State Auditor Leslie W. Merritt Jr. released a scathing report Thursday on the ARISE youth mentoring program, which was created with a grant to the town of East Spencer.

The town gave the grant money directly to the program organized and led by the Rev. Eric A. Henley Sr., executive director of the New Beginning Community Development Center Inc., the umbrella nonprofit for ARISE (At-Risk Intervention of Social Enhancement) Structured Day Program, and pastor of New Beginning Community Christian Church in East Spencer.

Besides saying there was no consistent documentation of students served, state auditors found that the program gave more than $23,000 — mostly in cash payments — to Henley and his wife in addition to Henley's salary as director of the program.

Though Henley told auditors that he and his wife had loaned the money to the program to get it started and were only getting reimbursed, the report states that there is no documentation that any of the Henleys' personal funds were deposited into the ARISE account.

Chris Mears, spokesman for the auditor's office, said Merritt would be mailing copies of the report to the Governor's Office, the State Attorney General's Office, the State Bureau of Investigation and the Rowan County District Attorney's Office.

The state auditor is "required to send it to the appropriate law enforcement authorities if we suspect any illegal activity," he said. "His primary concern is that this review could indicate a widespread problem that could be exploited.

"What he's talking about there is the lack of active monitoring on the part of local government grants."

Anonymous tip

Mears said Merritt's staff conducted a program review of the ARISE Structured Day Program in September 2006 after receiving an anonymous tip that grant funds were being used improperly.

Henley, when contacted by a Post reporter Thursday, denied any fraudulent activity, saying he had provided documentation on all of the areas addressed in the report.

"I don't know why this has come this far," he said. "To me, it's like a witch hunt ..."

Henley said it was his commitment to the mentoring program that made him willing to use his personal funds to get it started. "I just saw that there was such a need for kids to not be on the streets," he said.

Samuel A. Washington, chairman of the ARISE board of directors, said Thursday, "I know beyond a shadow of a doubt that there was no wrongdoing."

In a Nov. 7 letter to State Auditor Merritt, Washington wrote of being aware that Henley would be advancing more than $20,000 of his personal funds to enable the program to operate prior to receipt of the reimbursement grant funds.

Though funding to the ARISE program was suspended in March, Henley said he and a few of the mentors continued working with students on a volunteer basis through June.

Reduce dropout rate

In the end, ARISE received $81,638 of an original grant of $145,000 awarded by the Governor's Crime Commission.

The goals of the grant included reducing the dropout rate for youths between the ages of 10 and 15 in East Spencer, Spencer and Salisbury by 35 percent within five years and tutoring 85 percent of program participants in vocations of their choice — enhancing vocational competencies.

The five findings outlined in the State Auditor's report and the subsequent recommendations are as follows:

1. Town monitoring: "The town of East Spencer is not actively monitoring the state funds sub-granted to New Beginning for the Arise Program."

Even after town officials were made aware of the problems found during the September 2006 program review, the report states they "failed to take a more active role in monitoring the program from that point."

The report recommends that the town, as a direct grantee of state grant funds, be responsible for their proper administration and use. This should include a monitoring program for grant funds with provisions for a review of submitted reimbursements, along with site visits and followup to ensure program goals are being achieved.

2. Not enough youths served: As part of the program review, the State Auditor's Office examined available attendance records for the month of November 2006. The records showed an average of only five youths served per day with seven staff members being paid to operate the program.

Records were not available for all of the days, the report says, and marks on some of the records made it difficult to determine if the clients were present or absent.

Program officials had indicated previously that it had records to support serving 175 clients, the report says, but were unable to produce records to support the number served.

The report states that the East Spencer project manager should require the management of ARISE , along with any other grant program, to keep detailed and accurate records. A database should be established so that monitoring of the program's effectiveness can be evaluated periodically.

3. Inadequate tracking: Though all funds were deposited into a single checking account for the program, the report says ARISE's chart of accounts does not allow the tracking of expenditures by funding source.

The report recommends that the town require the program to design and implement a chart of accounts allowing expenditures to be linked to funding source. This would allow reviewers to determine that they were spent within the terms of the grant contract.

4. Unexplained transactions: A review of bank statements and other financial documentation showed $23,024.08 in payments, including four very large cash withdrawals from the program's checking account, were made without adequate documentation.

Though Henley told auditors the payments were reimbursements to him and his wife for loans to cover start-up expenses prior to receiving the first reimbursement of grant funds, there was no documentation of any loans or mention of board approval of such loans in minutes of meetings.

This "leads us to question these payments," the report says.

The report recommends that ARISE's board of directors thoroughly investigate the loan repayments and

"be more involved with the accountability of all funds, especially any grant funds."

All checks or cash withdrawals should require two signatures, one from an authorized member of the board, the report states, and all transactions to or from any employee, including the program director, should be approved by the board beforehand.

5. Poor cash management: Between August of 2006 and August of 2007, ARISE incurred $1,152 in nonsufficient funds fees due to poor cash management, according to the report. Of those, the report says $672 were incurred during the time period in which Henley and his wife made the cash withdrawals.

The report recommends that the ARISE board take steps to develop an effective cash management plan and ensure that it is followed by employees.

"Further, the board may want to consider requiring the project director to repay the $672 in fees that resulted from the cash withdrawals he made," it says.

Jefferies: 'Concerns'

East Spencer Mayor Erma Jefferies said town officials contacted the Grant Management Section of the Governor's Crime Commission when ARISE officials began rushing them to review the program's accounting records so they could meet payroll.

"I had some concerns that (Henley's) management staff didn't have the knowledge that they needed," Jefferies said. "We talked about that, and I think they made some changes."

The ARISE mentoring program, which targeted students who had been suspended for five days or more, was an excellent idea, the mayor said. "Unfortunately, I think there may have been some mismanagement there."

East Spencer Town Administrator Richard F. Hunter, who responded to Merritt's findings in a Nov. 6 letter, wrote that town officials never agreed to assume responsibility for programmatic monitoring, evaluation or auditing. What they did agree to, he wrote, was to provide financial oversight and monitoring, and that was done.

Hunter said town officials discussed concerns about the program's management with ARISE officials. They also related them to Melvin Williams, grant manager for the Governor's Crime Commission.

"They should have had enough money to cover their payroll and operating expenses from month to month ...," he said, "and they did not appear to be able to do that."

Monitoring issue

Hunter said he had received complaints from more than one ARISE employee about not being paid or being paid late. When he brought the matter up with Henley during a meeting in which Williams was also present, Hunter said they were assured that employees were being paid on time.

The ARISE Structured Day Program "had a lot of promise for a number of young people," he said. "But there were obvious issues with the management capacity of that agency.

"We pointed these out as we went through the grant process."

Mears said the ARISE program review may indicate a need for closer monitoring of state grants. When State Auditor Merritt started working in 2004, Mears said there was an additional part-time person reviewing grants.

"We now have eight full-time employees doing it," he said, "and we still think we need more employees. It is literally a huge task.

"There is so much grant money going to nonprofits that it deserves a hard look by this office to ensure that the money is being spent for the taxpayers' intended purposes."