Others’ Whistleblowing Experiences (Part 2) - Michael Hawkey
When individuals talk about their whistleblowing, they do
not dwell on comparisons to others’ experiences. Each experience seems unique in the
moment. But the banality of
whistleblowing means that what each of us goes through is pretty common and may
be nearly duplicated in another’s experience.
Consider Michael Hawkey, who was CFO at Mental Health Systems, a San Diego, CA-based
nonprofit.
Like HomeFirst Services
of Santa Clara County, where I was CFO, Mental Health Systems (MHS) is
largely an extension of government services:
-
$73 million of MHS’ total 2015 revenue came from
government contracts; $2 million came from patient fees and just $256,000 from
contributions.
-
At HomeFirst revenue that came directly or
indirectly from government sources accounted for $10 million of $11 million in
total revenue and $1 million came from cash contributions, of which more than
half was spent in getting those contributions in the door.
Both companies were under financial pressure when Hawkey and
I blew our whistles:
-
At June 2015, MHS was in technical default on its
$8 million line of credit. Since 2012 it
had burned through $8 million of cash – $3 million in 2015 – and with just $3
million left in the credit line, things were tight. In March 2016, it missed its retirement
payment due date.
-
From 2012 to 2015, HomeFirst burned $1 million
of cash, and it needed a special grant from Santa Clara County in order to cover
its payroll in early 2015.
They both had smaller run-ins with government monitors in the past:
-
MHS had an overbilling
problem in 2006 and an employee fraud, discovered in 2014, that resulted in
$407,000 of
invalid billings.
-
HomeFirst (then called EHC LifeBuilders) overbilled
HUD by $1.2 million in 2003-2006 and had a licensing
issue in 2008.
Neither company offered a systematic description of how
money was spent in its programs or what results were achieved[1]. And both companies played loose in their
financial reporting on their way to looking good[2]:
-
Despite its contribution revenue and its website,
Facebook, YouTube, and Twitter presences, MHS reported no fundraising expenses.
-
As I claimed
to the AICPA, in 2015 HomeFirst cut its general administrative expenses in
half with an undiscussed change in its accounting practice.
Before we decided to become becoming whistleblowers, Hawkey
and I had comparable work histories:
-
Hawkey, 58, had been CFO of MHS for 14 years
when he wrote his April 2016 complaint
letter. He was named CFO of the year
by San Diego Business Journal in 2007 and 2008, and he was nominated for the
award again in 2011. An MBA, his 26+
year career spanned nonprofit and international for-profit companies.
-
I was 65 and had been HomeFirst’s CFO for seven
years when I made my disclosures. I was
a finalist for the CFO of the year award by the San Jose Business Journal. I had worked in nonprofit and international for-profit
companies during the 33 years since I received my MBA.
Our bosses were also comparable:
-
At MHS, Kimberley Bond, 42 and a licensed family
therapist, was nominated for the “Most Admired Nonprofit CEO “award by the San
Diego Business Journal in 2015. She was
paid just 11% more than Hawkey. Bond was
fired a month after Hawkey was terminated.
-
My boss, Jenny Niklaus, a licensed family
therapist and 45 when she fired me, was named one of the “Top 40 Under 40” by
the Silicon Valley Business Journal in 2004 and was called a “Woman of
Influence” by the San Jose Business Journal in 2013. Niklaus was paid 6% more than I was. Niklaus decided to go to work for a much
smaller nonprofit six months after she fired me.
Each of us accused our employers of committing a number of
legal and ethical violations:
-
Hawkey complained
to the County of San Diego that MHS was inappropriately funding a
for-profit subsidiary, was billing for reimbursement of expenses that had not
been paid or were unsupported (in violation of government rules), and had arranged
for the undisclosed employment of the CEO’s husband in a well-compensated
position reporting to her.
-
I complained to different public agencies about eight
legal and contractual suspected
misdeeds and two failures by local
and federal
agencies to recover money held improperly by HomeFirst.
Hawkey and I each knew about – or had reason to suspect – our
company’s wrongdoings years earlier, and we had tolerated them. Then something changed or the accumulated annoyance
pushed us to where we had not been. Our disregarded
advice about negative cash flows – HMS’ for-profit subsidiary’s losses and HomeFirst’s
own – increased the discomfort we felt. From
December 2015 until Hawkey was put on leave, Bond’s husband reported to Hawkey,
which would have been a challenge.
So far things have progressed in similar ways for each of
us.
-
Hawkey was placed on a paid leave for three
months during an investigation and then fired.
Perhaps because of MHS’ size and the types of violations he disclosed,
his complaints received coverage in the local press. In addition, a County of San Diego investigation
confirmed some of his complaints with the result that the company fired the CEO
and her husband and said it would fix things going forward. Hawkey was, of course, fired in May 2016, but
it is too early to see what legal actions he will take,
-
I was fired in June 2014, three months after I told
my boss that I had blown a whistle on two issues. During that delay I disclosed more suspected
wrongdoings. Two of my complaints were
investigated, and HomeFirst agreed to fix them going forward. The others were mostly ignored by government
agencies, and they got no traction with media.
-
MHS’ website made no mention of Hawkey’s allegations,
the County investigation, or the terminations of Hawkey, the CEO, and her
husband.
-
HomeFirst did not publicize the departure of its
CEO or other officers or its need for a special County grant to make payroll.
During your whistleblowing project, you may consider
yourself unique and heroic, and the results are likely to be personally tragic. Still, you are only one among millions who
observe corporate wrongdoing, one among hundreds of thousands who report the
wrongs, and one among tens or hundreds of thousands who are punished each year
in the U.S. for whistleblowing. It
happens all the time.
[2]
See also Krishnan, R., M. Yetman and R.
Yetman. “Expense misreporting in
nonprofit organizations.” The
Accounting Review 81.2
(2006): 399-420
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