National State Auditors Association Annual Conference June 16, 2016 Investigative Report Eastpointe Human Services

From a Hotline Call

To an Arrest

Program Overview Annual federal, state, and local funding for mental health in North Carolina: $1.6 billion Eastpointe’s federal, state, and local funding in 2013: $180 million Eastpointe’s Medicaid funding in 2013: $130 million Eastpointe provides mental health, developmental disabilities, and substance abuse services to approximately 180,000 citizens in a 12-county region in eastern North Carolina

Intersection of Risk & Corruption Kickbacks $548,000 Vehicles $143,000 Equipment $19,000 Personal Purchases $157,000

How did we get involved? A board member called the Hotline with several allegations Former CFO’s Personal purchases Agency vehicle use Boat repair CEO wanted to conceal embezzlement The board member requested an investigation by the Office of the State Auditor

Investigative Procedures Interviewed co-workers and contractors Analyzed agency accounting records Subpoenaed and analyzed agency credit card statements Subpoenaed and analyzed bank statements and checks of agency and contractors

Kickback Scheme Two contractors were paid over $1 million for renovations to Eastpointe's headquarters Eastpointe paid one contractor $986k over 3 years 16 checks totaling $513k paid back to former CFO Other contractor paid $43k 4 checks totaling $38k paid back to former CFO

Former CFO’s and Contractor’s Explanations Why did the Contractor make payments directly to former CFO? Why were there no receipts for the materials allegedly purchased by the former CFO?

Justification for Vehicles and Accessories Business purpose for the three vehicles 2011 Chevrolet Silverado 2500HD - $51, Ford F $42,784 w/ upgrades $50, Buick Enclave - $40,856 Vehicle accessories and upgrades $7,800 Front bumper and winch combination 20” chrome rims Rearview mirror with back-up camera

What happened to them? Former CFO and Contractor indicted on 47 federal counts of conspiracy, bribery, and fraud If convicted, the men face up to: 5 years in prison on the conspiracy charge; 10 years in prison for each of the 37 charges; 20 years in prison for nine of the charges Former CFO charged with 9 state counts of financial card fraud and embezzlement IRS is also investigating the underreported income related to the kickback scheme