Brockton Family and Community Resources, which has helped many people, is now itself in need of help. A series of questionable financial decisions over the past decade threaten to close the agency. For several years, payroll taxes went mostly unpaid, and budgets were overspent, leading to a $1 million debt.
The nonprofit Brockton Family and Community Resources Inc. opened the state’s first “visitation center” — a neutral place for kids to safely visit their non-custodial parent.
Thirteen other visitation centers would open in Massachusetts using the example of Brockton Family, which has become a leader in serving victims of domestic violence.
But now, the agency that has helped so many needs help itself, having plunged into bankruptcy after a series of questionable financial decisions over the past decade, The Enterprise has learned.
The problems are so severe that they threaten to close the agency.
The biggest is its debt.
For several years, payroll taxes went mostly unpaid, and budgets were overspent, leading to a $1 million debt, records show.
Yet in one of those years, while the debt surged, Executive Director Patricia Kelleher received a 10 percent raise and was loaned more than $20,000 by the organization, records show.
As a result, the agency may learn this week if it will be given five years to pay its debts under a bankruptcy plan. If the plan is rejected by creditors, the agency would most likely close.
Brockton Family officials are confident the plan will pass, saying that major creditors have expressed support.
But even if the plan wins approval, agency leaders have a daunting task ahead — finding the cash to make debt payments. The agency, with a $1.8 million budget, is mostly funded with government money, which can’t be used to pay off debt.
Much is at stake. Supporters say the agency serves a critical need in Brockton, a city where five people were murdered by domestic abusers last year.
“If services are lost, the fear is that lives could be lost,” said Dennis Carman, president of the United Way of Greater Plymouth County.
Yet it’s clear the crisis could have been prevented, nonprofit experts say.
Records show that for years, agency leaders failed to heed the advice of independent auditors. And as the troubles deepened, the management team stayed the same.
The organization’s board of directors has seen only minor changes in the past decade. And Kelleher — who before joining the agency had embezzled money from a Brockton charity in the 1980s — has been the executive director since 1999.
Kelleher has defended her actions at Brockton Family, saying that paying taxes was not as important as continuing to serve needy people.
“I chose to pay my staff so we could keep providing services,” she said.
But agency leaders should have known the danger of this strategy — that it could destroy all the good being done by the organization, said Kevin Hepner, a Boston University instructor in nonprofit management.
“If you’re out of business,” he said, “you’re helping no one.”
New center opens
Brockton Family and Community Resources evolved out of a city-funded agency that was founded in 1968, the Brockton Youth Resources Bureau.
The original mission was helping troubled youths get counseling and find jobs. Starting in the late 1970s, when the name changed, the focus became providing mental health services to young people and their families.
A growing national awareness about domestic violence led to the hiring of Kelleher, who had experience working as a victims’ advocate, in 1991.
She was brought aboard to start a domestic violence program at the agency, and the program would grow to become the agency’s main focus.
In August 1991, after a few months on the job, Kelleher spearheaded the opening of the visitation center.
The idea was simple — provide a place where court-ordered parental visits could take place without the need for contact between the estranged parents.
The center was quickly recognized as an important development, said Mary Lauby, executive director of Jane Doe Inc., a coalition that combats domestic violence.
Kelleher, for her work, has been seen as a resource statewide and nationally for visitation centers, Lauby said. The center is still open today inside the agency’s building at 18 Newton St.
Lauby described the agency overall as “impressive.”
“They’re not an organization that is stagnant,” she said. “They are constantly both considering what they’re doing now and how to do it better.”
Kelleher said the agency’s success stories abound.
Kelleher speaks passionately while discussing how the agency is helping people. But, she admits, there have been dark days in recent years.
A taxing affair
Kelleher said it was her idea to stop paying the employee payroll taxes — such as Social Security, Medicare and unemployment — when money got tight.
It was a concept that preceded her at the agency, though. In 1993 and 1998, the IRS slapped Brockton Family with liens for unpaid taxes totaling about $80,000.
But starting in 2000, a year after Kelleher took over, records show that the taxes were paid even less often.
From 2000-2001, the back taxes came to about $200,000. The taxes were later paid, and IRS liens were lifted.
The agency then failed to pay about $204,000 in taxes in 2004. For the next two years, the majority of payroll taxes would go unpaid.
All along, beginning in 2001, independent auditors suggested the agency might fold due to its financial struggles.
One auditor, G.T. Reilly and Co. of Milton, warned the agency to stay on budget in view of the problems. Similar warnings would be repeated year after year, audits show, and would grow increasingly urgent:
2002: “Payroll taxes need to be remitted ... agency must take steps to address its cash flow problems.” 2005: “Management does not have controls in place to ensure remittance of these taxes.”2006: “It is imperative that the agency implement procedures to ensure that all payroll related taxes are remitted.”
Hundreds of thousands of dollars in payroll taxes would go unpaid from 2002-2006, to the IRS, the state Department of Revenue and the state Division of Unemployment Assistance.
And the debt would balloon over the years through added penalties and interest.
The agency now owes the IRS $775,433, an amount that exceeds the agency’s assets.
That’s not normal, said Clive Beasley, owner of the charity information Web site, CharityEzone.
“It’s true that many agencies are having trouble these days,” Beasley said “But the fact is, you don’t let it go that far.”
The agency’s state tax debt of $160,724 is the highest of any nonprofit in Massachusetts, according to a review of state Department of Revenue figures.
No other nonprofit owes more than $100,000 to that agency, data shows. The agency also owes $42,000 to the state unemployment division.
“The bottom line is, there should never be a case where payroll taxes are not paid, ever,” said Hepner, of Boston University. “If you can’t afford payroll taxes, you can’t afford the employee.”
Kelleher — who would only speak to The Enterprise with an attorney present — said the problems stemmed from the agency’s mental health program, which was running in the red.
About one-third of mental health patients wouldn’t show up for appointments, and the agency couldn’t bill the government for the services — even though staff still had to be paid, Kelleher said.
The decision came down to paying for services or taxes, she said.
The strategy to pay for services would have worked, Kelleher argued, if the agency had been able to sell its large house on Newton Street as planned. The agency moved its headquarters to a rented facility on Belmont Street in anticipation of the sale.
Money from the sale would have paid off most of the taxes, but three attempts to sell the property failed.
So did the strategy. Eventually, in 2005, the agency downsized its mental health program, slashing its overall employees from 74 to 35.
But even that didn’t end the crisis, and the agency would struggle to pay its taxes up until last year. Other debts would go unpaid, including nearly one year of rent for the Belmont Street building.
The agency vacated Belmont Street and moved its headquarters back to Newton Street last fall in a bid to save money.
But in January, the auditor wrote that “no assurances can be given” that the agency will gain enough financial stability to continue operating.
Though Kelleher takes responsibility for the decisions that led up to now, she doesn’t apologize for them.
But Wayne McAllister, longtime chairman of the agency’s board, said that mistakes were made — though he declined to be specific about whom or what.
“Most certainly there’s blame,” he said. “But it’s blame that we all share.”
Big raise for director
Along with the agency allowing the tax problems to continue for years, experts questioned several other financial decisions made by Brockton Family’s leaders.
During fiscal year 2004 — when the agency accrued a debt of more than $400,000 — Kelleher’s salary jumped from $70,000 to $77,000, records show. Kelleher said the raise was part of her contract.
A 10-percent raise is high for a salaried worker, but seems strange since the agency was in the middle of a major financial crisis, Hepner said.
Also surprising, he said, was the fact that Kelleher received a no-interest “payroll advance” loan through the agency that same year.
The original amount of the loan was not reported in financial documents, but the records show that Kelleher owed $23,310 to the agency at the end of fiscal 2004.
Kelleher said she never considered the pay advance to be the same as taking a loan, and said it had no effect on the finances of the agency.
But Hepner disagreed, saying the practice is frowned upon in the nonprofit world.
“Funders aren’t giving us this money to give loans to employees, because then that money is not available to us to meet our mission,” said Hepner, who is also president of United South End Settlements, a Boston nonprofit.
For Brockton Family, the money that had been loaned to Kelleher was not available to the agency to help pay its taxes and debts. As of the most recent fiscal year, Kelleher still owed $5,426 to the agency for the loan, records show.
Then, last November, after the IRS signaled that it was ready to seize the agency’s main asset — the house on Newton Street — the agency filed for Chapter 11 bankruptcy.
The move gave the agency protection against the action, which would have closed the agency.
Philip Shea, an advisor to the state government on the human service industry, said it’s rare for a nonprofit agency to file for bankruptcy.
Many troubled nonprofits seek mergers or take other steps to avoid such a drastic measure, said Shea, president and chief executive of Community Counseling of Bristol County, a Taunton social service provider.
“Someone should have done something about the agency long before it got to that point,” he said.
A day in court
Monday is the deadline for creditors to vote whether to approve the organization’s bankruptcy plan.
About $140,000 of the agency’s debt, for unpaid goods and services’ bills, would be excused under the plan. The debts to government agencies would be paid back over five years.
On Wednesday, a judge at U.S. Bankruptcy Court in Boston will review the creditor votes and the overall case and make the final decision.
If rejected, the case would most likely be converted to a Chapter 7 bankruptcy, in which the agency’s assets are liquidated to pay creditors, according to Boston bankruptcy attorney William McLeod.
The agency’s assets total just $664,000, far short of covering its $1 million debt.
If the plan is approved, the case could still be changed to a Chapter 7 if the agency fails to make the required payments, McLeod said.
Brockton Family officials say the plan is solid, and relies on conservative revenue forecasts.
And the agency has already proven it’s on the right track, Kelleher said. It was profitable in fiscal 2007 for the first time in five years, earning about $24,000 more than it spent.
Kelleher said she views the bankruptcy as a fresh start that would allow the agency’s critical services to continue.
“We actually look at this as something that’s given us a great deal of hope,” she said.
After the bankruptcy decision, two or three members on the five-member board will most likely change, according to Dave Madoff, a Foxboro lawyer handling the agency’s case.
The agency is seeking to get new members who have a financial background, Madoff said.
Other steps have been taken previously. In 2005, the organization hired an outside firm to help manage the finances. And though Kelleher’s pay was raised as high as $84,000 in fiscal 2006, she has since taken a $6,000 cut, records show.
The agency is also planning several major fundraising events for the fall, though Kelleher declined to provide details.
The fundraising might be difficult, according to Hepner. Apart from the weak economy, donors usually don’t want to give money to pay off debt from prior years, he said.
But overall, Hepner said, it appears the agency has taken the right steps.
“The question is, why didn’t they do it sooner?”
Kyle Alspach can be reached at email@example.com.