WRAL Investigates

Tax troubles force mental health group to close

Posted July 28, 2010
Updated July 30, 2010

— The same tax issues that scuttled a state position for the former director of the Mental Health Association in North Carolina have now forced the organization to shut its doors.

Christie Foppiano, interim executive director of the Mental Health Association, issued a statement late Friday saying that the organization couldn't continue to operate because of its shaky finances.

Association officials tried unsuccessfully in recent days to negotiate new lines of credit to continue operating, said John McKee of Lumberton, chairman of the organization's board of directors.

"We're struggling right now real bad. We're in trouble," he said Wednesday.

Even without the bank loans, the Mental Health Association would have been limited to an advocacy role.

The Council on Quality Leadership, a national organization that evaluates human services groups, withdrew its accreditation of the Mental Health Association this week, according to Leza Wainwright, director of the state Division of Mental Health, Developmental Disabilities and Substance Abuse Services.

The loss of accreditation meant that the Mental Health Association could no longer provide services that are covered by Medicaid, Wainwright said.

She said she is confident that other providers will fill the gaps in service left by the Mental Health Association, and Foppiano said in her statement that the group has been working with agencies like The Arc of North Carolina and Easter Seals in recent weeks to transfer its management of services.

The Mental Health Association bills itself as the oldest and largest nonprofit in the state that serves people with mental illness. It has 27 affiliates statewide that provide resources for consumers and professionals in the treatment and prevention of mental illness, according to its website.

Almost $1.5 million in federal tax liens have been filed against the organization in recent years for failure to pay employee withholding taxes. More than $617,000 of the total was assessed in May.

Neither the IRS nor the state Department of Revenue could say if any of that money has since been paid, but John Tote, former Mental Health Association executive director, has said the back taxes had been paid up to 2009.

In May, the tax problems forced Tote to withdraw his name from consideration to succeed Wainwright when she retires on Sept. 1.

Mental Health Association officials said they never tried to hide their tax troubles, noting that they went to the IRS to report the non-payment of employment taxes.

They blamed their financial troubles on state budget cuts and delays in being reimbursed by the state for mental health services. Reimbursements sometimes take up to six months, they said.

At its height, the Mental Health Association had 550 employees and a $26 million annual budget, but state budget cuts in the past two years forced the organization to slash staff and spending.


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  • pamslaff Jul 30, 2010

    Mental Health is always a money losing business. Nobody wants to do that work. It is tough work, dealing day-in/day-out with people who want to hurt themselves or others (including the care giver). Corruption and greed will always pray on the weak. It is shameful, at a time like this, that people can stoop so low as to steal from the sickest of people on this earth. Mental disorders are devastating to all those who care for one with a mental health disease. Compassion and good proficient care is essential to succeed in MH. Hiring your buddy or friend's friend makes for poor business practice anywhere

  • snickers27588 Jul 30, 2010

    The sad thing is, most of the supposed help for the people with mental issues is all hype and very little backing it up. Watch the correlation between the decline in the money spent for mental health and the increase in money needed for law enforcement and the means to control them after the fact. It will end up costing more, it always does.

  • colliedave Jul 30, 2010

    Looks as if a number of caring individuals tried to provide a service but didn't have the understanding the service needed to be run as a business. In essence, there can be no such thing as a profit b/c revenue must always exceed expeenses of the entity will soon go under. In the "good" times money must always be put aside to see through the lean years that will always come. The entity must always be open on how it conducts business and file needed documents.

  • mulecitybabe Jul 30, 2010

    The News and Observer has a much more comprehensive article on this, if anyone is interested. Apparently, John Tote was withholding financial information from the board of directors. This was the man who was almost appointed to lead NC's mental health division. I certainly hope the IRS gives this man the appropriate scrutiny he so richly deserves.

  • beachboater Jul 30, 2010

    "Every business should simply switch to 1099 employees. Put it on the employees to pay the taxes. Perhaps then people will understand just how much the Government is stealing from them."

    Employees receive W-2 forms. Independent contractors receive 1099's. An employee is an employee is an employee. If the employer controls the person, tells them what to do, how to do it, furnishes the tools needed to do the job, they are an employee.

    An employer can get into quite a bit of trouble with the IRS trying to call employees contractors.

  • lmoore Jul 30, 2010

    I think the mental health services given are bull anyway, along with the state government and the us government its a gog eat dog world out there. No one can help these people unless money is provided. And they are special people..

  • beachboater Jul 30, 2010

    "The IRS might also be going after the employees since they may have claimed the withholding on their tax return, but it was never actually paid in - the employee is still liable for the total amount of tax due." Garnerwolf1

    You need to check your information source. You are correct that these are trust fund taxes, withheld from the employee. But, the fiduciary duty for payment lays with the employer.

    The employee does get credit for taxes withheld by the employer. The employer as an entity, and the person responsible for the payment individually are liable for payment of the taxes. There is at least one individual, if not more, that are probably sweating. The IRS will assess them individually.

  • whatelseisnew Jul 30, 2010

    Every business should simply switch to 1099 employees. Put it on the employees to pay the taxes. Perhaps then people will understand just how much the Government is stealing from them.

  • Wheelman Jul 30, 2010

    I run a business and you can't blame this on cut backs etc. These tax payments are due every month with quarterly filing as well. You have to knowingly decide not to pay it. There is no oversite or "Oops I forgot" involved. The regular employees would not have known that their withheld taxes were not being paid and in fact being spent on other things. This is intent to defraud when it happens this often. If the board knew about this and did nothing to immediately correct it, then they are complicit in the actions as well.

  • larieke Jul 30, 2010

    Hmmm...$26 million to serve about 600 people with 550 employees. I wonder how many other government supported organizations in North Carolina can be shut down without even a ripple in client support?