Former Phoenix House NY ED Accused in Funds Diversion

Addiction Treatment Industry Newswire
04/24/2013 –ATIN – Executives at Phoenix House of New York, the New York state subsidiary of the multi-state non-profit addiction treatment drug rehab alcohol rehab operator that is among the oldest and largest substance abuse providers in the nation with over $100M in annual client services revenues, have been accused by the Office of the New York State Comptroller, Thomas DiNapoli, of possibly improperly diverting nearly $250K in NY state treatment payments. DiNapoli has referred the matter to the state’s attorney’s office for possible further actions; including making sure funds are repaid and perhaps criminal charges.New York’s state addictions agency, by far the largest in the nation and known by its acronym OASAS, is responsible for dispersing state addictions treatment monies. The amounts dispersed to Phoenix House NY during the audit period in question totaled $8.5M.

“This was money intended to treat people struggling with substance and gambling addiction, not to subsidize unwarranted perks for high-salaried executives,” DiNapoli said. Phoenix House says it has been looking into the matter for a number of months and takes the allegations very seriously.

From July 2009 to July 2010, Phoenix Houses paid $91,050 in bonuses to executives — 30% of which was covered by state funds, the audit revealed. Phoenix Houses also improperly paid $40,447 in fringe benefits to executives and $35,996 to lease them rides, auditors also found.

When former executive director Finn Kavanaugh left in 2009, state money was used to provide him with a “separation agreement” that included a $40,400 consulting contract and money to pay a head-hunter, the audit alleges. Phoenix House NY also paid $15,586 to buy a leased car Kavanaugh had used, according to the audit.

OASAS entered into a net deficit-funded contract with Phoenix House NY to allow it to provide a wide range of chemical dependency and gambling treatment services.  As a net deficit-funded contract, OASAS reimburses Phoenix House NY the difference between the revenues it collects from non-OASAS sources and its expenditures.

For the year ended June 30, 2010, Phoenix House NY reported approximately $26.7 million in program-related expenditures and $18.2 million in revenues. As a result, OASAS reimbursed PHNY the $8.5 million difference between the revenues and expenditures. If revenues equal or exceed expenditures, Phoenix House NY would not receive any reimbursement from OASAS.

The audit also found that the assistant director of marketing at Phoenix House NY forged documents to conceal the absence of competitive bidding, as required by the contract, and that an employee of Phoenix House NY had essentially stolen almost $4K by using state allocated funds to make various personal purchases at a Walmart.