A former money manager with a publicly funded regional mental health agency took nearly $550,000 in apparent kickbacks from two contractors who were paid about $1 million to renovate agency buildings, according to a state audit released Tuesday.
The audit also says the former chief financial officer at Eastpointe Human Services, which serves several Eastern North Carolina counties, failed to report on his income tax returns the money he received from contractors.
The audit does not name the CFO, but agency documents identify Bob Canupp as the CFO during the period the audit examined.
The apparent kickbacks were from an LP-gas serviceman and a firefighter who each handled contracting work on the side, according to the audit. The unlicensed and uninsured contractors were paid nearly $1 million by Eastpointe for renovations that took place between July 2009 and June 2013.
The audit describes a pattern of payments from Eastpointe to the contractors for agency work followed by a check from the contractor back to the CFO.
The audit states, “The former CFO may have violated several state laws including fraud, misrepresentation and obtaining property by false pretenses.” The audit findings were referred to the State Bureau of Investigation, the Internal Revenue Service and the N.C Department of Revenue to determine if criminal charges are warranted.
Eastpointe did not follow its own procedures to ensure that money was being spent properly, State Auditor Beth Wood said in an interview.
“There was no monitoring,” she said. “No one was ensuring (the work) had been properly bid. No one was ensuring the work was getting done that had been paid for.”
An SBI spokeswoman said in a statement that the agency is investigating at the request of local District Attorney Ernie Lee, who did not return a phone call Tuesday.
Canupp, who was paid a salary of $138,942 a year, according to the agency, also could not be reached Tuesday.
The audit also said Canupp purchased $18,600 in equipment, including a tractor and a trencher, with agency money but kept the equipment for use at his home.
Eastpointe is one of nine regional agencies in the state that use federal, state and county money to pay for mental health services for residents who are on Medicaid and for poor people who do not qualify for the government health insurance. These regional mental health offices work under contracts with the state.
Eastpointe covers a dozen counties, including Lenoir, Nash, Robeson, Sampson, Scotland, Wayne, Wilson, Bladen, Columbus, Duplin, Edgecombe and Greene. Eastpointe manages about $310 million in state, federal and local money, with most coming from the federal government.
Carpet and cars
The renovations took place at an Eastpointe headquarters building in Beulaville and at a building leased to mental health providers in Kenansville. The work involved framing, drywall, doors, painting, carpeting and installing laminate flooring.
The audit does not detail or explain what the former CFO did with the payments received in what the audit says was “consistent with a kickback scheme.”
Auditors also found $143,000 in unnecessary vehicle purchases and upgraded accessories, and more than $157,000 in questionable credit card purchases.
The questionable spending included the purchase of a 2011 Silverado costing $51,600 that Canupp drove home at night, according to the audit.
The audit reported that Canupp said he didn’t drive the pickup truck on weekends, but noted that Canupp was ticketed by Swansboro police one Sunday in January 2013 with his personal boat hitched to the Silverado.
Canupp’s questionable credit card charges included a $4,500 down payment for work on his fishing boat, as well as fish-finding software and Dick’s Sporting Goods purchases.
The Eastpointe CEO, Kenneth Jones, and its 23-member board of directors failed to provide proper oversight of nearly $2.8 million in building renovations at office buildings in Eastern North Carolina that did not follow bidding procedures, the audit said.
“I regret not managing the former CFO more closely,” Jones said in a telephone interview with reporters. “That will not happen again.”
The audit also said Jones, the agency’s CEO since 2006, had questionable credit card charges that included more than $5,000 for a staff lunch, more than $1,000 spent on duffel bags for board member Christmas gifts, $575 for pecan brittle and chocolate-covered pecans for a board Christmas party, and $245 in gift cards and gifts for an employee Christmas party.
The audit questioned a 2012 Buick Enclave purchased at a cost of $40,856 that it said Jones drove home at night and on weekends.
Jones defended his use of the Buick. And a lawyer for Eastpointe, Jonathan Charleston, said Jones’ credit card spending was proper.
Jones said the car is part of his contract with Eastpointe, and he used it for work. The agency is looking at how often he used it to drive to and from the office, he said. “If there are any reasons for a need of payback, that will be paid back to Eastpointe,” he said.
In a conference call Tuesday, Eastpointe Board Chairman James Simmons said, “Our board remains confident in Eastpointe’s managerial staff and its CEO.”
Representatives from the regional agency had started their own “internal forensic investigation” and contacted the local district attorney and the SBI about possible problems last year.
Wood said an individual member of Eastpointe’s board separately contacted her office after the board had called in its attorney and an accounting firm.
Wood said auditors from her office uncovered the apparent kickbacks because her office has subpoena powers.
“We subpoenaed the bank records and discovered the kickback scheme,” she said.
In a letter to Wood, Eastpointe’s chairman said its compliance department found the “irregular activities” and reported them to the CEO in early 2013, which resulted in Canupp’s termination. According to the letter, internal probes followed as outside authorities were contacted.
But the investigative state audit report released on Tuesday was the first public indication of possible wrongdoing at the agency involving Canupp. Eastpointe had not released its report or talked in public about the investigation.
Eastpointe’s lawyer said he would give to The News & Observer a copy of the investigative report prepared for Eastpointe by the firm Cherry Bekaert, but it was not immediately provided.
Wood said Eastpointe did “possibly the smartest thing they could” in the wake of the problems by hiring a highly regarded accounting firm to examine its internal controls and by establishing a risk assessment committee that has the board more involved in oversight.
Eastpointe has the important responsibility of managing mental health treatment for people in need, Wood said. “The money is there for them.”