July 9, 2008

Nonprofit, Now Defunct, Faces Audit

By Jennifer D Jordan

"It will take us awhile to sort this out," says lawyer Allan M. Shine about the Education Partnership, which went into receivership last month.

PROVIDENCE -- The financial records of the nonprofit Education Partnership are in such disarray they will require a forensic accountant to review them, the lawyer appointed to sort out the organization's finances said at a court hearing yesterday morning.

Among those owed money are 95 college students who were promised about $177,000 in scholarships that apparently have not been paid, attorney Allan M. Shine told Superior Court Judge Michael A. Silverstein. So far, about 30 of the affected students have contacted Shine directly, he said.

"As of now, your honor, the records are not in perfect condition ... I think that is an understatement," Shine said. "... We need to reconstruct records that are, as I say, less than complete. It will take us awhile to sort this out."

The Education Partnership, an advocacy organization backed by local businesses, went into receivership last month, in part because several contracts to produce research and reports for municipalities and school districts fell through, said Shine. He was appointed permanent receiver by the court yesterday after serving as temporary receiver since June 18. At the hearing, Shine gave an update to the judge on what he has discovered about the organization's finances.

Shine said that money from different sources -- including federal grants earmarked for specific programs, grants from private sources and scholarship money -- apparently was mingled with the Education Partnership's operational expenses. "There were no separate escrow accounts," Shine said.

Mark Higgins, dean of the University of Rhode Island's College of Business Administration and an accountant, said funds should be kept separate for legal reasons.

"Here at URI, every scholarship fund we have is a separate account," Higgins said. "What I would have done in this case is set up as many separate accounts as possible. If you got a federal grant for an elementary afterschool program, you would not mingle that with another grant for middle school students, for example. For reporting purposes, you have to report what happened to that money. So if you co-mingle funds, that's very difficult to do."

Since 2005, the Partnership has administered the Louis Feinstein Memorial Scholarship, created 15 years ago by philanthropist Alan Shawn Feinstein in honor of his late father, Louis.

An attorney for Feinstein said his client was dismayed to learn that the scholarship money was not kept in a separate account, used solely for student aid.

It is unclear how much money is left in the scholarship fund, which began with $2.4 million in 1993. Feinstein said in a phone interview that records from a 2007 Education Partnership board meeting indicated $763,000 remained in the fund last year, $88,000 of which was already pledged to college students. However, at yesterday's hearing, Shine said the organization had just $357,000 in cash.

"We understood that money would remain segregated," said lawyer Mark B. Morse. "We remain concerned about the management of these funds and the failure to abide by the investment policy and ... the scholarship guidelines. Mr. Feinstein is also concerned about the damage to his reputation because of the mismanagement of these funds."

Shine said he has advised the Education Partnership board and former staff to not speak to the media. Calls by The Journal to Richard S. Mittleman, the bankruptcy lawyer representing the Partnership's executive director, Valerie Forti, were not returned.

Kellie Randall, who graduated from Exeter-West Greenwich High School last month, says without the $10,000 scholarship the Education Partnership promised her, college may be out of reach.

Her scholarship would have given her $1,000 per semester for eight semesters, plus a $2,000 graduation bonus when she received her bachelor's degree. She hoped to attend the Community College of Rhode Island this fall and transfer next year to Rhode Island College to study early-childhood education.

"My mom and I are talking about it and she really doesn't want me to take any time off," Randall, 17, said. "But my mom's a single parent and there are three kids and if we don't have the money, there is no choice. I will have to take the time off and just keep working and try to save money for later."

Other creditors include Sovereign Bank, which lent the organization $305,000, and several teachers and instructors who said the Education Partnership never paid them for afterschool programs they provided this year at a Providence public school.

The state Department of Education said it is concerned about a $203,000 federal grant earmarked for afterschool programs the Education Partnership oversaw at the William D'Abate Elementary School. Apparently the last $25,000 installment the department gave the nonprofit this spring never made it to the teachers and instructors delivering the programs, several of whom have contacted the education department, spokesman Elliot Krieger said in an earlier interview.

Sovereign Bank received $25,000 from the Education Partnership yesterday as part of its financial agreement as a secured lender. Shine said another $10,000 will be used to meet the payroll of the nonprofit's staff of approximately six employees, all of whom were terminated when the Education Partnership went into receivership. Forti was the group's highest-paid employee, making $140,000 a year in salary and benefits, according to 2005 tax records. In addition, the landlord of 345 South Main St., where the nonprofit had its offices, is owed $50,000 in rent, Shine said.

Shine said his office has begun sending out letters to possible creditors and others who had business dealings with the Education Partnership.

"So far, between 200 and 250 people have been given notice and that number increases each day as more people contact us," Shine told the judge.

The office of Attorney General Patrick C. Lynch is also concerned about the scholarship money and will review financial records and legal documents associated with the scholarship fund as they become available, said Assistant Attorney General James Lee, who attended yesterday's hearing.

Creditors now have four months to make their claims to Shine.

A hearing to appoint a forensic accountant was scheduled at Superior Court for July 21, at 9:30 a.m.

Shine said creditors should contact him directly to place a claim: [email protected] or by fax: (401) 272-5728. [email protected] / (401) 277-7254

Originally published by Jennifer D Jordan, Journal Staff Writer.

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