After the Termination – The Company

After the Termination – The Company

When I complained to the State in December 2014 about the termination, I asked to be reinstated.  Some fantasy of vindication impelled me to email that information to a former Finance Committee chair.  I had had a good relationship with her, but unsurprisingly she did not reply.  Within a year of my being fired, all of my staff had left HomeFirst.  The CEO, Chief Program Officer, and Chief Development Officer were all gone, too.  The Treasurer who had participated in my termination and three others cycled off the Board.  A third consultant was acting as CFO.  The company was still doing more or less what it had done when I left, but reinstatement to the job I held in June 2014 was unlikely.

HomeFirst’ cash flow deteriorated along the lines that I had forecast before my termination.  Cash dropped by $240,000 in 2014 and another $620,000 in 2015 – down more than $1 million over three years.  The City of San Jose, the County and HUD all acknowledged that it was unable to meet its obligations.  None of HomeFirst’s communications mentioned its dire financial situation.

The Securities Act bars for-profit companies from withholding material information in connection with the sale of stock.  Nonprofit companies do not sell stock to the public, but they are always soliciting contributions from donors.  Comparable to the Securities Act rule, California’s Government Code bars misrepresentation by charities in their solicitations.  In June 2015, I complained to the Office of the State Attorney General that HomeFirst had not communicated material information, but I never received a reply.

The 2014 audit report was silent on the company’s difficult financial situation.  Its auditors might have written a “going concern” opinion – expressing its uncertainty whether the company would survive the year – but I decided that they had inappropriately accommodated the company’s need to solicit contributions.  In June 2015, I complained to the state and national offices of the Association of Independent Certified Public Accountants.  The national office would review the complaint; they would let me know if no full investigation were warranted or let me know the results of an investigation when it was complete.  I heard nothing further. 

HomeFirst’s life under those financial clouds, however, seemed to roll along.  Its private contributions continued a gradual downward path from 2012 through 2015 (excluding an upward blip in 2014 because of the non-cash contribution of equipment).  On the other hand, revenues from its government partners rose far more than contributions declined.  By 2015, government grants provided 69% of the company’s revenues, compared to 54% in 2012, and total revenues were nearly 30% more than three years earlier. 

The shifts in contributions and government revenues reduced private cash contributions and grants to 10% of total revenue in 2015.   Net of its fund raising costs, those charitable contributions made up just 5% of its revenues.  As a consequence, HomeFirst was more an extension of the government partners that evaluated its possible wrongdoings than it was a charity. 

Its 2015 audit report identified some questionable areas: a failing in its internal controls; administrative costs that fell mysteriously by more than half from the prior year; and a forbearance agreement to delay repayment of a credit line borrowing that had been due in October 2014.  But in other respects the report seemed to say all was well, and the company’s website (as of March 2016) remained upbeat.  The business was appealing, and the members of its Board of Directors increased to 16 from 12 when I left.

I had forecast that HomeFirst might run out of cash, but it seems to have recovered.  I had expected government agencies to demand changes or reduce their funding, but none did.  They were even more supportive of the company after all my whistleblowing.  Two of my complaints produced minor operating changes; two others became, arguably, irrelevant with the passage of time; others remained outstanding and unaddressed; and the money that I claimed had been taken improperly was never returned. 

If my disclosures and my termination had any lasting significance, it was difficult to see.  You have to doubt whether it was worth the bother.