One of western Pennsylvania's largest providers of homes and services for the mentally challenged is on the verge of a financial crisis, Allegheny County Controller Dan Onorato warned Wednesday.
Based on a five-month review of Passavant Memorial Homes, which serves 438 people in nine counties, Onorato said the agency has maxed out its $8 million credit line and is using bank loans to pay day-to-day expenses.
"They are going to have a hard time meeting daily obligations; they are on the verge of a financial crisis," he said yesterday, a day after issuing a critical report saying Passavant Homes overbilled client counties by $5.3 million from 1995 to 2001. "The red flags are there now."
The Harmarville-based agency countered with a missive to its staff and the families of the people it serves "discussing in considerable detail the program and fiscal solvency of their agency," according to a press release by Jack Waddell, Passavant Homes board chairman.
"A balance owed on a working capital line of credit is not a measure of solvency," Waddell wrote, "particularly when the balance is from six months ago (March 31, per the audit report)."
The Allegheny Department of Human Services, which contracts with Passavant Homes and others to care for the mentally retarded and mentally ill, said yesterday it is not concerned about the agency's financial stability.
But other client counties are reviewing Onorato's report, and Lawrence County Controller Mary Ann Reiter said she will launch a review of Passavant Homes' financials. "Absolutely," she said. "I was unaware of it until I came into work today and someone on my staff showed it to me. I said, 'Gear up.' "
Besides maxing out the $8 million credit line, Passavant Homes also has made withdrawals from its mortgage account to meet the payroll, fund general expenses and pay unemployment compensation, Onorato's working papers show.
"They haven't shown us any plan to pay back the line of credit, and until they pay that off, it's an issue that we'll following closely," Onorato said. "The trend is where the problem is. It isn't borrow and repay, it's borrow, borrow, borrow."
The controller's working papers also show that the $28 million agency paid more than $655,000 last year to its CEO and president, Rick Senft. The figure, which is higher than previously reported, comes from Senft's W-2 federal tax form and includes bonuses and perks, such as the use of a company car.
"Other than attempting to further attack the integrity of our fine CEO and president, why would you attempt to erroneously inflate reported wages?"
Waddell responded, noting that only $11,566 was charged to Allegheny County. "All remaining amounts were not funded by counties, but were charged to the capital reserve fund."
The Pennsylvania Attorney General is investigating Passavant Homes, and other agencies said yesterday that they are considering conducting their own reviews.Kathy Clingan, administrator of mental retardation and mental illness services for Westmoreland County, which is Passavant Homes' second-largest client county, said she had just received the report and wanted to read it before commenting. "We certainly will be reviewing it," she said.
Stacey Ward, a spokeswoman for the Pennsylvania Department of Public Welfare, which sends state and federal dollars to the counties to administer, said her department had not yet received a copy of Onorato's report.
Donald Clark, administrator of mental retardation services for Allegheny County, said the county has a general contingency plan should a service provider quit, fail financially or move. But he said the county has not begun to put together a specific plan for Passavant Homes.
"The really important thing is to reiterate that they provide quality services," Clark said, "and that families and consumers continue to receive that quality service today."
