Where’s the board? Employees of a beleaguered Baltimore nonprofit raised concerns about CEO, oversight as federal funds went missing

Published on: September 26, 2022 at 6:00 am EDT

Updated on: September 26, 2022 at 12:03 pm EDT

List of demands next to empty board room

In April, employees of a Baltimore nonprofit that officials believe misused city and federal funds emailed the board of directors and urged action.

“What do we want: resignation of the current CEO and restructure of the organization; more involvement from the Board,” an employee wrote in one of the emails. “If our concerns are not met, we are prepared to walk out.”

Sure enough, the employee and several others left the organization this past spring. The employee verified the account in their email but asked not to be identified for fear of retribution. Obtained by The Baltimore Banner, the emails raise a multitude of questions and concerns about the organization’s operations, including the boss’s purported lack of transparency about the nonprofit’s finances, alleged noncompliance with the terms of federal funding, and alleged “lies/dishonesty.”

The nonprofit, AIDS Interfaith Residential Services, or AIRS, currently faces federal scrutiny arising from its failure to pay more than a dozen landlords who were providing housing to tenants enrolled in rent subsidy programs. AIRS also provided case management services to tenants to keep them housed, healthy and employed, but city officials said they could not verify that every tenant in the program had received such assistance, according to records obtained by The Banner. The scandal, sprawling in nature and complex due to the the involvement of federal funds, also extends into neighboring Baltimore County, where AIRS served clients with federal and state dollars.

AIRS tenants — some of them living with HIV and others who have complex mental-health needs or health conditions that prevent them from working — relied on the nonprofit to pay some or all of their rent. More than a dozen renters have received eviction notices from their landlords this year and have appeared in court to plead their case. So far, a judge has sided with one landlord ensnared in the disputes, though the tenant has not yet been evicted, city officials said.

Anthony Butler, the president and CEO of the nonprofit, maintains that Baltimore City and the U.S. Department of Housing and Urban Development never reimbursed him for funds he needed to pay landlords and his staff due to a citywide payment slowdown. What funds he did receive, he said, went to the appropriate places. He also said the coronavirus pandemic posed a challenge to his operation, noting that he lost key staff members who helped keep the nonprofit afloat.

In an interview with The Banner last month, he denied officials’ allegations.

“Whatever we received, we paid out for the intended purposes: full stop,” he said. “There was no impropriety.”

But city and federal officials say they have evidence that Butler drew and received funds from two grants and didn’t use some of that money for the assigned purposes, according to internal emails obtained by The Banner as well as interviews with city officials. They also said he went over budget on one award and didn’t provide services to as many tenants as he could have with the other. Above all, city and federal officials contend, he hasn’t been able to verify what he did with some of the funds.

AIRS board members, whose role is to act as a check on Butler’s leadership, have not responded to multiple requests for comment. Butler also did not respond to a request for further comment last week.

Where it stands

Baltimore HUD officials have referred the matter to the agency’s Inspector General of Investigations, which will decide whether to forward it to the U.S. Department of Justice. Baltimore HUD officials said they are not privy to the investigators’ timeline.

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Sean Callahan, a regional spokesman for HUD, said the agency’s Real Estate Assessment Center (REAC) scheduled inspections of three federally subsidized properties owned by AIRS and its wholly owned subsidiary, Empire Homes of Maryland, after receiving “inquiries” about their condition. They are Lakeview Properties, with 12 units; Don Miller Homes, with 20 units; and Charles North Housing, with 20 units. One inspection has already taken place, with results pending, and the others have been scheduled, he said.

Callahan said low REAC inspection scores are designed to nudge owners to undertake necessary repairs and maintenance. “However, if that does not happen, we are able to take administrative actions to protect the residents and the Department’s interests,” Callahan said.

The missing funds and ensuing fallout have consumed the attention of the Mayor’s Office of Homeless Services, which for years partnered with AIRS on federal grants to house and serve vulnerable city residents. More than 140 tenants are enrolled in two ongoing grant programs with the homeless services office, involving more than $2 million in federal money. Officials say a significant chunk of those funds has not been accounted for.

In an interview last month, Butler told The Banner that he had not previously been asked to keep such detailed accounting of his clients’ records or of the nonprofit’s spending. But grant agreements and a city monitoring report, which were obtained by The Banner through a public records request, appeared to provide clear guidance to Butler on how to keep records.

City officials also say they have poked holes in Butler’s allegations about nonpayment: For example, a grant owed to Butler in April 2021 didn’t land in the city’s account until three months later, Baltimore spending board records show. However, several landlords say they began missing rental payments in the fall and winter of 2021, well after that delay.

William Wells, deputy director of the Mayor’s Office of Homeless Service, has testified in court more than 20 times to help tenants at risk of eviction due to AIRS’ failure to cover their rent. The agency also has taken over the responsibility of helping to secure new providers for HUD-funded services and verifying with individual landlords how much is owed in back rent.

Appealing to a group of potential new housing partners last month on a Zoom call, Wells said the job of keeping tenants housed has been made more difficult by AIRS’ poor record-keeping and incomplete accounting of tenants’ lease agreements.

Meanwhile, a Baltimore County spokeswoman confirmed Wednesday that housing officials worked with AIRS on three grants, one from the state of Maryland and two from the federal government. One of the federal grants passed through the county and the other flowed directly to AIRS. The three grants totaled about $375,000 and were intended to serve about 21 clients.

Erica L. Palmisano, the spokeswoman, said the county flagged the direct grant for monitoring earlier this year due to “several irregularities.”

“AIRS was not able to provide complete documentation of all … clients, so [the county’s housing and community development department] spent weeks trying to locate clients and to connect with landlords to ensure rent and utilities had been paid. In many cases it had not,” Palmisano said. “The County has made arrangements to ensure all bills are paid so there is no chance of eviction or housing instability for any of the participating clients.”

She said the county terminated two of the contracts and took over the direct grant from HUD. She said most of the current clients have been reached and that the county will handle rent and utility payments until another housing provider can be identified “through a fair process.”

The Baltimore City Health Department also terminated a contract with AIRS earlier this year and intends to end another upon finding a new service provider. The two contracts, both under the federal government’s Ryan White HIV/AIDS program, provide forms of financial support and social services to people living with HIV.

Arinze Ifekauche, a health department spokesman, declined to say if the agency had discovered irregularities or spending lapses in AIRS’ contractual obligations with clients.

More allegations

City officials said few other nonprofits have provided the same services at similar scale as AIRS. Founded in 1987 in response to the HIV/AIDS epidemic, the organization now provides housing, social services and workforce development to more than 100 individuals a year who are at risk of losing housing.

People familiar with AIRS said employees left the organization when the nonprofit’s problems began to multiply. The April 2022 email sent by employees to the board alleges that Butler not only mishandled funds meant for tenants but also failed to pay for staff benefits, such as health insurance matches, as well as payroll or vendor services. They said the organization has not submitted at least three years’ worth of federal audits.

Employees said their Midtown office routinely lacked “operational supplies” such as new pencils and pens. They said Butler did not spend much time in the office as concerns about the missing funds grew, leaving employees to deal with frazzled tenants and landlords demanding answers.

The email cited a high rate of turnover among the staff and employees’ “increased stress level” when dealing with tenants whose rents hadn’t been paid. “Tenants ... are fearful of being evicted, which is triggering anxiety,” the staffers wrote in the email. They also said landlords were angered and often couldn’t reach their boss.

One such landlord, Ayo Osazuwa, said in August that she had not been paid more than $8,000 in rent due from AIRS. Initially, Butler said, he had mailed checks to the wrong home address — until Osazuwa got city officials involved. He then paid what he owed her through February 2022, but Osazuwa is still awaiting full repayment.

“My tenant has been there since 2013 and I feel for her, I keep her there,” Osazuwa said. “I’m afraid that something has happened. Is it bigger than I know, really?”

Several other landlords said AIRS occasionally made late payments in years past, but they began noticing severe delays several months ago. Eventually, several landlords alerted the city when it appeared that they would not be paid, and in March city officials asked HUD for a review of its contracts with AIRS. The two city contracts were terminated in May.

A pattern emerges

Court records and other public filings reveal that AIRS and Empire Homes have been ensnared in financial problems since at least the start of this year. In January, the Harbor Bank of Maryland sent Butler and the organization a notice of default for a $1 million loan obtained in 2014, demanding compliance with the loan’s terms within seven days. No action was taken, according to court filings. The bank then “accelerated” the loan, demanding repayment.

In April, a judge sided with the bank in a confessed-judgment case — one that allows a creditor to obtain a judgment against the debtor, often without advance notice or a hearing — against the nonprofit for more than $985,000. Records show the organization failed to provide the bank with certain financial information and did not provide proof of insurance on its collateral as required by the loan.

Butler said that case is unrelated to the situation with HUD and the office of homeless services; he blamed it on the pandemic. “They had to file that,” he said. An attorney for Harbor Bank did not respond to requests for comment.

Despite Butler’s claims about the challenges brought on by the pandemic, the nonprofit received federal loans during the pandemic to blunt the effects of the public health crisis. It also is almost entirely funded by grants that were never in question of being lost during the pandemic; in previous financial disclosure forms from 2016, 2017, 2018 and 2019, AIRS reported zero in fundraising revenue.

Both AIRS and Empire Homes received federal money through the Paycheck Protection Program in 2020, created to buoy small businesses during the first months of the pandemic, according to an online database. AIRS received $325,200 and had $329,644 forgiven, including interest, according to the database. Empire Homes, meanwhile, obtained $69,800 and had $65,489 forgiven. Both loans were said to be going toward payroll.

According to Empire Homes’ latest IRS disclosure forms, the organization had been losing grant money as well as program service revenue and other revenue through the fiscal year that ended in June 2020. Despite these losses, expenses increased, including salaries, employee benefits and other compensation, from the year prior. Empire Homes ended fiscal year 2020 with $1.9 million in revenue and more than $8.2 million in net assets; Butler reported an annual salary of over $165,000 that year.

Previous HUD monitoring of the organization, in 2019, produced three findings, all unresolved. The 2021 monitoring revealed two additional findings that are not resolved, Callahan said. AIRS also owes HUD more than $500.

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