[nfbmi-talk] why transparency is so important

joe harcz Comcast joeharcz at comcast.net
Sat Dec 10 21:39:01 UTC 2011


Goes to the political connections and conflicts of interests here in Michigan too...This is what we don't want...

Joe
Corrupt El Paso charity boss exposed by The Oregonian gets 10 years in federal prison

 

Published: Friday, February 18, 2011, 12:43 PM     Updated: Friday, February 18, 2011, 3:22 PM

The Associated Press

By

The Associated Press

Bob Jones photo.JPG

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Faith Cathcart/The OregonianRobert E. "Bob" Jones

EL PASO, Texas -- The former CEO of an El Paso charity has been sentenced to 10 years in prison and ordered to pay $65 million for embezzling government

funds and corrupting elected officials, federal prosecutors said Thursday.

 

U.S. District Judge Frank Montalvo ordered 65-year-old Robert E. "Bob" Jones to pay the money in restitution to his victims.

 

Jones was a key subject in an

investigative news series

in The Oregonian during 2006, which exposed problems with the government's biggest employment program for Americans with severe disabilities.

 

[See The Oregonian's original story on Bob Jones below.]

 

The judge also sentenced Patrick Woods, 54, a former board member of the now defunct National Center for the Employment of the Disabled, to three years

in prison and ordered him to pay $1.7 million in restitution, according to a statement from the U.S. Justice Department.

 

Montalvo delayed until Tuesday the sentencing of a third NCED officer, Ernesto Alonzo Lopez.

 

The three were arrested by FBI agents in 2008, as part of a public corruption case that also ensnared local public officials.

 

Jones is the former head of the NCED, a clothing company that was once the primary supplier of chemical-warfare suits for the military. It was raided by

federal officials in 2006 as part of a probe of the company's government contracts, which required that at least 75 percent of NCED workers filling government

orders be blind or severely disabled. The company had been awarded contracts totaling about $834 million in the previous decade.

 

Two civil oversight groups — the President's Committee for Purchase from People Who are Blind or Severely Disabled and a Virginia nonprofit that helps administer

government contracts — concluded that only about 7 percent of workers were severely disabled while Jones ran the company.

 

Jones pleaded guilty in 2009. Prosecutors said he admitted lying about the number of blind or severely disabled workers at the El Paso nonprofit to qualify

for no-bid government contracts set aside for people with disabilities.

 

NCED is now known as Ready One Industries.

 

Jones also admitted that between late 1998 and March 2006, he paid cash and other bribes in the form of campaign contributions and gratuities to secure

vendor contracts between Access Healthsource, a subsidiary of NCED, and El Paso County and the El Paso, Ysleta and Socorro Independent School Districts.

 

>From wire and staff reports.

 

Here's The Oregonian's original investigative story about Jones, which ran on March 6, 2006:

 

Texas charity a launchpad for entrepreneur's empire

 

By LES ZAITZ, JEFF KOSSEFF and BRYAN DENSON

 

EL PASO, Texas – Robert E. Jones arrived in this hard-luck border city two decades ago, trailed by a bankrupt business, angry creditors and millions of

dollars in court judgments against him.

 

Today, he oversees a business empire that includes garment factories, downtown office towers and a hospital. The family trust he controls recently claimed

a net worth of more than $40 million.

 

How did he do it?

 

Charity.

 

In just nine years, the nonprofit Jones directs --the National Center for the Employment of the Disabled --has landed $834 million in exclusive federal

contracts, emerging as the Pentagon's primary manufacturer of chemical-warfare suits.

 

Today, $1 in every $10 spent through the federal government's most ambitious program to employ severely disabled workers flows through the charity. Yet

the government repeatedly has found that NCED couldn't document that it met the program's primary mandate -- that severely disabled workers provide three

of every four hours of labor at participating nonprofits.

 

Last week, the U.S. military took the rare step of suspending all orders with the charity until "concerns" about the makeup of its work force are resolved.

 

Over the past decade, Jones has amassed a fortune in a rags-to-riches journey that took him from a messy business failure in Houston to last year's El Paso

"Entrepreneur of the Year" honor.

 

The charity paid his management firm $14 million from 1999 to 2004, according to its tax returns. And it has invested or lent $5 million to for-profit businesses

in which Jones held a significant interest.

 

The story of NCED illustrates many of the shortcomings in the federal Javits-Wagner-O'Day program, which last year set aside $2.25 billion in government

contracts for nonprofits that employ the severely disabled. An investigation by The Oregonian found skyrocketing executive pay in the program at the same

time nonprofits increasingly hire workers with lesser disabilities.

 

Oversight of the program is essentially an honor system that allows charities to go for years without being inspected to see whether they're using the required

amount of severely disabled labor.

 

In NCED's case, the charity repeatedly assured regulators it was in compliance. But one internal record obtained by The Oregonian represents that from 2002

to 2004, fewer than half the workers were disabled. Another document, a quarterly report summarizing hours worked by each employee, shows hundreds of workers

with only "English" listed as a "disadvantage."

 

Regulators independently established last year that the charity was combining "disabled" employees and "disadvantaged" workers, a classification that doesn't

meet the federal labor standard. But that finding came years after questions first arose about its labor documentation. By that time, NCED had built its

annual government business to $276 million.

 

The figure is more than 30 times the sales logged by the 13 Oregon charities in the program.

 

Responding to detailed queries from The Oregonian, the charity issued a two-paragraph statement saying it complied with all relevant government rules. Jones

did not respond to written questions about the nonprofit's labor ratios, charity operations and extensive dealings with his private business interests.

 

In an initial interview last year, the 60-year-old Jones said he's been successful because he's taken a different path than most charity executives. "I'm

a hard-core businessperson, not a born-again do-gooder," Jones said.

 

Federal tax law allows the nation's 820,000 public charities to strike deals with their executives and directors and their for-profit businesses, but only

if fair value is paid for the goods or services.

 

Late last year, the Internal Revenue Service visited the offices of a trade group representing most of the Javits-Wagner-O'Day charities to discuss NCED,

a federal official familiar with the visit said. Jones also has drawn previous IRS scrutiny for dealings with the charity, according to two of the nonprofit's

board members and an e-mail The Oregonian obtained.

 

In 2004, a charity accountant said in the e-mail that two IRS officials told him they were concerned about the "egregiousness" of "acts of self-dealing"

at the charity in 1999 and 2000. The accountant, Richard Speizman of KPMG, wrote that the IRS also questioned a "lack of independent oversight" by the

charity's board.

 

Jones recently paid "a substantial sum" to settle a long-running IRS audit of the charity for those years, according to John Oblinger and Stephen Benson,

members of the charity's board of directors. Neither Jones nor the IRS would disclose the amount.

 

Speizman indicated in the e-mail that the IRS was discussing the charity's tax-exempt status. Losing it would disqualify the charity from its federal contracts.

KPMG officials declined to comment on behalf of the firm and Speizman.

 

Last spring, an anonymous complaint prompted the committee of presidential appointees that oversees the Javits-Wagner-O'Day program to re-examine whether

the charity was using enough severely disabled workers. In an e-mail obtained by The Oregonian, the program's executive director fretted that he didn't

need a "scandal" involving the program's largest contractor.

 

Nonetheless, the committee ordered a comprehensive investigation of the nonprofit's work force and has summoned charity officials to a hearing Thursday

to answer questions.

 

Back in El Paso, Jones remains a commanding figure, lauded for his work with the disabled. He has cemented that stature with a wide array of charitable

donations, giving to the YMCA, public schools and other causes. The nonprofit is one of the city's largest employers, listing 4,000 employees.

 

Jones speaks frequently of his passion for charity. "Doing the right thing has been a wonderful godsend for the community," he told The Oregonian. "But

it's mirrored back to us and magnetized back to us as being a white knight as a corporate citizen."

 

Starting over in El Paso

 

Little in Jones' past predicts this emergence as a charity operator and big federal contractor.

 

The burly 6-foot-4 Texan got a start in business as an electrical contractor in Houston. Stacey Inc., a company he founded, grew rapidly, then went bankrupt

in 1980, eventually saddling Jones with $3.9 million in court judgments from creditors. Court records show only one judgment, for $35,375, was ever paid.

 

The U.S. Labor Department in 1983 sued Jones, accusing him of "repeatedly" using the Stacey employees' profit-sharing plan as his "personal banking account."

He agreed two years later to pay the federal government $506,680 to settle the case; court records do not show the sum was paid, and the Labor Department

says it no longer has records relating to the judgment.

 

Jones made a fresh start in El Paso, where he managed a business park and involved himself in downtown development. In 1995, the owner of the business park,

Evern Wall, asked him to look over operations at a struggling charity.

 

The National Center for the Employment of the Disabled was in bankruptcy. Its major contract, making cardboard boxes for the General Services Administration,

could not support its work force of 50 people.

 

Jones saw promise in the nonprofit and said he would try to save it -- but not on a salary.

 

Instead, he struck a deal that gave him a personal stake in its success, with the nonprofit paying an annual management fee to a firm owned by the Jones

Family Trust. The beneficiaries of that trust are his children, Jones testified in a civil suit. He said he administers the trust with his sister and brother-in-law.

 

The management fee initially was set at 1 percent of the charity's revenue, plus $5,000 a month. The deal later was doubled to 2 percent of revenues plus

5 percent of each year's increase in net assets, an arrangement that proved lucrative as the charity began buying factories and for-profit businesses.

 

The formula has worked well for Jones.

 

JFT Management was paid $294,300 in 1997. By 2003 and 2004, it was earning more than $4 million annually, or about $75,000 a week.

 

Jones told The Oregonian his personal tax return shows he takes home about $500,000 a year for all his business ventures. The majority of the management

fees, he said, are invested in "socially correct" enterprises in health care and education.

 

Jones said he approached the work with trepidation when he took over the nonprofit in 1995. "My great dread was, God, working with disabled people, what's

this going to be like?" he said. "I wasn't a very good or caring person in those areas."

 

The factory was dismal, he recalled. "My first mission was just cleaning the place up," Jones said. "It was filthy. . . . The idea of the company surviving

was one in one thousand."

 

Jones brought in new directors for NCED's board, including his brother-in-law, and pulled the nonprofit out of debt by pressing suppliers to discount outstanding

bills and winning new contracts to make boxes.

 

A break came in 1997, when the biggest trade group that helps run the Javits-Wagner-O'Day program offered the El Paso charity the chance to sew chemical-warfare

suits. The operation owned only a few ancient sewing machines, but after Jones won a $9 million contract to make suits for the Marine Corps, he cobbled

together the needed equipment and factory space, according to Jones and the nonprofit's board minutes.

 

By 2000, the charity held $37 million in government contracts --a dramatic turnaround for a nonprofit that just five years earlier had earned less than

$3 million in revenue. But that was just the start.

 

An opportune juncture

 

Jones had stepped into exactly the right business at exactly the right moment. The 1995 nerve gas attack on the Tokyo subways put the issue of preparedness

on the front burner at the Clinton White House. Inside the Pentagon, worries grew about the military's ability to cope with chemical, biological and nuclear

attacks.

 

Chemical-protective suits are sewn from a permeable fabric lined with carbon beads. Making them is exacting work. Because exposure to even minute amounts

of nerve agent can be fatal, military contracting officers keep a close eye on the quality. Jones said the quality demanded is "twice that required by

commercial products."

 

The suits, which cost an average $241, also offer an attractive business opportunity. Because the protective fabric degrades quickly, they must be replaced

within six weeks once used.

 

Jones' foray into chemical-suit manufacturing made economic sense. El Paso's unemployment rate had topped 11 percent, double the national rate. The city,

once a mainstay in U.S. textile manufacturing, was awash in skilled workers who lost jobs as the garment industry moved overseas.

 

Hiring those workers could make the nonprofit immediately competitive. But rules of the Javits-Wagner-O'Day program required that three-quarters of the

work be performed by blind or severely disabled people.

 

Jones told The Oregonian that up to 20 percent of El Paso's laid-off workers had severe disabilities.

 

A local official whose agency helped him with recruiting said the call went out for sewing machine operators who faced "barriers." Martin Aguirre, the former

chief executive of the Upper Rio Grande Workforce Development Board, said the "barriers" did not have to be physical disabilities.

 

Charity officials told Aguirre's agency it was sufficient to be "economically disadvantaged" and struggling with language or literacy, he said.

 

Jones said the jobs paid an average of about $9 an hour, including benefits.

 

>From 1997 to 2005, a period in which the nonprofit's sales under the program totaled $834 million, Jones signed annual reports required by the government

declaring that severely disabled workers were providing at least 75 percent and as much as 97 percent of the labor. But an internal document obtained by

The Oregonian states that a top charity executive informed Jones that less than half the work force was disabled during three of the years.

 

The document, a 2004 handwritten note to Jones from Ernie Lopez, the nonprofit's chief operating officer, summarized NCED's labor history in the years 2002,

2003 and 2004. "Bob, these are the ratio numbers that I was telling you about on the phone," the note says.

 

According to the note, the nonprofit's percentage of disabled workers was falling, from 44 percent in 2002 to only 38 percent in the spring of 2004. The

note counted "disadvantaged" workers -- 33 percent in 2002 rising to 38 percent by April 2004 -- to reach totals slightly above 75 percent each year.

 

A quarterly employment report from 2002, also obtained by The Oregonian, included 345 workers whose only disadvantage was designated as "English."

 

Nearly 80 percent of the hours listed in the report are logged as "disabled/disadvantaged." Excluding those with only an "English" disadvantage, however,

drops the figure to 43 percent.Jones, Lopez and the charity's board declined to answer questions about the report or other internal documents.

 

Oversight and assistance

 

The chemical-warfare suits have provided a steady revenue stream for the charity. Before orders were suspended last week, the nonprofit was making 70 percent

of the military's suits, according to the Defense Supply Center in Philadelphia.

 

It took years for questions about the makeup of NCED's work force to slow that buildup of business.

 

In an unusual arrangement for the federal government, the Javits-Wagner-O'Day program is overseen by a small federal agency that disburses contracts and

enforces rules. The committee, in turn, delegates some duties to two nonprofit trade groups representing charities. The biggest, known as NISH, represents

the bulk of the 627 charities in the program.

 

Both the oversight committee, with 29 employees, and NISH have said their primary focus is on helping charities stay in the program rather than sanctioning

them. Robert Chamberlin, the chief executive officer of NISH, said the trade group's staffers work to "assist" contractors in following the law.

 

Even so, a charity can lose its federal contracts unless three-quarters of its labor is performed by people with severe disabilities such as mental retardation

or partial paralysis. Regulators say lack of English fluency isn't a severe disability. Nor can charities count "disadvantaged" workers to reach the 75

percent ratio, regulators say.

 

"If they don't qualify as severely disabled, they shouldn't be counted," said Steve Schwalb, chairman of the federal oversight panel, which carries the

unwieldy name of Committee for Purchase From People Who Are Blind or Severely Disabled.

 

Both the committee and NISH have examined the El Paso charity's disability ratios.

 

In February 1999, a NISH inspector visited NCED and found inadequate paperwork to prove workers' disabilities. "Individuals without the required medical

documentation must be considered non-disabled," Victor J. Dennis, a NISH official, warned Jones in a follow-up letter that summer.

 

Later that year, someone purporting to be an employee sent an anonymous letter to regulators alleging misconduct at the nonprofit. Among other things, the

letter asserted that workers were being sent to company-approved doctors "so we can keep our percentage of disabled workers high."

 

Following up that July, a committee compliance officer, Lou Bartalot, wrote in a memo that allegations in the anonymous letter ought to be taken seriously,

partly because Jones is a "fast-talking, wheeler-dealer type of businessman." But Bartalot said the mix of allegations in the letter made the case daunting.

 

"Neither NISH or the committee staff has the expertise necessary to really investigate this type of claim," he wrote.

 

Nonetheless, Bartalot and another committee official went to El Paso and also found documentation problems. Jones responded that his charity was shoring

up its files and putting workers through a new round of physicals. "We have gone to great lengths, and spared no expense in complying," Jones wrote in

one letter to the committee. "There is no doubt that the reported percentage of disabled in our direct labor force is accurate."

 

Less than a year passed before another review turned up "serious deficiencies in the medical documentation," according to a report by Peter Brandom, a program

analyst with the federal committee. Some workers recorded as having severe visual impairment wore glasses or contacts that gave them 20/15 vision -- better

than normal. Workers aren't severely disabled, Brandom wrote, unless vision in the best-corrected eye is 20/200 or worse.

 

Some documentation indicated "the individual has no disability," Brandom added. Still other medical records provided no proof that the condition, such as

high blood pressure, was severe enough to qualify under the program.

 

Once again, the charity promised to make changes.

 

It appointed an El Paso doctor to make sure medical documentation was adequate, and it hired a local health care company to maintain files and make sure

they reflect "full compliance."

 

Regulators next returned to El Paso in 2002, when a NISH inspector reviewed 20 of 959 worker files and concluded the charity was complying with the rules.

It wasn't until three years later --a period in which the nonprofit's government contracts doubled -- that a second anonymous letter triggered more rigorous

attention.

 

The complaint last spring alleged that only a fraction of the nonprofit's work force was disabled and asserted that doctors working at two clinics linked

to the charity were providing documentation for their disabilities. The new letter prompted the committee's executive director, Leon Wilson Jr., to order

a review.

 

Though skeptical of the allegations, Wilson sent a June 13, 2005, e-mail to Schwalb saying, "We don't need a scandal," with the program's largest contractor.

 

Committee officials visited El Paso and found an internal document indicating that only 39 percent of the nonprofit's labor came from severely disabled

workers. Regulators said they didn't think the nonprofit was "trying to hide anything" but noted "problems" with counting "disadvantaged" workers as severely

disabled.

 

More recently, a committee spokeswoman said NCED in fact had lumped the two categories together. After another visit in December, the committee confirmed

that the charity's ratio of disabled labor could not be higher than 60 percent and that its 2005 filings with NISH "might not be accurate."

 

"This question of accuracy is no minor problem," Wilson wrote in a January letter to NISH ordering a complete review of the charity's files.

 

Officials conducted the review and in mid-February notified the Defense Supply Center in Philadelphia, which manages military contracts with NCED, that

the El Paso charity "may be non-compliant" with federal labor requirements. Last week, the center suspended further orders to the charity until the committee

settles the issue.

 

Diana Stewart, a Defense Supply Center spokeswoman, said Friday that officials at the supply center couldn't recall another instance when orders to a nonprofit

were suspended. The decision immediately affected a new order for chemical-warfare suits, she said. Details of that contract were not available.

 

Marc Schwartz, an NCED spokesman, said late Friday that the charity had not been informed of the military's action.

 

Other business ventures

 

In 2003, a gleaming boutique hospital opened its doors on El Paso's east side. With its state-of-the-art equipment, Physicians Hospital was poised to claim

its share of the local health care business.

 

Among its major financial backers was the National Center for the Employment of the Disabled, which lent the venture more than $2 million and bought $3

million in stock, records show. The hospital lost money in 2004, its first full year. But if it eventually prospers, the El Paso charity would reap the

benefits.

 

So would Jones.

 

The deal is one of several in which Jones the charity leader helped Jones the businessman.

 

Records show that Jones Family Trust is a shareholder in the for-profit hospital, and that Jones serves as chairman of the hospital's board. Tax returns

for the charity say Jones and two other directors have "control" of Physicians Hospital.

 

Federal tax law allows charities to do business with directors, officers and other insiders so long as they don't unfairly benefit. The IRS advises charities

to negotiate such deals openly and at a fair value.

 

Some states have tougher laws. In Texas, charities also are prohibited from making loans to directors, and loans to businesses controlled by a director

are restricted, the state attorney general's office says.

 

Internal records and tax returns show that NCED repeatedly has lent money to the Jones Family Trust or its related management company since 1997. On Oct.

9, 2003, Jones signed a $1.5 million check from the nonprofit to his management company dated with the handwritten notation that the money was a loan against

future management fees. Jones is a director as well as president of the charity.

 

The nonprofit's 2004 tax return, the most recent available, reported that the Jones Family Trust owed the charity $2.5 million.

 

Other records show the nonprofit has financially supported an El Paso air-charter business in which Jones holds an interest.

 

Federal records show that the nonprofit helped ATI Jet Sales LLC buy two new Learjets. Lyle Byrum, ATI's manager, said the company used a $1 million certificate

of deposit owned by the charity as collateral for the loan that financed the purchase of the two jets.

 

Records show the Jones Family Trust lent the company an additional $591,000 to help buy the jets, and Byrum said the trust was a "business partner" in the

venture.

 

The charity also bought seats from the charter company. In 2004, it advanced ATI $200,000 for "prepaid airfare" and a "retainer for flight services."

 

Byrum said the charity's executives have used the jets to travel around the United States. "NCED got a good deal," Byrum said. The charity got a top-notch

charter company, one of the safest in the business, at a good rate, he said.

 

Under Jones' leadership, the charity also struck several land deals with Jones or his family trust. Unlike many states, Texas does not require reporting

of purchase prices in public records, so it is difficult to trace the value of specific transactions.

 

In 1998, the nonprofit bought a condominium next to a horse track in the mountain resort town of Ruidoso, N.M. The same day, Jones signed the deed transferring

the property to the Jones Family Trust. Records do not show what the trust paid for the condo.

 

That same year, Jones negotiated to buy a sportswear company and building in El Paso for his charity. Under the deal, the two men selling the building passed

$266,666 of the $1 million they received from the nonprofit to two Jones-related entities, New Sahara Inc. and the Jones Family Trust. The arrangement

was described in escrow documents provided by one of the sellers.

 

Board records show that NCED's directors approved the acquisition. It is not clear whether the board was aware of the payments to New Sahara and the trust;

board members declined to answer questions about the transaction.

 

Two of the nonprofit's board members told The Oregonian that they were unaware that Jones' businesses had borrowed money from the charity. Despite the fact

that tax returns are publicly available, the two said the board never had been shown the returns.

 

"NCED has never made any loans to Bob Jones," said Benson, a New Mexico business consultant who has been on the board since 1997.

 

Oblinger, a retired Army general named to the board four years ago, said he believed the arrangements were the other way around -- that Jones was lending

money to the nonprofit.

 

The charity's financial records show that Oblinger has a point. In several years, tax returns list unpaid fees to Jones' management company as loans to

the nonprofit.

 

How much Jones has earned from his various charity-supported business deals is hard to determine.

 

But in 2004, as part of a land deal with the El Paso schools, he allowed local officials to examine a financial statement, which they said showed a net

worth of $40 million for the Jones Family Trust, then 12 years old. Margaret Gallardo, a school district spokeswoman, said Jones reclaimed all copies.

 

Nominating itself for a national award several years ago, the charity offered its own appraisal of Jones' success. "A bear of a man," the charity called

him, "steeped in tough management practices."

 

Photographer Faith Cathcart and news researchers Kathleen Blythe and Margie Guthry contributed to this report.

 

 

http://www.oregonlive.com/portland/index.ssf/2011/02/corrupt_el_paso_charity_boss_e.html



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