Failing credit worsens problems for EOB

By Timothy Pratt

Monday, April 5, 2004 | 11:29 a.m.

The Economic Opportunity Board -- the Las Vegas Valley's largest nonprofit agency -- may well be brought down by problems with its bottom line before any of the outside scrutiny its problems have drawn bears fruit, according to its former top financial officer and another leading local nonprofit agency director.

The Bank of America told the EOB late last week its line of credit was cut from $3 million to $2 million, and that the organization would no longer have automatic access to that credit, according to a letter from the bank obtained by the Sun.

It is unclear when the bank increased the EOB's line of credit to $3 million, but last week's decision drops it back down to 2001 levels.

The bank's decision was a sign that it was "losing confidence in the agency's ability," Debra Santos said. Santos had been the agency's chief financial officer until she was fired Jan. 30.

"If we were a business, we would not be considered a healthy business," Santos said.

The bank's letter came days before two federal inquiries into the finances and management of the agency were to begin today. The inquiries -- and state scrutiny as well -- were brought about by $2.1 million in missing funds, problems with the EOB's Head Start programs, unanswered questions about staff credit cards and property the agency owns, and other troubles.

Santos has hired a lawyer to challenge her dismissal from the agency. She says that during her tenure at the agency she had tried to get the EOB to address some of its fiscal problems and has the documents to back that up. "It probably won't be long before they (the bank officials) pull the loan altogether," Santos predicted.

This would be a big problem for the agency, since it has increasingly relied on that source of money to cover its costs since at least 2001, according to Santos and a June 25, 2002, document prepared by her immediate predecessor, R. Keith Latham.

"Over the last several years, the agency has had to manage its operations with the line of credit," Santos said.

That's a practice that is difficult for a nonprofit agency to sustain, and the drop in credit could soon spell hard times for the EOB, said Dan Goulet, president of the United Way, another large nonprofit agency in the valley.

"It's going to be a hardship for them ... with a reduction in the line of credit they're going to have to delay or cut back on program costs," he said.

The United Way has a budget of more than $10 million, all of which is from private sources. The EOB's 2003 budget was nearly $60 million, almost all of which came from taxpayers.

Santos said she had tried to get the EOB's board to see that depending on a line of credit so heavily would get the agency in trouble.

She said she told them that "we needed to raise funds for a reserve, or address programs that were running at a deficit."

"It's not necessarily a bad thing to have a line of credit -- every large business entity utilizes credit to maintain itself during gaps in cash flow. But it should be temporary," she said.

The EOB had these problems for some time, according to the June 2002 "Report on the Financial Affairs of the Agency," which was prepared by Santos' predecessor, Latham.

In the report Latham points out that the agency's expenses had grown to more than $45 million by the end of 2001, or five times what they were in 1991. During the same period, the general fund -- at $750,000 by the end of 2001 -- had not even doubled.

'The growth that the agency has experiences (sic) has been financed by increases in the operating line of credit to the $2 million level," Latham wrote. "During the last three months, the Agency has been accessing the line of credit earlier each month."

"In a worst-case scenario ... the current line of credit would not be sufficient to prevent delays in paying vendors and possibly employees," the report continued. The EOB did fall behind on paying child care providers, the Sun has reported.

Latham's report goes on to announce the agency's intention to ask the Bank of America to increase its credit to $2.75 million, but warns of the need to "...develop additional sources of unrestricted funds ... that will help support the growth of the agency and its ability to serve the low income and disadvantaged citizen (sic) of our community." Significant other sources of revenue have not been developed to date. The report from the 2003 federal review of the EOB's Head Start and Early Head Start programs also mentioned the agency's tendency to rely on the bank's line of credit -- but as a way of compensating for the absence of reliable, accurate bookkeeping.

'There are several instances where this agency lacks internal controls and accountability," the review noted.

Due to those shortcomings, the report said, "Staff lack confidence in the revenue and expenditure reports and are reluctant to draw-down Head Start and Early Head Start cash resources to cover the amounts reported on the expenditure reports. This results in using the agency's line-of-credit to cover expenses.'

That's just one of the many issues that is to be examined by the Health and Human Services Department officials who are in Las Vegas this week doing a follow-up investigation.

The federal agency has not seen evidence that many of the problems pointed out in the May 2003 review have been corrected, according to Windy Hill, associate commissioner of the Head Start bureau.

Goulet said the bank putting tighter controls over the credit may have a positive side.

"It's a safety valve that ought to be in place," he said.

"It forces the agency to report to the board about how their money is being managed."