A defunct Minneapolis nonprofit that served low-income residents left a pile of unpaid bills when it abruptly shut down late last year and new court records show the debts might never get paid.
Community Action of Minneapolis has just over $1.8 million in assets, but owes at least $2.2 million, according to court documents. That amount does not include potentially large amounts of money owed to private contractors and the Minnesota Department of Commerce.
The court-appointed receiver and attorneys are trying to determine whether former chief executive Bill Davis and some board members can be forced to repay misspent money that is now at the center of an inquiry by the FBI and the Internal Revenue Service.
One contractor says he expects that he will never get paid everything he is owed from Community Action, a taxpayer-funded organization that provided weatherization and heating assistance for low-income residents.
“That guy screws up, and we all have to pay for it,” said Greg Romain, who used to install boilers for the organization’s clients. “[Davis] should have to pay for it or the government should pay for it for not keeping an eye on him.”
Community Action shut down in September after the Star Tribune reported on a state audit that found more than $800,000 in questionable spending, including a celebrity cruise, tropical vacations, alcohol and even a personal car loan for Davis. The state Department of Human Services found the organization was spending an increasing share of state aid on soaring administrative costs and less on serving the needs of low-income residents.
Since then, the receiver has found new incidents of potential misspending. Community Action senior leaders used the organization’s money to pay friends’ medical expenses and credit card bills, the review found.
Senior management also diverted money in the form of “wages” to friends and family members and allowed employees to double bill for meals and gas.
Davis could not be reached for comment, but has denied any wrongdoing.
Costs piling up
The court-appointed receiver, Michael Knight, is still assessing how much money Community Action has and how much it owes. But Knight’s time is now increasingly spent dealing with the federal investigations, time that is eventually billed to taxpayers.
Knight and his attorneys have already billed the state $187,000 since December for what Knight says is a limited evaluation of the organization.
“From the beginning, it was apparent that there are limited resources with which to conduct an investigation, and that spending more than is necessary would only impair the creditors,” Knight wrote in a court filing.
His focus is on the allegations presented in the DHS audit, issues that were raised by former staff and a pending audit by the state’s Department of Commerce.
In December, Knight and the state got into a dispute over whether he could hire an outside legal firm, Winthrop & Weinstine. Knight and the attorneys argued that the Community Action case was too complicated. The state argued that hiring three attorneys at Winthrop & Weinstine defeated the purpose of recouping state tax dollars. The court allowed Knight to hire the legal team.
Knight estimates that the organization has $1.2 million in its bank account, is owed another $260,000 and has a building on Park Avenue that could be sold for about $400,000.
The receiver estimates that the organization’s assets could grow if Davis, several board members and others are forced to repay money that was inappropriately spent.
Brianna MacPhee, a former board member who is speaking out for the first time, said she received a letter from Knight’s attorneys ordering her to turn over all documents and e-mails relating to Community Action.
McPhee said Davis’ ex-girlfriend asked her to join the board, and she has served for a little over a year after.
“I’m really sad and I feel very dumb,” McPhee said. “This was my first experience, and I and many board members were in it for the right reasons. Many of them have a hard time believing they were taken advantage of.”
In the state audit, some of the most scathing words were directed at the board, which it blames for failing to oversee the organization’s spending.
That spending has left the state and contractors trying to get their money back.
Romain said he is owed at least $14,000 and knows of contractors that are owed much more.
“We had to pay for everything that we installed for [Community Action],” Romain said. “Now, I’m being told that I might get something, but it’s uncertain how much. What if I get half, that doesn’t even cover my costs.”
Knight has determined that contractors will be paid after Community Action’s former employees, Knight himself and any other legal fees are paid.
After the contractors are paid, the Department of Human Services and Department of Commerce are next in line for repayment.
Davis, who claims he is owed $260,000 in deferred compensation, will be among the last to get paid.
If there is any money left over, the receiver could donate it to another community action agency.
“This outcome is unlikely,” Knight wrote to the court. “The receiver believes that there is likely to be a deficiency.”