Norfolk anti-poverty agency STOP gets poor marks in audit

An external audit of the Southeastern Tidewater Opportunity Project has found that the nonprofit kept little control of its financial accounting and, in the case of its Head Start program, it manipulated reports to make the bottom line look more sound.

The audit was completed in March, after STOP announced it could not meet the payroll for the more than 30 Head Start centers it managed in Hampton Roads. The Virginian-Pilot obtained a copy of it Friday.

The audit gave the Norfolk-based anti-poverty agency an “adverse” rating, saying its record-keeping “did not comply” with acceptable accounting procedures.

As a result, the agency’s management could not reliably track its finances to “prevent or detect misstatements on a timely basis.”

In one instance, it said, a deferred revenue balance of $732,610 in Head Start money was not properly accounted for at the end of June 2010. The funds, leftover from that year’s federal grant, showed up as “an unexplained net asset balance.”

“Rather than admitting to the impropriety,” the auditor said, “reports were manipulated … in order to conceal the difference.”

A few months later, the agency said it had run out of money. In February, it shut down the preschool centers it operated under an $11.6 million federal grant. The centers reopened later under new management.

The audit was conducted by Roanoke accountant N. Wesley Pughsley, who had been appointed by STOP’s board but was allowed to act independently. He recommended “a thorough review of all staff involved in this, and that they be dismissed.”

STOP officials said Friday that they already have taken steps to correct the deficiencies.

George Banks, chairman of the agency’s board of directors, said the board has replaced STOP’s internal accountant and its top financial officers and adopted a series of other measures.

“The problem is not in with the people administering or supervising the program,” Banks said. “It was poor management in controlling the money. The people who were responsible are no longer with us.”

The critical audit was just the latest indication of the agency’s ongoing financial troubles. Its latest tax returns showed it losing money in spite of revenue totaling $19.6 million.

Earlier this month the Virginia Department of Housing and Community Development ordered STOP to return more than $104,000 in bonuses it paid to 42 key employees out of a federally funded home weatherization program.

The department said STOP had no clear-cut criteria or policy for awarding the bonuses, which ranged from about 2 percent to nearly 11 percent of an employee’s annual pay.

It said the bonus amounts “appeared to have been arbitrarily developed to obtain a goal of spending the funds at the end of the contract year.”

Banks said the board this week adopted a plan to repay the money but declined to disclose the terms until the state approves the plan. Tyrone Sessoms, STOP’s vice president of housing and economic development, has said that individual recipients would not be asked to return their bonuses.

The state also ordered STOP to adopt a computerized inventory-tracking system, saying the agency had not properly accounted for weatherization materials purchased with federal and state funds.

Since July 2008, STOP has received more than $4.5 million in federal funds, including a $3.3 million economic stimulus grant last year, to provide weatherization services to low-income homeowners.

George Reed, STOP’s vice chairman, said the agency is working to get its financial house in order.

“Right now we think that we have bottomed out and we’re ready to turn the corner,” Reed said. “Hopefully the public will have confidence in the actions we’ve taken to make sure nothing like this ever happens again.”

Jeff Sheler, (757) 222-5563, jeff.sheler@pilotonline.com

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DOCUMENT: AUDIT OF STOP’S FINANCES