UPDATED: Report Reveals Rampant Violations At Wyatt
Thursday, September 15, 2011
Citing more than a dozen “red flags” found as he scrutinized the financials and the previous management team at the Wyatt Detention Facility in Central Falls, former Rhode Island Auditor General Ernest Almonte called on the facility’s Board of Directors to launch a full forensic and legal review to study whether decisions made between 2007-2009 led to “severe fiscal stress” for the corporation.
Almonte’s report details specific violations by the former management team at Wyatt, including potential conflicts of interest, breaches of state law, breaches of bond covenants, self dealing, gross negligence and a lack of oversight from within.
The 34-page report breaks down how in 2006, Wyatt ceased making full payments to Cornell Corrections, the company hired to run the Detention Facility, and within three years, found itself in financial distress, in breach of financial covenants and a “going concern” risk.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTBetween 2007 and 2009, Wyatt incurred losses of $6.2 million and additional indebtedness of $3.5 million, in addition to paying the city of Central Falls $1.1 million in “impact fees.” The report suggests a forensic and legal review should be conducted to examine the Detention Facility.
“We feel this is important information which requires a review by the board and other stakeholders to follow up on potential areas for a claim on director and key employee insurance policies and other potential legal issues relating to the 3-4 year period preceding mid-2009,” the report states.
Almonte Blasts State
Almonte, who was paid $25,000 to produce the report, said a chief concern for Wyatt is the fiscal and political climate in Central Falls, which filed for bankruptcy last month. In presenting his report to the corporation’s Board of Directors, Almonte suggested they not allow the state’s handling of the city’s fiscal problems overpower the Detention Facility.
“You have to remember that a receiver in any organization, their responsibility is to raise as much money as possible, that’s their goal,” Almonte said Wednesday. And they’re supposed to get it from any source they can get it. But my warning to all you is if you do this in violation of state law, you put yourself at risk.”
Almonte said the state doesn’t have a good track record with Central Falls.
“You look at the city of Central Falls, the city of Central Falls has been through three receivers,” he said. “This is third receiver in Central Falls. When I was the Auditor General, we had 60 days to walk into a city or town and solve the problem. There are three receivers that have done this and it’s still not solved. That’s the state taking over. You have the state that took over the school system 20 years ago, it’s still not one of the best performing schools and has serious problems. So the state doesn’t have a good track record."
Almonte also laid out his concerns in the report.
“We are concerned with the fiscal and political situation in the host city of Central Falls,” the report states. “The board appointment power and the fiscal difficulties of the City could have a negative impact on the operation of the Wyatt Detention Facility if the fiscal needs of the City overpower the vision, mission and fiscal sustainability of the Facility.”
Key Findings
While the report reflects the positive work being done by the new management team at Wyatt, Almonte found several areas where the previous leadership team may have committed violations. He called for further review to see if the new Board of Directors could seek insurance claims based on the prior management team’s mishaps.
Conflicts Of Interest
The report found that AVCORR, the company that served in various capacities with Wyatt, was partners in an outside company with the principal developer of a $48 million facility expansion project at the Detention Facility. The attorney for Wyatt was also a registered lawyer for AVCORR and for the outside company owned by AVCORR and the principal of the developer.
Breach Of State Law
Under state law, Wyatt was expected to file annual report within 120 days from the close of its fiscal year. In both 2008 and 2009 as the Detention Facility's finances were crumbling, Wyatt never prepared the reports. Each report ended up being submitted in 2010.
Breach Of Bond Covenants
Wyatt never filed annual budgets, quarterly reports or a fiscal year summary for significant bond owners. The company also failed to meet a coverage ratio requirement with bond owners.
Wyatt was also not allowed to incur additional debt in 2007 and by 2010, the new administration was faced with an outstanding debt burden of $1,816,390.
Self-Dealing
According to the report, various levels of potential self-dealing were found.
“The management personnel prior to 2009 held multiple roles with both the same organization and different organizations, all of which could have resulted in potential self-dealing.
Different tables of organization appear to have been implemented prior to 2009, which resulted in a weak system of checks-and-balances and may have created the opportunity for self-dealing.
The manner in which the Corporation contracted for outside services prior to 2009 gives the appetence of, and may have allowed or, potential self-dealing.”
Gross Negligence
Because Wyatt failed to prepare or deliver financial statements to bond owners, the holders were likely not aware of the severity of the board’s actions in 2008 and 2009. The report suggests this could be an example of gross negligence.
If you valued this article, please LIKE GoLocalProv.com on Facebook by clicking HERE.
