Even before an alleged embezzlement scheme was revealed on Monday, the nonprofit Big Brothers Big Sisters of the Bluegrass grappled with a budget deficit, layoffs and pay cuts, according to documents and interviews.
But agency leaders did not notice $435,837 disappearing from their bank accounts over the past year through 142 forged checks. That was more than one-third of the $1.2 million in total assets that Big Brothers claimed in its 2008 tax filing, filed in July.
"There were safeguards in place, and they were not followed," said board member Gregg Greer, who has been involved with Big Brothers since the 1980s and runs a marketing firm.
Dale Suttles, the agency's newly installed chief executive, said Tuesday he cannot explain the lapse. Ultimately, it was Central Bank, where Big Brothers kept much of its money, that detected the thefts, Suttles said.
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"I can't speak to what happened. I have no idea," said Suttles, who previously served as Big Brothers' director of development. "There were checks and balances that had been in place for years. They did not let us down until we employed certain people."
Big Brothers filed a lawsuit Monday in Fayette Circuit Court in which it accused Bendrea Wilson of Lexington, who it hired as office manager in May 2008, of forging two board members' signatures on scores of checks.
Wilson could not be reached for comment Tuesday.
The checks were made out to four Lexington men — Demetrius Davis, Danny Fondren, Emmanuel Marshall and Charles Mealing — and Marcus Searcy of Danville, according to the lawsuit. Wilson and the men are named as defendants.
Sandy Hatfield, president of the Big Brothers board of directors and stallion manager at Three Chimneys Farm, said the scheme was discovered Oct. 26 by bank employees who noticed suspicious checking activity. Hatfield said the bank notified her and another board member, lawyer David Wolfe.
The forged checks were written from October 2008 to Oct. 23, 2009, Hatfield said. Almost half the money was taken in the past two months, she said.
During much of the period in question, Big Brothers — which matches boys and girls with older mentors — struggled with financial issues, and its leaders were changing.
Longtime chief executive Joseph Gomes, who was paid about $75,000 a year, resigned in June "to look at other opportunities," Suttles said. Board treasurer Greg Powell filled in as interim leader for several months until late September, when Suttles was promoted to the top post.
Gomes did not return calls seeking comment Tuesday.
Also this year, Big Brothers reported a $53,946 deficit, which was a result of a rise in spending and a decline in grants, donations and investment income. From 2007 to 2008, the agency's spending rose from $1.2 million to $1.4 million while its revenue dropped from $1.4 million to $1.3 million, according to tax records.
"The economy seemed to catch up with us in the fall of last year," Suttles said.
During the spring, the agency eliminated about a half-dozen jobs — it now employs 19 people — cut salaries by 7 percent and made other spending reductions, he said.
However, even as they pinched pennies, nobody in the executive office or on the 28-member board noticed nearly a half-million dollars being siphoned from the agency's accounts.
Suttles confirmed that Big Brothers gets monthly statements and copies of canceled checks from Central Bank and Fifth-Third Bank, where it keeps its accounts. Outside accountants reconcile the checks every month, he said. But it's not clear why nobody within Big Brothers spotted checks written for no legitimate reason to unknown names, or the draining of accounts, he said.
Although the agency does have insurance against embezzlement, its coverage limit is $20,000, with a $1,000 deductible, so it's not much use, Suttles said.
Board members said they noticed Big Brothers' funds were dropping in the financial statements provided to them by accountants, but they did not realize why.
"Anytime you have a discovery like this, the first thing you do is question what you could have done differently," said board member David Fraley, a manager at Ashland Inc. who joined the board this past summer.
Board members have formed a "recovery team," which has met every day since the theft was uncovered, Fraley said.
"There will be provisions put in place. Every effort will be made to keep this from happening again," Fraley said. "Someone stole from us. Shame on us that we missed it. I don't know how we couldn't have caught it."
After Central Bank warned Big Brothers about the alleged forged checks, the FBI was notified, and federal agents came to the office the next day to interview Wilson, said Hatfield, the board president.
Wilson admitted her involvement, resigned and was escorted from the building, Suttles said.
"She told us the money was all gone," Hatfield said.
The FBI has not returned calls seeking comment in the case. The U.S. attorney's office in Lexington declined to comment.
Now, Big Brothers' attention turns to its survival, Suttles said.
An emergency fund for donations is being set up at Central Bank. At a news conference Tuesday at its office off Newtown Pike, Suttles and Hatfield said the agency may not be able to meet its payroll in the weeks ahead. Its staff works with young people in 14 counties across Central Kentucky, they said.
"We're going to fight to keep them employed," Suttles said.
Fraley, the board member, urged the public to think about the children served by Big Brothers.
"Eleven hundred kids are at risk," Fraley said. "They not only robbed the organization, they robbed from the community, they robbed from kids, and that's inexcusable."