A board chair for a public hospital was arrested and charged last month for an alleged role in what prosecutors describe as a criminal enterprise among the top three executives. Its an extraordinary case in the Virgin Islands, and hospital trustees on the mainland may wonder what it says, if anything, about their own risk of becoming targets when things go horribly wrong under their watch.
June Adams, 80, was the chairwoman of the governing board of 123-bed Schneider Regional Medical Center (formerly Roy Lester Schneider Hospital) in St. Thomas. From 2003 to 2007, Adams allegedly signed payment vouchers and letters integral to a conspiracy among the executives that bled at least $3.3 million from hospital accounts to their own pockets in the form of stipend agreements and various made-up perks, according to court documents.
Dennis Pointer, a healthcare governance consultant and professor of health administration at the University of Washington, Seattle, said the trouble Adams faces probably says little about the hazards of board service. This is just bad behavior if its true, Pointer said.
The charges against Adams include embezzlement, fraudulent claims upon the government and perjury. The 37-page affidavit supporting the charges does not allege that Adams got a share of the money, but rather implies that she either went along with or was negligently unaware of what the executives were up to. A lawyer representing Adams declined to comment.
The executivesChief Executive Officer Rodney Miller, Chief Financial Officer Peter Najawicz and Chief Financial Officer Amos Cartyare charged with an array of crimes, including embezzlement and fraudulent claims, as well as grand larceny. They and Adams all pleaded not guilty. Miller left the hospital in late 2007 and then resigned from his subsequent job as administrator of a Florida hospital when the allegations about his conduct in St. Thomas came to light in July. Najawicz and Carty, who succeeded Miller as CEO, were fired. Adams, along with her four colleagues on the board, resigned at the request of the governor of the Virgin Islands.
Several documents that furthered the conspiracy bear Adams signature, according to the affidavit. They include a letter authorizing a $45,000 advance on a housing allowance for Miller, though he continued to collect the allowance quarterly, and in sums that exceeded the contractual amount by about $2,500 each time, again approved by Adams. When it came time to renew Millers employment in 2005, his new contract included an array of perks that the prosecutors found questionable, including payments of $125,000 a year to a deferred compensation trust, which they allege ended up being paid into one of Millers personal accounts in addition to his full salary.
Adams told investigators that she didnt recall seeing a description of the trust when she signed the 2005 contract, according to the affidavit. Meanwhile, she was the only one to see and sign that contract and an even more lucrative one in 2007.
Her signature appears on letters directing electronic transfers of hundreds of thousands of dollars into Millers account in accordance with an employment agreement purportedly dated a month after the 2005 contract was signed, an agreement prosecutors call nonexistent.
Adams also was questioned about her signature on a document the executives needed in order to open a bank account in the hospitals name with themselves as the only authorized signatories, through which they allegedly channeled money from the hospitals operating account to pay their various stipends, allowances and bonuses. Adams, according to the affidavit, denied shed signed the document and said shed recently become aware that an electronic or scanned copy of her signature had been used by the hospital. Prosecutors enlisted handwriting experts with the U.S. Secret Service to confirm that the handwriting on various documents was hers and that it was original, leading to the perjury charge.
Pointer, while he was unfamiliar with the details of the Virgin Islands situation, said the test of whether board members have done their jobs is whether they should or could have known what was happening. Youd better doggone pay attentionthats a fiduciary duty of care, Pointer said. But, he added, Our normal governing systems and audit systems are not well put together to protect an organization against bad behavior.
But Michael Peregrine, a partner in the law firm of McDermott Will & Emery, said it would be a mistake to dismiss Adams legal jam as an exotic curiosity, though he cautioned that the scenarios usefulness as an example is complicated because the laws are different and its extremely unusual for a board member to be charged criminally for poor judgment or inattentiveness.
We are entering into an environment of recrimination, and there will absolutely be spillover in the nonprofit world against boards for what I call preventable harm, said Peregrine, who is on the faculty of the Governance Institute. He pointed to a report published late last year in Nonprofit and Voluntary Sector Quarterly that found a dramatic increase in fraud perpetrated against charitable organizations.
Board members, he said, should expect heightened scrutiny from state attorneys general and the Internal Revenue Service. The IRS, he noted, added a line to the revised Form 990 asking whether the organization learned of diversion of assets during the year. Boards should be on notice now because of the empirical evidence theyre getting ripped off more than ever before, Peregrine said.