 2003, according to his lawsuit. Neither Harrell nor his attorney responded to requests for comment.

Around March 2018, the company brought on a new chief financial officer, Nagham Hakeem. Not much later, Hakeem hired her sister-in-law, Manar Hirmiz, to also work in finance. Hakeem reassigned some of Harrell’s duties – including logging payments – to Hirmiz, Harrell’s lawsuit alleges.

Hakeem also hired another sister-in-law, Banar Askar, according to Harrell and McGowan.

Only a few months after Hakeem came on as chief financial officer, her sisters-in-law registered three companies that started billing Volunteers of America Southwest.

Askar registered JER International on May 4, 2018, according to California secretary of state business records. She registered another company, Mercardo Mechanic, three and a half months later. Hirmiz created a company called American Eagle on July 19, 2018.

“They were selling everything from toilet paper to office paper and deodorant. I thought, ‘Who is this?’” said McGowan. “We were buying all these things at inflated prices.”

JER, for instance, billed Volunteers of America Southwest an XMark pull-up bar and knee dip tower for $789 that can be bought online for $285, according to receipts obtained from county auditors. Copy paper that runs $16.99 at Office Depot, JER sold for $55.99.

American Eagle submitted bills in the thousands of dollars that only said “minor supplies,” “housekeeping supplies” and “office supplies.”

Mercado Mechanic billed $750 for mounting five Sony TVs.

It’s unclear whether any of the companies did business with other entities. All of the companies have been dissolved, except for Mercado Mechanic.

A voicemail left with a number that appeared to belong to JER was not returned.

Hirmiz declined to comment. Hakeem and Askar did not respond to requests for comment.

Hakeem transferred some of Harrell’s duties to Hirmiz, according to his lawsuit. This kept him from noticing the suspect payments for several months. But in September 2018, McGowan saw some of the receipts and went to Harrell.

Harrell, who was “shocked” as he put it, went to McFadden, the CEO, to share his and McGowan’s findings.

McFadden told Harrell to take “the evidence you have and keep it off site. Do not have it in your office,” according to the lawsuit.

Harrell was encouraged. He believed McFadden would investigate while he kept the evidence safe.

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Several problems within the company’s culture helped facilitate the apparent scam, McGowan said.

First, it was not uncommon for managers to hire family members. McFadden hired two of his own sons to work for the company, McGowan said.

Volunteers of America would not confirm whether McFadden’s sons work for the organization.

It raised no warnings then when Hakeem, the chief financial officer, hired her two sisters-in-law, McGowan said.

The other problem, McGowan said, was a lack of internal controls to prevent inappropriate charges.

Normally, companies require a purchase order and proof of delivery to validate a purchase. But Volunteers of America Southwest often didn’t do that, McGowan said.

JER, for instance, billed Volunteers of America Southwest much more often than the other companies connected to Hakeem and her sisters-in-law. But McGowan said he could never find proof of delivery for any of the items.

“All that stuff bought from JER – maybe some of it was delivered. But there was no proof of delivery for anything,” he said.

Click on the image to expand

McGowan also saw at least one credit card statement that appeared to be full of personal charges for gas and a family trip to Big Bear.

The county’s auditors also found a lack of internal controls and proper procedures for authorizing payments to be a major problem for Volunteers of America Southwest. In fact, county auditors found Volunteers of America Southwest’s bookkeeping to be so flawed that they couldn’t gain “reasonable assurance” that a huge portion of the money had been spent as claimed.

County officials are demanding repayment of roughly $6.5 million that made up a large portion of the funds provided by the county to Volunteers of America Southwest between 2018 and 2020.

County officials have also terminated their contract with Volunteers of America Southwest. The county had been giving Volunteers of America Southwest millions of dollars each year to run a 120-bed rehabilitation center for people with substance use disorders in National City.

Volunteers of America Southwest did not say whether it plans to repay the money. But it did say it’s making changes to its financial practices in its statement to VOSD.

“VOASW replaced our past financial manager with financial experts with a cumulative 50 years of non-profit experience, and they are implementing more than a dozen systemic reforms to raise our financial practices to the highest-level of accounting standards, while simultaneously working to cooperatively resolve this matter with the County of San Diego,” the statement read.

County officials will continue to pursue Volunteers of America Southwest until they “fully” recover the funds they’ve asked for, said county spokesman Michael Workman. Officials have also referred their findings to the district attorney’s office.

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One month after Harrell went to McFadden, he lost critical access to the organization’s accounting software, according to his lawsuit.

Harrell was “confused and frustrated that his courage to speak up about fraud was being met with retaliation and loss of his core essential duties,” the lawsuit claims.

He approached McFadden again. This time, McFadden told him not to “worry about it,” according to the lawsuit.

McFadden did not respond to a request for comment.

Not long after the meeting with McFadden, both Harrell and McGowan were placed in performance improvement plans.

Harrell met with McFadden yet again to bring up his concerns about fraud. McFadden “analogized the payments to working with a family member and stated that the company had paid a ‘fair’ price for the services rendered,” the lawsuit alleges.

Harrell “understood this to mean that McFadden approved of the fraudulent transactions,” the lawsuit says.

Around the same time, Volunteers of America Southwest terminated McGowan.

“They got rid of me, because I knew too much,” he said.

Harrell held on at the company for another year. His position in finance was eliminated and he was transferred to human resources. In January 2020, he was laid off. His lawsuit alleges he was fired because of his “whistleblower status.”

McGowan, who signed a separation agreement, felt he had less leverage, but spoke on the record regardless, believing Volunteers of America should be held accountable for its misuse of public funds, he said.

McFadden remains CEO and president of the southwestern branch of Volunteers of America.

Brian Gavin, a spokesman for the national Volunteers of America organization, said officials in Virginia “are aware of the matter.” They have consulted with the local branch on accounting improvements and “continue to monitor the situation,” he wrote.

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Aside from the substantial evidence Volunteers of America Southwest workers were using the charity to fill their own pockets, county auditors also determined the charity was double-billing the agencies it served.

Volunteers of America Southwest runs several treatment facilities. And it has contracted with multiple entities, including the county, state, federal government and multiple hospital chains to provide rehabilitation and mental health beds. County auditors found that Volunteers of America Southwest billed at least $300,000 to the county, while also billing other agencies – in essence, collecting fees twice.

Volunteers of America acknowledged roughly $82,000 in double-billing, and refunded the money, according to one county report. In those cases, Volunteers of America Southwest sometimes billed the county and the state of California. It also sometimes billed the county and a federal probation program that was meant to pay for beds for people on federal probation.

County auditors say Volunteers of America Southwest still owes roughly $211,000 to the county for double-billings – on top of the $6.5 million county officials are also demanding – that overlapped with contracts held by UC San Diego Health and Scripps Health.

A 2018 lawsuit filed by John Evosevich, the former director of behavioral health for Volunteers of America Southwest, also alleges that grant funds “were not correctly allocated.” Evosevich claimed that staff paid for by one agency, such as the federal Department of Veterans Affairs, were used for projects meant to serve another agency.

He also noted the nonprofit would sometimes double- and even triple-bill agencies for rehabilitation beds at its Renaissance Treatment Center in National City.

Evosevich tried to raise his concerns to two different managers. First he asked Hakeem, the chief financial officer, to review his findings. Hakeem told him “not to worry about it,” according to the lawsuit.

Another manager told him, “‘Keep your fucking mouth shut; we have creative financing’ or words to that effect,” the suit alleges.

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