Missouri nonprofit cooperating in federal probe, moving beyond ties to indicted lobbyist, Arkansas lawmakers

A Missouri nonprofit that accrued more than $80 million in net income and over $180 million in annual revenues could possibly lose its tax-exempt status and access to government funds that make up the bulk of its charitable war chest, according to details of the federal probe that has entrapped several Arkansas lawmakers in a bribery and embezzlement scheme.

Although Internal Revenue Service (IRS) officials would not speak specifically about ongoing investigations, an agency spokesman did point Talk Business & Politics Tuesday (June 12) to federal regulations that prevent so-called 501(c)3 nonprofits and charities from engaging in certain activities that could endanger their tax-exempt status.

For example, IRS rules specifically state that no organization may qualify for section 501(c)(3) status if a substantial part of its activities is attempting to influence legislation, commonly known as lobbying. “A 501(c)(3) organization may engage in some lobbying, but too much lobbying activity risks loss of tax-exempt status,” the IRS rule states.

In the case of Springfield, Mo.-based Preferred Family Healthcare (PFH), federal officials said in a plea deal with indicted former Arkansas lobbyist Milton “Rusty” Cranford that the Rogers, Ark., native and other employees of the troubled nonprofit put the charity’s tax-exempt status in jeopardy because of a scheme to grow revenues to enrich top executives, clients and public officials, including several Arkansas lawmakers.

PFH WORKING TO ‘IMPLEMENT CORRECTIVE ACTION’
In response to a Talk Business & Politics inquiry concerning those allegations, PFH spokesman Randy McElhannon said the Missouri nonprofit is fully cooperating with federal investigators in the ongoing probe.

“As Mr. Cranford’s court documents show, the efforts of former employees and representatives to use and abuse PFH for personal gain were extensive,” McElhannon said in a statement. “The company continues to cooperate fully with agencies investigating this prior misconduct.”

McElhannon also said the government’s investigative work follows, in large part, the review work coordinated by PFH itself.

“PFH has worked hard to identify all issues and implement corrective action, while reinforcing the tremendous work being accomplished by our staff in their communities,” he said. “These dedicated individuals have diligently provided care and services for decades, even while the misconduct of a few was occurring.”

Last Thursday, Timothy Garrison, U.S. Attorney for the Western District of Missouri, announced that Cranford pleaded guilty in federal court to bribing state elected officials in a multi-million-dollar scheme, and then along with other charity executives, embezzled millions of dollars from the Missouri health care group. Besides his lobbying duties, Cranford was also a PFH employee who served as an executive for the charity’s operations in Arkansas. He also operated two Little Rock lobbying firms, The Cranford Coalition and The Capital Hill Coalition, that allowed him easy access to the Arkansas State Capitol and a rolodex of key state lawmakers in the House and Senate.

According to details of the former lobbyist’s plea deal, Cranford and “Person #1, Person #2, Person #3, Person #5, and others known and unknown … devised and executed multiple schemes to embezzle, steal and unjustly enrich themselves at the expense of the (Missouri nonprofit) by misapplying mostly taxpayer funds for unlawful contributions to the campaigns of elected public officials.”

Those lobbying activities jeopardized PFH’s tax-exempt status to increase the Missouri nonprofit’s total receipts so they had more funds available from which to embezzle and steal, court documents state. This led PFH “to spend substantial amounts of funds on lobbying and political advocacy, which violated both the charity’s tax-exempt status and the restrictions imposed by law on organizations receiving federal funds from grants and contracts.”

PFH: LOOKING TO CLAW BACK ‘MISAPPROPRIATE FUNDS’
To date, no PFH executives had been indicted for the nonprofit’s role in the broadening federal investigation, which is still ongoing. However, three unnamed executives in Cranford’s plea agreement were accused by federal investigators of participating in a lengthy list of illegal activities, ranging from working with the former lobbyist to bribe public officials to embezzling, stealing and fraudulently obtaining agency funds for personal use.

In early 2018, PFH’s board placed the company’s former CEO Marilyn Nolan, COO Bontiea Goss, and her husband and company CFO Tom Goss on unpaid administrative leave. All those executives, who are no longer with the nonprofit, took home more than $490,000 in annual compensation in fiscal 2016, according to PFH’s most recent 990 tax filings and financial statements with the IRS.

For the fiscal period ended June 30, 2016, PFH’s revenue jumped 172% from $66.6 million to $181.2 million following the 2015 merger of PFH with Alternatives Opportunities, which created one of the largest behavioral health organizations in the Midwest. During the same time, the Missouri nonprofit that has nearly 50 health care clinics in Arkansas built up a healthy operating surplus, amounting to $79.5 million in rainy day funds in the agency’s budget coffers at the end of 2016.

The IRS has not yet posted PFH’s financial records for fiscal 2017, which ended June 30, 2017. The Missouri health care group’s 2018 tax year will conclude in about two weeks, which would leave the nonprofit with a two-year gap without available tax records and financial statements. Publicly available records show that more than $130 million of PFH’s revenue in fiscal 2016 were the result of Medicaid and Medicare funding and grants.

Under new PFH Chief Executive Michael Schwend, McElhannon said the nonprofit is working diligently to enhance its internal processes and procedures to ensure this type of behavior cannot happen again. In April, the Missouri health care group hired former Arkansas Chief Justice Betty Dickey to work with Schwend to help the agency add additional oversight and accountability controls.

“The people who put personal gain over the charitable mission of our organization have been addressed, as the investigation continues,” said the PFH spokesman. “We are continuing the evaluation and process enhancement effort, and will take the necessary steps to recover any misappropriated funds. What has never wavered, however, is the commitment of thousands of employees every day to helping thousands of people across five states.”

FBI, SIX REGULATORY AGENCIES INVOLVED IN FEDERAL PROBE
Garrison, the U.S. attorney in PFH’s home district, has said the ongoing federal probe is being investigated by the FBI and six different federal regulatory agencies. They include the IRS’s Division of Criminal Investigation, which examines possible illegal activities of 501(c)3 nonprofits, and the Offices of the Inspectors General from the Departments of Labor, Health and Human Services (HHS), Housing and Urban Development (HUD), Veterans Affairs, and the Federal Deposit Insurance Corporation (FDIC).

Like the IRS, Don White, a spokesman for the HHS Office of Inspector General Dan Levinson, said he could not “confirm or deny” if department officials were investigating PFH’s use of Medicaid and Medicare funds.

“The court filings speak for themselves,” said White.

In last week’s plea deal, federal prosecutors said Cranford entered an illegal kickback scheme where he paid over $600,000 in illegal kickbacks to a charity executive in exchange for more than $3.5 million in payments made to The Cranford Coalition. On Monday, Talk Business & Politics confirmed that Sen. Jeremy Hutchinson, R-Little Rock, is the previously unnamed “Senator A” in court filings related to the Cranford plea deal. Through his attorney, Hutchinson has denied being involved in any fraud or bribery related to PFH.

Cranford also acknowledged his role in a second illegal kickback scheme involving the charity’s contract with Philadelphia, Pa.-based political operative Donald Andrew Jones, also known as “D.A.” Jones, and another charity employee, former Arkansas State Rep. Eddie Wayne Cooper.

In exchange for Cranford’s role in facilitating the charity’s contract with Jones for lobbying and political advocacy, under which the charity paid Jones almost $1 million, Cranford received kickbacks totaling $219,000 from Jones, $18,000 of which Cranford provided to Cooper, and Cooper received another $45,000 directly from Jones. In separate but related cases, Jones and Cooper previously entered guilty pleas acknowledging their roles in that kickback scheme.

Cranford and co-conspirator Cooper, a Democrat who served in the Arkansas General Assembly from 2006 through 2011, received $264,000 in secret kickback payments from co-conspirator Donald Jones, who was paid nearly $1 million by the charity in a bribery scheme that lasted almost six years from February 2011 until January 2017.

Besides Hutchinson and Cooper, former Democratic State Rep. Henry “Hank” Wilkins IV of Pine Bluff also pleaded guilty to conspiring to accept over $80,000 in bribes in exchange for influencing Arkansas state legislation and transactions, including steering approximately $245,000 in Arkansas General Improvement (GIF) funds to his co-conspirators.

GIF spending was also at the root of another investigation involving former State Sen. Jon Woods and former Rep. Micah Neal, both Republicans from Springdale. A federal grand jury returned a guilty verdict against Woods on May 3 in the widespread kickback and bribery scheme, while Neal confessed to funneling public money through a private Christian school to the Northwest Arkansas Economic Development District.

On Thursday, Senate Pro Tempore-elect Sen. Jim Hendren, R-Gravette, and Sen. Jonathan Dismang, the outgoing Senate leader, will hold a news conference at the state Capitol, to release a draft of proposed ethics rules for the upper chamber.