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Second of four parts
At home, Joseph K. Skariah has driven a $41,280 Acura SUV. On vacation, he has taken cruises in the Caribbean. He has often feasted on shrimp and salmon, made to order extra spicy, at his favorite restaurants.
All of it has been expensed to the state-funded group homes he runs in Baltimore County.
Taking in foster children has been very profitable for Skariah and others connected to his company, Evershine Residential Services Inc., which the state paid $3.8 million in the year ended June 30, 2003, according to an audit the firm submitted to the state.
His $135,275 executive director's salary at Evershine, according to the company's IRS report, far exceeded state guidelines. His wife received an additional $74,813 for what current and former employees called a light-duty job. And the couple collected $32,400 a year renting two houses to the firm.
In addition, Skariah acknowledges using $24,000 in group home funds in 2002 to settle a sexual harassment claim by a former secretary.
Others connected to Evershine and a second Skariah company have also done very well financially. Mathew V. Chacko, whose wife served on the board of the second corporation, has been co-leasing as many as three group homes to the firms, company officials said. He also set up a business that Evershine paid $303,445 from 2001 to 2003 for repairs and maintenance, reports to the IRS show.
An investigation by The Sun found that group home operators can boost their incomes with double-digit raises, buy houses that they then rent to their own corporations, put relatives on the payroll and give friends contracts.
None of it is illegal.
Maryland spends about $157 million annually for 2,700 children, but officials don't generally check how the money is spent or set ceilings on compensation. Good operators who provide high-quality care can be paid less than others who appear to be in the business mostly for the money. And with funding rates reaching as high as $200,000 a year per child, taking care of the abused, neglected, disabled and delinquent can be highly lucrative.
"If you have an opportunity to see how much they are paid per child, you'll understand why so many people are going into this business," said Calvin Street, a retired deputy director of programs at the Department of Human Resources, which licenses most group homes.
Entrepreneurs around the state have found ways to profit handsomely:
Lee L. Sullivan, the $105,179-a-year executive director at Bethany House on the Eastern Shore, had the company pay his $2,200-a-month personal credit card bill, buy a Lincoln Navigator SUV for personal use and pay for a $900 computer for his son, a former bookkeeper testified in court. Bethany's lawyer and the board president disputed the bookkeeper's testimony.
The state shut down Bethany after one resident sodomized a younger one, in what was the latest in a long series of incidents of neglect and abuse, according to an administrative law judge's decision in 2002 approving the closing.
Shilda M. Frost; her husband, Joseph F. Labule; and her sister, Marion G. Hailey, who run Second Family Inc., in Prince George's County, made $316,154 in salaries in 2003 and $108,000 more in rents last year, according to the firm's latest report to the IRS and interviews. Frost did not dispute the figures.
Everlene G. Cunningham, the majority owner of Starflight Enterprises Inc. in Elkridge, and other stockholders lent the company $214,500 at 18 percent to 22 percent interest rates in 2002 and 2003, collected $43,009 in rent over the two years and referred youths to an outpatient mental health clinic that she co-owns, paying it $113,922 in 2003, according to the latest company audit filed with the state. Cunningham declined to comment.
Maryland's inability to hold homes accountable for spending reflects a larger failure of its regulatory system. Licensing and inspection procedures don't keep out bad operators. Hiring and training standards are minimal and loosely enforced.
The state doesn't know whether children with serious needs, including medical disabilities and violent tendencies, receive the services and supervision they require. And in the absence of stricter oversight, children can suffer abuse, neglect and even death without state intervention.
The state has not moved to bar excessive salaries, nepotism and self-dealing at group homes such as Evershine. Policymakers have issued salary guidelines, not rules; officials do not review compensation.
Skariah acknowledges paying the salaries and perks, and expensing costs such as sexual harassment claims - he says his accountant told him it was OK. He says, however, "We take very good care of the kids."
But some former staff and residents describe shortcomings in care, including lack of medical attention, food shortages and assaults by staff.
"To me, Evershine is just a poor place to live," said Antoine Simms, now 18, who lived in an Evershine home in Woodlawn when he was 13 to 15 years old.
Baltimore County police said they were called to Skariah's homes 172 times last year, responding to reports of assaults, fights, property destruction and runaways.
The issues raised by spending at Evershine and other group homes are not new. A gubernatorial task force found four years ago that the state wrote checks without holding operators accountable for their performance. In fact, there were no means to measure performance, the panel said, and "no link between funding and quality of services."
And there's no link today. An interagency committee of state officials that sets group home rates takes into account the number of children and level of care they require -- but not whether the kids actually receive the services.
"We don't audit, we don't monitor and we don't double-check the validity of their information," said Carol Ann Baglin, an assistant state superintendent for special education, whose office provides the staff for the committee.
Baglin said it's up to the Department of Human Resources and other agencies that put children in the homes to monitor how their money is spent.
But the department hasn't been reviewing the financial audits that group homes are required to file each year, the Office of Legislative Audits said last month in a report that covered a two-year-period. The audits are crucial to understanding how homes spend the state's money.
"In addition to identifying overpayments, annual audit reports also indicate whether funds paid to providers were used for allowable program expenditures," said the office, which is an arm of the General Assembly.
Legislative auditors found the same problem in 2001 during the administration of Gov. Parris N. Glendening, reporting that the Department of Human Resources did not "adequately determine whether funds paid to group care providers were appropriately used."
Human Resources Secretary Christopher J. McCabe said most group homes spend appropriately, and he has asked department auditors to review group-home spending reports.
He criticized The Sun for highlighting a few exceptions. "We have some very strong providers in Maryland," the secretary said, referring to group home companies.
"And we do get the value for the dollar that we're spending."
But the department's records show that it knew little about practices at Skariah's homes.
In fact, McCabe praised Evershine when he came to a company Christmas party in December 2003 as the guest of honor.
"I bring you greetings on behalf of Gov. Robert Ehrlich and Lt. Gov. Michael Steele, who recognize the important work you do in helping the state care for Maryland's children and families," said McCabe, according to notes his office provided to The Sun.
"You successfully serve children with very complex needs within a safe and nurturing environment. For five years you have helped our children and led them on a path of success through your dedication, quality service and structured programs."
The Skariah operations
An immigrant from India, Skariah, 52, launched Evershine Residential Services Inc. in 1999, after working for another group home company. Evershine grew quickly from its initial base in Randallstown - as did compensation for Skariah's family.
Most of Skariah's group homes take care of abused and neglected boys, many from Baltimore City. A few also house children and adults who are developmentally disabled.
In 2003, the state agreed to pay Evershine and a second Skariah firm, Shining Star Residential Care Inc., more than $18 million over three years. Evershine currently cares for 40 boys at an annual rate of $104,115 per child, or $285.25 a day.
Until Skariah closed it at the end of last year, Shining Star was paid $65,152, or $178.50 a day, for each of a dozen children. Information on rates was provided by state officials.
Gregory A. Beatty, who was nursing director for Evershine and executive director of Shining Star until departing in December, said the funding was "never enough."
But it was enough to handsomely reward Beatty, Skariah, his wife, Lillykutty Joseph, and other company officials and their spouses.
Skariah's compensation grew from $3,077 in 1999, according to reports his tax-exempt corporation filed with the IRS, to $167,500 in 2002 - double the state guideline for executive directors, $82,805. The next year, he was paid $135,275.
His wife was placed on the payroll in 2002 at a salary of $82,271, and in 2003 she received $74,813.
Skariah and his wife also received rent totaling $2,700 a month on two houses they leased to the business. That's a common practice: Seven of the twelve homes for children run by the firm are owned by company officials, board members or others with ties, who can profit in other ways as well.
Richard Rajarathinam, a former board president, runs a commercial cleaning company, Office Care Inc., that counted the group home firm among its clients. Rajarathinam said that the cleaning company only did one carpet cleaning job for Evershine, that he is no longer board president and that the position was merely titular.
"The board really didn't have any role," he said.
Ramakrishnan Ganesan, a financial consultant to Evershine, was paid $66,850 in 2002, according to the company's report to the IRS. He and his wife, Jhansi Ganesan, rent two homes to the firm for $32,400 a year, the company said. They rented a third home to Shining Star for $1,350 a month until it was closed last November.
Ganesan confirmed leasing the three homes. He also runs his own group home.
John V. Mathew, president of the Evershine board, and his wife rent two group homes to the corporation for $33,000 a year, the company said. They are part owner with Mathew Chacko of another house - one of two Evershine runs for adults - rented to the firm for $16,800 a year.
Mathew and Chacko rent a fourth house for an additional $16,800 a year. Both Mathew and Chacko declined to comment.
Beatty, who was Evershine's $73,754-a-year nursing director and executive director of Shining Star, and his wife, Christy, own a house that they rented to Evershine for $1,350 a month.
He is also owner of a firm, Beatty Nursing and Training Enterprises LLC, that was paid $50,215 last year by Evershine and another $18,240 by Shining Star for nursing services.
These figures were contained in the firms' IRS reports or provided in interviews.
In 2001-2003, while he was on the payroll at Evershine, Beatty was also being paid by the state. He was working 20 hours a week as a nurse at the state's Springfield Hospital Center. His salary there: $25,267.50.
Perks, too, are generous.
In 2002, the firm's administrative staff and their families were treated to a Caribbean cruise from Fort Lauderdale, Fla. Half went on an October cruise, the others in December, according to employees, who said Skariah made both trips.
Skariah has also driven at company expense. His Cadillac Escalade was replaced in 2003 by an Acura SUV owned by Shining Star.
In an interview, Skariah acknowledged expensing both cruises and various perks to his business. He said the company SUV is available for transporting children.
The meals he eats out - at restaurants such as the Rusty Scupper, Cheesecake Factory and Bombay Grill - can be charged to his company, he said, because they're related to business. For the same reason, in 2002 he expensed the $24,000 sexual harassment settlement.
In 2000, Skariah said, he settled a previous sexual harassment allegation with a former secretary for $16,500 out of his own pocket. Afterward, "I asked my accountant how to settle this," Skariah said. "He said, 'Since it's an employer-related issue, settle it in the company.'"
Skariah said he denied the harassment allegations but "didn't want to go through an open contest in the court."
As for his wife, Skariah said in an interview that she fulfills her duties as deputy director, inspecting houses and taking calls. But past and present employees said there's little evidence of that.
"She comes by sometimes," said Dennis Waters, a former residential coordinator who oversaw four Evershine homes until January 2004, when he left because he said the company complained about his work. "I know she's on the payroll, but she doesn't do anything."
Questions about quality
As Skariah's business grew, some employees and youths worried about the quality of care.
There were occasional shortages of food, clothing and supplies, 10 current and former employees and residents said in interviews. Medical care was sometimes haphazard. Fighting among residents was common. Youths and staff used drugs, they said, and sexually assaulted one another.
Antoine Simms, the 18-year-old who lived in an Evershine home for about two years, said he was twice choked by employees and on another occasion, denied prompt medical care for headaches. For two weeks, he said, he couldn't eat properly or do much of anything, except lie on the floor.
"They kept giving me Tylenol after Tylenol after Tylenol, and it wasn't working," he said. But no one took him to the doctor.
Finally, Barbara Jaudon, a counselor acting on her own, took him to Northwest Hospital.
Antoine, who was adopted by Jaudon and now lives with her, also recalled waiting three months to start school one year, outgrowing clothing that was never replaced, and going hungry at times.
Four current and former counselors confirmed details of Antoine's story. Along with others, they concurred with his account of generally poor care at Evershine and its sister firm, Shining Star.
Evershine officials say that Antoine came to the group home legally blind in one eye, that he had two cataract surgeries under their care and that they sent him to the company nurse and his doctor for headaches. They say he never reported staff choking him.
They also say Antoine was enrolled in school within a month's time, had clothing and was a picky eater who sometimes refused to eat.
Lonnie Walker, a former counselor, says the children sometimes took other children's medications. He saw youths eating with their hands at one house that lacked utensils. One child, he says, was growing marijuana in a group home's back yard.
Walker believes Skariah lost the good intentions with which he started: "Now it's about buying houses and putting children in the houses. It's become a numbers game."
Inspectors for the Department of Health and Mental Hygiene found problems like those described by staff. The health department is responsible for inspecting the four Evershine homes it licenses, while the Human Resources Department is responsible for the 10 it licenses.
In inspections in 2003 and 2004, health department inspectors reported that staff gave medication incorrectly, children lacked required plans for care and, in some cases, essential personal supplies.
One boy didn't have soap, deodorant, toothpaste, shampoo and a comb. In his bedroom, "there were no clothes hanging in the closet. His dresser had two pairs of sweat pants, no underwear, no socks, no shirts or undershirts in it," inspectors found last July.
"There were no sheets, pillows, pillow cases, or blankets on the bed, nor was there any type of linen found in the linen closet," the inspectors continued. "There was no lights in the bedroom not even a lamp."
But Skariah says he runs a good operation and fixes problems promptly. On a guided tour with Evershine management, reporters saw three group homes that appeared clean and their residents well-behaved.
In one house, he opened the refrigerator to display the food and drink inside.
But the refrigerator had been stocked only hours earlier, an employee and a former worker said.
At the same time the health department was documenting the disturbing problems with medication and supplies at three homes, the Department of Human Resources should have been inspecting the Evershine properties it licensed.
Grace Turner, who was head of licensing for the agency until her death in February, had responsibility for inspecting Evershine herself during most of 2003 and 2004. She said she eventually turned over responsibilities to another inspector.
Despite repeated requests from The Sun, the department has failed to produce inspection records for those two years or to say whether they exist.
DHR inspectors visited Evershine in February, identifyting concerns from former and current counselors about improper care, lack of staff to cover all shifts and "retaliation for reporting inappropriate behaviors of staff" to management. Evershine has pledged to fix the problems.
Profits from children
It is both easy and legal for group home operators to make money off foster children, even though most of the corporations are classified as nonprofits.
The designation is not warranted, says Calvin Street, the retired deputy of the Department of Human Resources, because these tax-exempt corporations don't invest excess revenues into their stated civic-minded missions.
"Pretty much, it's a business," Street said. The company's revenues pad the salaries of executive directors, he said, "and the money is also being used for retreats and those kinds of things."
That's not illegal in Maryland. Regulators aren't required to look at the personal finances of group home administrators or review group home spending. And the rules don't limit salaries, rents and perks.
The only evidence regulators have concerning how homes actually spend state money is the annual financial audit each operator is required to file.
But the Office of Legislative Audits reported last month that the DHR hadn't looked at any of the 181 audits it received in 2002 and 2003. The DHR had not obtained eight other audits that were due.
Told last October about the unusual expenses at Evershine, Craig G. Adams, the top DHR official overseeing group homes, said that inspectors and auditors should have picked up on them.
But Evershine hadn't filed audits, and it wasn't until The Sun asked to see audits from Evershine and several other group home companies that the department requested them from the firms.
The DHR has another tool that it doesn't routinely use. Nonprofits like Evershine must file annual reports to the IRS to account for their spending.
Had regulators checked in 2003, for example, they would have found significant differences between Evershine's state-approved budget and what it told the IRS it actually spent.
In another case, the department overlooked the personal and corporate financial problems of a couple, Bobby Gene and Joyce Clinton, who run a group home in Columbia. The couple was in bankruptcy proceedings of one kind or another almost continuously from 1994 to June 2001; Joyce Clinton filed for bankruptcy herself in July 2001, then had that case dismissed last December.
Joyce Clinton said her personal finances have improved, and the group home company uses all of its funding to provide services to the children.
"My personal life has nothing to do with my group home. They are two separate entities," she said.
The corporation filed an audit in 2002 in which its accountant declared that the company was suffering such losses that they raised "substantial doubts about its ability to continue as a going concern."
That should have raised questions, Adams said.
The DHR paid the Clintons' company at least a million dollars for fiscal years 1997 to 2001, according to reports to the IRS.
Despite all the gaps in financial accountability, state officials say they don't plan any major changes. DHR Secretary McCabe says that while department auditors should look at group homes' financial statements, inspectors lack the expertise to ferret out improper spending. "Our licensing unit is not necessarily designed to do that," he said.
Diane Coughlin, a health department official, also argues that inspectors lack the skills to police inappropriate spending, even if limits were put on salaries, rent and other non-care items.
"We'd never be able to enforce it," said Coughlin, director of the Developmental Disabilities Administration, a health department unit that has licensed 35 group home companies with 115 facilities.
"But having said that, do we expect people to spend tax dollars wisely? You're darn tootin' we do."