A nearly 40-year-old publicly funded nonprofit -- one of Contra Costa County's vehicles to assist people battling mental illness -- has collapsed amid clear evidence that its leaders knew they were improperly socking away taxpayer funds.

Contra Costa County's $1.2 million annual contract with Concord-based Mental Health Consumer Concerns stipulated that any unspent funds be returned to the county. But the nonprofit illegally stashed $363,600 over a three-year period in a reserve fund, according to a review of hundreds of documents, including emails that discussed the illegal diversion. Some of the money went toward small personal loans to agency employees.

The county stripped MHCC of its contract to run three wellness centers, a decision that cost more than a dozen people their jobs and left five times that many clients scrambling for interim services.

But the story behind how the nonprofit went from a healthy balance sheet 18 months ago to bankruptcy is an unambiguous tale of mismanagement and lax county oversight.

The situation is "outrageous," said Contra Costa County Supervisor Karen Mitchoff, who worked as a county contract administrator before she was elected in 2010. "Someone at the county should have spotted the red flags and raised these issues long ago. And I hold MHCC's board of directors responsible for its lack of accountability."

County supervisors in mid-January quietly transferred the wellness centers contract to the much-larger Recovery Innovations, a Phoenix-based company with facilities in five states and New Zealand.

The county and Recovery Innovations then reopened the Concord and Antioch centers. Mold was found at the Richmond facility, and the county is providing interim services elsewhere while Recovery Innovations looks for a new site.

On an average weekday, 50 people struggling with mental illness frequent the three centers, which offer meals, programs, advocacy and peer support.

MHCC's fiscal meltdown with taxpayer money is raising serious questions about the county's oversight of millions of dollars in mental health funds.

"The people who ran MHCC are delightful people, but it has been a troubled organization for many, many years, and the county was remiss in not taking action earlier," said David Kahler, a member of the county's Mental Health Commission and the treasurer of the Contra Costa chapter of the National Alliance on Mental Illness.

MHCC directors declined to answer emailed questions or return phone calls.

Instead, MHCC Secretary-Treasurer Gale Bataille sent this email: "We appreciate your inquiry, but on behalf of MHCC, we stand by our written communications to the county and the Mental Health Commission. And given that the agency is shutting down, we see no purpose in pursuing or commenting further on this matter."

Based on this newspaper's review of hundreds of public documents obtained from Contra Costa County:

  • Some of the nonprofit's board knew or were told they were violating the terms of their county contract when they began hoarding a portion of their payments into a reserve account. It's not clear why they wanted a reserve.

  • At the same time MHCC was socking away cash, some of its staffers were pleading for money to help their clients with dental and vision care and transportation.

  • A former MHCC executive director gave herself and other employees small loans from the nonprofit's account, which consisted almost entirely of taxpayer funds. It is unclear how much was spent on the loans, all of which were repaid, except one for $261 that was forgiven in June 2012.

  • MHCC stopped submitting to the county in 2007 mandated cost reports that would have alerted the county to the existence of the prohibited carry-over of funds. County staff didn't ask for the missing reports until last summer, and it was months before they took action.

    Former MHCC Acting Director Maria Ramirez eventually jolted the county out of its inattention.

    "I cannot participate in what I consider to be an unlawful activity, and after already raising the issue with the board and not receiving a satisfactory response, I believe I have a legal and ethical obligation to inform the county what appears to have transpired," Ramirez wrote July 11 to MHCC's board and copied to the county.

    On the previous day, MHCC's outside accountant advised the nonprofit that it owed Contra Costa County $363,600 in unlawfully diverted funds.

    Part of that reserve was used to make personal loans without the knowledge of the board of directors. MHCC's then-executive director, Brenda Crawford, gave herself a $2,800 salary advance that she later repaid with a retroactive pay raise.

    The board also claimed ignorance of the contract provision that required repayment of all unspent funds. They blamed former staffers and minimized the errors as clerical.

    "I am disappointed our executive director or financial director did not tell us this was wrong," MHCC board member Doriot Hill, of Walnut Creek, wrote to the county and this newspaper in late November.

    But the written record clearly shows board members and high-level staff were told or knew it was improper.

    Crawford reminded Bataille in February 2012 via email that county contract funds must be spent in the same fiscal year they were received.

    "I think the county is aware that we have these (reserve) funds and are practicing 'don't ask, don't tell.'" Crawford wrote. "As long as no one makes a big deal of this, they are not going to push on this."

    Contra Costa Behavioral Health Services Director Cynthia Belon rejected assertions that the county intentionally ignored the problem but concedes that staff failed to properly oversee the contract.

    Meanwhile, Ramirez and Crawford have filed employment-related lawsuits against MHCC. Crawford did not return phone calls made to her Vallejo home, and Ramirez declined to comment.

    So, where did the money go?

    Just under half of the $363,600 was spent on a financial audit, an outside accounting firm and "restructuring" costs, including severance pay for the outgoing executive and finance directors, according to the county and the accounting firm.

    The nonprofit started burning through the rest of the money after Aug. 1, when the county stopped paying MHCC at the beginning of each month and began reimbursing the agency only after services were provided.

    The six- to eight-week payment gap pushed the already-financially troubled nonprofit -- which relied almost exclusively on county contract money -- over the fiscal cliff.

    The county will credit approximately $201,000 toward MHCC's debt, which is what the nonprofit says it spent providing services in November and December, according to its attorney.

    That leaves a balance owed to taxpayers of $162,000. But repayment appears highly unlikely.

    MHCC's attorney advised the nonprofit's creditors Jan. 15 that no assets or other funds exist to pay outstanding bills.

    Taxpayers may not be the only losers.

    Veteran Bay Area mental health patients' rights advocate Connie Steers, of Concord, fears the scandal will erode public and county support for these types of services.

    Diagnosed a number of years ago with mental illness herself, Steers said she would "probably be dead" without MHCC's help in the early 1990s.

    "I have really benefitted from these programs," said Steers, who transformed herself into a career advocate for people with mental illness. "I think the county is tired of spending money on us. But I am really worried that our consumers will become discouraged, and more will end up in the psychiatric wards."

    Contact Lisa Vorderbrueggen at 925-945-4773, ibabuzz.com/politics or Twitter.com/lvorderbrueggen.

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    Heading toward collapse

    Mental Health Consumer Concerns, a nearly 40-year-old publicly funded nonprofit, has collapsed amid clear evidence that its leaders knew they were improperly socking away taxpayer funds, some of which was diverted for personal loans. Here is a look at the agency's unraveling:
    2007-2010 -- MHCC accumulates $363,606 from unspent county dollars into what it calls a "prudent reserve," a violation of the terms of its contract. The county requires all unspent funds to be returned the same fiscal year in which they were paid.
    February-March 2012 -- MHCC Executive Director Brenda Crawford advises several members of the nonprofit's board of directors via email that retaining county funds in a reserve account is a contract violation but believes the county knows about the funds and won't do anything about it "as long as no one makes a big deal."
    April 1 -- Acting MHCC Executive Director Maria Ramirez informs the county that the nonprofit owes $78,804 in unspent funds held over from a prior fiscal year. She is concerned it may have occurred in previous years and asks the nonprofit's accountant to check.
    May 3 -- Then-Contra Costa County Mental Health Director Steve Grolnic-McClurg launches an investigation into an allegation that MHCC misspent public funds.
    July 10 -- MHCC's outside accounting firm advises its client that it owes Contra Costa County more than $300,000 in funds that were improperly diverted into a reserve account and spent in later fiscal years.
    July 30 -- MHCC's outside accountant confirms that its client improperly increased its reserves with unspent Contra Costa and Napa contract funds by $369,392 from 2007-2010. The accountant also discloses that MHCC spent money on ineligible expenses, including legal fees and personal loans to staff members.
    Nov. 12 -- The Board of Supervisors cancels MHCC's contract as of Dec. 31. The county allows the nonprofit to apply toward its debt the costs of providing services in November and December.
    Dec. 31 -- MHCC closes its three wellness centers, and the county behavioral health staff provides limited interim services at its drop-in adult mental health clinics. It is unclear how much MHCC still owes the county or whether it will be paid.
    Jan. 16 -- MHCC's attorney advises the nonprofit's creditors that no funds exist with which to pay outstanding bills, including the $151,000 owed to Contra Costa County taxpayers.

    Source: Bay Area News Group research