One of San Diego's largest nonprofits improperly collected nearly $800,000 from the California prison system by misreporting income and padding expenses, the state inspector general concluded in a new report.
State officials want the money back, sooner rather than later.
Mental Health Systems Inc., the Kearny Mesa charity that holds more than $65 million a year in state and county contracts, wrongly billed taxpayers for $530,000 between 2001 and 2004, state investigators said.
Over the same period, Mental Health Systems also inappropriately recorded the purchase of 22 vehicles, costing the state Department of Corrections and Rehabilitation about $258,000, the report said.
Company officials said they did nothing wrong. They plan to appeal the findings, rather than repay the money.
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Mental Health Systems
Background: Mental Health Systems Inc. is a nonprofit organization founded in 1978 by William Eastwood and William Mead. Its approximately 900 employees provide counseling, recovery and other services to 12,000 or more clients a day at about 70 locations in California. It has an annual budget of about
$65 million, most of which comes from San Diego County and the state of California.
What's happening: The California inspector general says Mental Health Systems improperly collected nearly $800,000, and the state wants the money returned.
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According to investigators, “the time available for the department to recover the lost amounts will expire at the end of 2006,” so officials need to start the process of securing reimbursements quickly.
The findings are the latest in a string of unflattering reviews and investigations by government officials into Mental Health Systems. In recent months, it repaid the state and county more than $137,000, although auditors originally sought much more.
The Attorney General's Office also is conducting a review of the agency, which was founded in 1978 by William Eastwood and William Mead. The two men also run another multimillion-dollar charity and a for-profit subsidiary that collects millions of dollars in fees from the nonprofit.
Eastwood and Mead declined interview requests. Instead, Eastwood responded only to questions submitted in writing.
“We stand behind our billing practices and believe other providers followed similar guidelines,” Eastwood wrote. “We disagree with the inspector general's findings.”
The report singles out Mental Health Systems and three other contractors – Walden House Inc., WestCare and Phoenix Houses of California Inc. But it is also sharply critical of state prison officials.
The poorly overseen contracts were part of a drug-abuse and counseling program run by the department's Office of Substance Abuse Programs, which spends $143 million a year on inmate and parole services. Between Mental Health Systems, Walden House and WestCare, the inspector general said, prison officials overpaid almost $5 million.
Investigators suspect that similarly poor oversight could exist for contracts across the Department of Corrections and Rehabilitation. They recommended an immediate audit of the department's $2.6 billion in annual contracts.
Potentially, “the loss to the state could amount to millions of dollars,” the report said.
State prisons spokesman William Sessa said the lax oversight of the contracts issued by the Office of Substance Abuse Programs occurred during an agency reorganization.
“We've actually put some changes in place to correct this,” he said. “We've changed the contract language to make it far more specific.”
State Sen. Jackie Speier, who sparked the inspector general's investigation after learning about the abuses and convening a special hearing earlier this year, said she wondered what else might be getting overlooked within the prison system.
“If this is representative of the shoddiness and disregard for the value of the taxpayer dollar, then we've got a huge problem in that institution,” said Speier, who wants to see an independent department-wide review.
The Democrat from Daly City said government officials also needed to do more thorough background checks before awarding contracts to certain contractors.
“The fact that Mental Health Systems has been criticized for violating contracts over and over again should be reason enough not to do business with them,” she said.
In May, San Diego County officials demanded that Mental Health Systems pay back more than $83,000 it had wrongly collected. The initial reimbursement order exceeded $500,000, but the county agreed to reduce its request.
Last year, state auditors concluded that Mental Health Systems improperly billed more than $143,000 in expenses. The state also whittled that repayment request and accepted just over $61,000 in refunds.
Another state auditor said Mental Health Systems treatment programs were short-staffed and lacked appropriate record-keeping. Prisoners were left alone, and one therapy session was led by an inmate, auditors said.
“The disrespect, crude behavior and general 'looseness' of the program was disturbing,” the report stated. “(The) professionalism at this program is in question.”
Last November, an analyst concluded that the agency was doing more harm than good because counselors failed to record treatment notes in client files, which can impair progress made by patients fighting substance abuse.
Eastwood apparently disputes those audit results as well.
“We are unaware of any finding, formal or otherwise, that describes any poor performance on our part,” he wrote in response to a question about the repeated findings of lax contract performances. “We believe our programs are of the highest quality and provide invaluable services to the state of California.”
The inspector general's report raises new questions about how government officials keep track of contractors and their performance – especially as voters in San Diego consider a ballot measure Tuesday that would permit privatizing more public services.
Proposition C is one of the cornerstones of Mayor Jerry Sanders' plan to repair city finances, which have struggled under the weight of a $1.4-billion pension deficit.
The mayor's spokesman, Fred Sainz, said problems uncovered by the state inspector general were not likely to occur with San Diego contractors.
“There is significantly more protection because of the way the charter amendment has been written,” he said.
Jeff McDonald: (619) 542-4585; jeff.mcdonald@uniontrib.com
