CEC Investigation: The Dirty Little Secrets of EHCA – Part VIII

Stella Tulli recounts the events of her sister’s murder by a CEC escapee, and her own painful, frustrating and hear-breaking experiences in this Blue Jersey diary.

Following Monday’s Assembly Law and Public Safety Committee’s aggressive questioning, particularly of CEC, we learned more about this secretive private organization and the calamitous disarray at its halfway houses. However, Blue Jersey research into CEC’s non-profit arm – Education & Health Centers of America (EHCA) – reveals disturbing new details. EHCA was created to circumvent the law that requires only non-profits can receive halfway house contracts from the Department of Corrections (DOC). We have learned that EHCA reduces transparency, adds unnecessary costs to the halfway house operation, allows selected individuals to receive dual compensation, lets CEC retain profits in EHCA which are nontaxable, offers no firewall between the two firms, and donates to organizations from which it seeks favors for CEC.

EHCA’s most recent non-profit 990 tax filing provides a wealth of information. In the fiscal year ending June 30, 2011, EHCA received $71,049,271 in revenue from NJ State & local governments. It passed on only $69,038,017 to CEC as a “support service fee,” to run the halfway houses. EHCA kept $2,011,254 (2.8% of EHCA revenue). With EHCA, CEC gained a second entity to divert NJ government funds away from direct CEC services and into separate coffers controlled by CEC.

What did EHCA do with its $2,011,254? First of all, $664,435, which could have been spent on inmate services, was treated as EHCA retained earnings and added to its fund balance. As an entity designed theoretically as a “pass through” organization to get funds to CEC for program purposes, it became a repository to divert funds and allow John Clancy as Chair of both CEC and EHCA to do as he wished. These retained earnings held by the non-profit EHCA are nontaxable, whereas, if they were retained as profit by the for-profit CEC they would be subject to tax. In effect, EHCA reduces CEC’s taxes.

Here are some additional uses for the $2,011,254 pocketed by EHCA. John Clancy paid himself $350,000 as Chair of EHCA, claiming to work 30 hours per week for EHCA – an entity which represents only a fraction of CEC’s total activities in 15 states. This salary excludes whatever he received from CEC as its Founder and CEO to which he likely dedicates the majority of his time. In the process he is using a NJ non-profit organization receiving our government funds  to pay for work most likely performed on ventures in other states. The total compensation costs of this “pass through” agency for its officers, directors, trustees and key employees was $581,863. Other salaries were $262,292, and employee benefits and payroll tax were $84,855.  A lot of costs just to pass government funds to CEC.

Other expenses included legal: $112,332 and accounting: $31,500. With no real difference between the two entities, EHCA added occupancy costs: $60,019, office expenses: $22,073 and other costs for insurance and depreciation.

During Assembly testimony Dr. Robert Mackey, CEC Senior Vice President, testified about the required “firewall” erected between CEC and EHCA. Nonetheless, Dr. Mackey stated he received part of his salary from EHCA and that his responsibilities span many states.  Assemblyman Joe Cryan (D-20) rightly scoffed at the notion of a “firewall” as Mackey and Clancy work for both organizations. Not mentioned by Dr. Mackey was that Maria Carnevale, as an employee of EHCA with compensation there of $102,600, is also listed in the CEC website as part of the “CEC Management Team” as Assistant to John Clancy, presumably with an additional salary.

Beyond the fold: more about the fake firewall, donations, the impact of EHCA, and the need for change.

 Dr. Stephen Manocchio, a Hoboken infectious disease specialist, received income of $171,000 from EHCA, yet is referred to in CEC literature as CEC’s Medical Director. Any notion of a firewall is absurd, but EHCA’s existence does provide the opportunity to pay extra sums to favored employees and disguise the total payment certain individuals are receiving. A lawyer, for example, who works for CEC could also conceivably receive consulting fees from EHCA’s legal expenses.

CEC as a for-profit can and does make political contributions, but EHCA as a non-profit has severe legal limits on such contributions. Nonetheless, EHCA spent $86,200 on donations, presumably not for political purposes, but certainly to curry favor and help CEC’s business interests in spite of some supposed firewall.

The existence of the money held back by EHCA, some of which would not have to be expended if there were only one firm, hints at the potentially large combined profit between CEC and EHCA. It suggests that some monies that NJ spends might be put to better use with a different contractee.

As most DOC halfway house awards are now based on a daily fee per bed used, not actual costs, CEC has  certain freedom to use funds as it wishes, but it has abused that freedom, abused residents, and abused the public which becomes endangered when residents escape. Stella Tulli, sister of a woman murdered by a CEC escapee, opened the Assembly’s hearing and remained a strong presence throughout the day. CEC appears to be in shambles, yet its leaders are doing just fine. Its non-profit EHCA socks away retained earnings while paying no taxes. Perhaps, Mr. Clancy feels he needs a raise … Well EHCA would probably be happy to oblige.  

However, legislators, Mrs. Tulli, residents, and taxpayers should not be satisfied until genuine remedies are enacted. As committee chair Assemblyman Charles Mainor (D-31) said, “When escapes, gang activity, drugs and sexual abuse are widespread and yet Governor Christie opposes improved oversight, something is wrong and terribly unacceptable.” Or as Mr. Ibrahim Sharrif testified, “The cancer is the money… It’s all about the money.” And for that we need look no further than the non profit tax returns of EHCA.

MORE INFORMATION ABOUT EHCA

EHCA 990 tax returns for other years are available here.

EHCA’s NJ Charitable registration #: CH0330700. EHCA is located in Wall NJ and as a is 501 (c) (3) non-profit organization is obligated by law to register with the NJ’s Division of Charities and report its expenses and payments to affiliates on an annual basis. (Because of database peculiarities, the way to obtain a brief summary of EHCA’a report is to enter Education in the above link, select a maximum return of 500 items and then cycle quickly to EDUCATION AND HEALTH CENTERS OF AMERICA.)  

EHCA’s Federal Tax ID: 22-2425650

Here is how one independent organization rated EHCA as a non-profit. Based on 2009 data Open Organization scored EHCA in financial performance at 55 out of 99. “This score represent the relative financial performance of this organization relative to all of the other organizations in our database of 15,000+ of the most established non-profit organizations in the United States. Performance Scores range from 1 to 99. A score of 50 means that the organization is at the middle of group for that criteria.”

 

Comments (3)

  1. firstamend07

    Ok. Everyone knows the horror stories.

    Now reform is needed.

    The first thing that must be done is to take all oversight of these Halfway house contracts away from the incompetent NJDOC.

    They might be good at keeping people behind bars but they suck at contract oversight.  

    Reply
  2. Bill Orr (Post author)

    Although Christie in the budget bill vetoed quarterly reports from DOC on halfway houses, a Director of one of the non-CEC facilities said they had to submit monthly info to DOC, so she did not see why it would be an imposition for DOC to report quarterly.

    A key to understanding the problems can begin with a detailed analysis of exactly how DOC responded to each of the State Controller’s recommendations for changes. To get the complete answers OPRA or a subpoena may be needed.

    At the hearing there was a request for Comptroller Boxer to re-audit halfway houses, although he did not commit to doing so. Senator Buono has also filed such a request. Boxer has the staff and expertise to revisit his findings of June 2011 and to launch an inquiry based on information raised at the Senate and Assembly hearings. I hope he will do so.  

    In addition, new legislation is needed.  

    Reply
  3. Stella Tulli

    It literally sickens me as I read this new information.  

    It really all boils down to money-

    Reading responses from Mackey, Palatucci and Clancy– I’ll be honest- makes me want to punch them in the throat. How DARE they say how their facilities are “best in country”,. I guess when you have no one else to compare to– that’s an easy answer.

    The back pedaling and covering their rears needs to stop. They want to continually pat themselves on the back for a job well done- well. here- do this.. take up residence at one of your “best in country” facilities for a few weeks and get back to me. oh, here’s the kicker- no one is to know who you are. hang out like the rest of the residents and see what training is offered, what a typical day is like.  Once that is done, let’s see your responses.

    Reply

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