State Auditor’s Report Slams Organization for Misusing Funds
By Bob Luebke
Franklin Vance Warren Opportunity Inc. (FVWO) misused $361,000 in Pre-K funds, provided a former CEO an unauthorized salary increase of $18,000, and spent more than $59,000 on legal services without approval from its board, according to recent report from the Office of State Auditor.
FVWO, located in Henderson, is a not-for-profit organization whose mission is to aid low-income individuals in Franklin, Nash, Vance and Warren counties. Some of the services FVWO provides include Head Start classes, Section 8 housing, Community Services Block Grants, and weatherization assistance. FVWO receives about 77 percent of its funding from federal and state governmental agencies, including the North Carolina Department of Health and Human Services.
The auditor’s report, released on April 17, focused on three main findings. First, FVWO misused $361,284 of NC Pre-K funds by putting those funds in its general operating account. So instead of helping to teach children, “the agency used the funds for items such as computer equipment, audit fees, and legal services,” the report said. “Over a four-year period, the Agency had $361,284 less to serve the children in its NC Pre-K program as a result of the misuse of funds. This reduction in resources limited the Agency’s ability to provide high-quality educational experiences to enhance school readiness for its Pre-K students.
Prior to becoming CEO of FVWO, Sara Rudolph was the agency’s Head Start director for three years. The state audit report asserted that Rudolph should have known allowable uses for NC Pre-K funds. Individuals associated with the investigation said Rudolph used the NC Pre-K money for general purposes because there was not enough money in the budget. After the allegations came to light in 2015, Rudolph resigned her position.
Second, the auditor’s report also found that in July 2012 Rudolph increased her annual CEO salary from $75,000 to $80,000 – without approval from the Board of Directors. Members of the FVWO Board of Directors later reported that they were not aware of the salary increase until a citizen brought it to their attention during a July 2015 meeting.
Thirdly and lastly, the auditor’s report also stated that the then-board chair of FVWO entered into an agreement for legal services without the approval of the full board of directors. Specifically, the board chair (who was not named in the auditor’s report) did not notify the full board of the legal agreement until after the agreement for legal services – for $250 per hour – was signed. After it became aware of the agreement, the full FVWO board issued a request for a proposal for legal services and hired a new attorney.
A number of recommendations were also included in the auditor’s report. These included that FVWO reimburse NC Pre-K for the money it used for its general fund. It also recommended that the board should monitor monthly financial reports for variances and establish procedures for reviewing and all staff salaries. Finally, the report also suggested that FVMO board members be made aware of the limits of their own authority regarding contracts.
When the report was released on April 17, an attorney for the FVWO Board of Directors took the unusual position of releasing a statement that takes issue with the state auditor’s investigation.
According to the prepared statement, FVWO “took appropriate actions over a year ago to address the findings contained in the Office of the State Auditor’s Investigative Report … FVWO disagrees with the findings contained in the report with respect to North Carolina Pre-Kindergarten Funds (NC Pre-K Funds) … We stand by our position as stated in our response included in the investigative report. The investigative report states that our response is ‘disingenuous and misleading.’ On the contrary, the Report, with respect to Pre-K findings is without basis in fact, law or contract and dismisses the responses provided by FVWO and the North Carolina Department of Health and Human Services. We invite those interested in the issue to carefully read FVWO’s DHSS’s responses attached to the report and to draw conclusions based on the actual controlling documents rather than the report.”
The State Auditor decided to investigate after receiving a report that the nonprofit was potentially misusing funds. News reports said a Henderson pastor, John Miles, filed a complaint with the State Auditor’s Office after several former employees came to him with concerns.
The state auditor said that findings will be forwarded to the State Inspector General’s Office and Department of Education for review. There has been no word on whether another investigation will be launched.