Copyright © 2017 Albuquerque Journal
The red flags were evident five years before top executives of one of New Mexico’s largest commercial guardianship companies were indicted for allegedly pilfering millions of dollars from client accounts to finance lavish lifestyles.
Independent audits and tax records submitted by Ayudando Guardians Inc. to the state Attorney General’s Office in 2011 and 2012 showed evidence of financial irregularities at the firm.
The audit reports showed “employee advances” of nearly $80,000 over a two-year-period – described as loans from client accounts to employees – including Ayudando president Susan Harris and chief financial officer Sharon Moore. Most of the money, the audits showed, was eventually repaid, but not all of it.
“There is no justification for any organization to borrow money from clients,” said Wendy York, who chairs the state Supreme Court appointed commission that is studying ways to improve New Mexico’s guardianship system.
Independent audits are required by state law of charitable organizations, like Ayudando, that received more than $500,000 in revenue each year.
It’s unclear whether anyone at the office of then-Attorney General Gary King reviewed Ayudando’s filings or did anything in response. Those are the last filings by Ayudando on the AG’s Office’s charity search website.
Efforts to reach King, who left office at the end of 2014, weren’t successful on Friday.
The Attorney General’s Office’s charity search website shows that Ayudando has been delinquent in filing its required annual registration every year since 2012, including the last two years under King’s successor, Attorney General Hector Balderas.
Asked about his agency’s oversight, James Hallinan, a spokesman for Balderas, told the Journal, “We are aware of these delinquencies which are within the scope of the Office of the Attorney General’s investigation into potential civil violations of New Mexico charities statutes.”
Hallinan said Friday that, under state law, “certain documentation is required with each application for registration or renewal. While we review every submission, the content and level of scrutiny on these documents varies.”
Federal prosecutors last year launched an investigation into Ayudando after several Ayudando employees went to federal law enforcement with complaints about mismanagement of client funds. Company filings show its clients included veterans, the elderly and the homeless.
York said during a commission meeting Friday that lessons learned from the Ayudando case are important for the commission as it compiles its initial recommendations for the Supreme Court, which are due by Oct. 1.
Harris and Moore were indicted in July on 28 counts of federal conspiracy, money laundering, and fraud related to an alleged embezzlement scheme of client funds that dates back at least a decade.
So far, federal investigators have identified about $4 million diverted from client accounts. The company had been in operation since 2004.
The diverted funds helped support a “lavish lifestyle” for Harris, Moore and family members who allegedly spent client money on vacation cruises, tickets to the Final Four basketball tournament, luxury vehicles, furniture and other personal expenses, according to federal documents.
Records obtained by the Journal show that Harris and Moore also bought a $42,500 suite at the Pit last basketball season, but it isn’t clear whether client funds were involved.
Harris and Moore have pleaded not guilty to the charges and have been released pending trial.
Before the U.S. Marshals Service closed Ayudando’s doors last week, the company was the guardian and/or conservator for about 185 clients, some who received state-funded services. It also had private pay clients and had managed finances for another 1,200 clients, including representative payee accounts, according to the U.S. Attorney’s Office.
York told the commission she has consulted with a forensic accountant who has offered advice on how the courts can provide better oversight of guardians and conservators who handle client funds, including hiring an accountant to review audits and annual filings required of guardians and conservators.
As a retired state district judge, York said she believes it would be most appropriate for the accountant or auditor to be “an arm of the court” so he or she could notify the court if discrepancies are found in audits or reports. That could lead to the removal of a guardian or conservator, she added.
New Mexico is one of 26 states that require yearly independent financial audits of charitable organizations.
The law seems to imply that the AG’s Office is responsible for reviewing the documents, in that it requires a charitable organization to correct any deficiencies in an annual report “upon notice by the AG’s office.”
It isn’t clear why Ayudando would not have filed an annual audit after 2012 – if in fact it did not.
But York said the accountant recommended the state modify existing law to make it clear as to what agency will review the required audits and annual reports.
Asked by commission member Sen. Gerry Ortiz y Pino, D-Albuquerque, whether fiscal audits “really catch theft,” York responded that “you can catch them when they are borrowing money from clients or make loans. You can’t catch everything but you can certainly catch some things.”
The two independent audits filed with the AG’s Office noted that Ayudando hadn’t complied with generally accepted accounting procedures and added, “We were unable to satisfy ourselves by means of other audit procedures on the correct allocation of the account to the Foundation and the client.”
The Ayudando audit report for 2011 noted $72,321 in “employee advances” with only $23,788 in client reimbursements.
“Formal terms of the advances were not documented in agreements, therefore, interest was not charged nor was there a stated maturity date,” the audit stated. The advances in 2011 were completely paid off in 2012, the audit stated.
A different independent auditor noted in a report for the 2012 tax year that “advances were made in previous years to various employees including the President and Secretary/Treasurer of Ayudando.” Harris took a $38,565 advance, and Moore took $10,894 – amounts the report stated were repaid.
But Harris received an additional advance of $8,636 in 2012 that hadn’t been paid by the end of the year, the audit noted.
Ayudando supplied a 990 IRS tax form to the AG’s Office in 2012 showing “director advancements for 2012 at $62,846, with total due to clients at $18,937. The audit also found Ayudando had a note payable “due to the President’s parent” with an outstanding balance of $19,919.
As president, Harris in 2012 was paid an annual salary of $138,230. Moore was paid $125,453 a year.
York said the auditor she consulted also recommended guardian/conservators keep separate bank accounts for each client account, otherwise they are “very susceptible to comingling.”
York told the commission a full-time auditor who answered to the courts could provide better oversight by regularly reviewing audits and randomly reviewing required annual reports to the court. She added that annual reports – the chief method of oversight of guardianship or conservatorship cases – are currently “pretty anemic.”