Recently, National Pain Report ran a story regarding the “financial irregularities involving the former CEO of U.S. Pain Foundation” that were discovered during an internal audit.
In an effort to be proactive and transparent as they “correct the issues,” U.S. Pain Foundation sent the following email which outlines the scope of the former CEO’s misappropriation of funds, as well as the response and ongoing efforts being undertaken by US. Pain Foundation to correct and stay the course in 2019.
The following email was received January 3rd, 2019:
U.S. PAIN FOUNDATION DOCUMENTS MISUSE OF FUNDS BY FORMER CEO IN FILED 990 FORMS FOR 2016 & 2017
MIDDLETOWN, CT, Jan. 3, 2019 – The U.S. Pain Foundation has filed and publicly shared its 2016 and 2017 Form 990 Information Returns. The Returns show misappropriation of U.S. Pain’s funds by the founder and former CEO, totaling almost $1.9 million over the course of three years, from 2015 to 2017.
The 990 Returns show excess benefit transactions attributable to the former CEO’s misuse of funds for the following years:
2015 – $403,901
2016 – $693,557
2017 – $791,900
Additional excess benefit transactions will be reported on the 2018 990 Return for the period of 2018 prior to the former CEO’s suspension. This 990 Return is due May 15, 2019.
Under the Internal Revenue Code, an excess benefit transaction occurs when an economic benefit provided by a tax-exempt organization to a person in a position to exercise influence over the organization exceeds the economic value received by the organization. “While the former CEO did not take a salary prior to 2017, he took funds that exceeded the value of his services, for unauthorized purposes and in improper ways,” according to a statement by the U.S. Pain Board of Directors posted on their website today.
Discovery of Misuse of Funds
The misuse of funds first came to the attention of the Board of Directors on April 23, 2018, when U.S. Pain’s attorney informed several members of its Board that the interim Chief Financial Officer had discovered probable misappropriation of funds by the former CEO. At a special meeting on April 26, 2018, the Board suspended the former CEO and retained another law firm experienced in such matters to conduct an investigation.
After receiving the report from this law firm and its forensic accountant that confirmed the misappropriation of funds, the Board demanded the former CEO’s resignation on May 25, 2018. The former CEO resigned on May 29, 2018, and the misuse of funds was reported to federal authorities on June 1, 2018. Through counsel, the organization has fully cooperated with authorities and is also working with counsel to obtain restitution.
New Financial Controls
In the statement the Board says they are, “…especially appalled that the founder and former CEO diverted funding intended to support the pain community.” It goes on to say, “The former CEO was widely respected and beloved in the pain community, and took advantage of that trust in him. He was able to do this by both withholding key information and providing dishonest information that deceived staff and volunteers in leadership positions.”
“The Board of Directors recognizes that the organization should have had stronger financial controls in place and has instituted a robust system of checks and balances,” the statement continues. The statement outlines those new financial controls:
- The Board established detailed requirements for the reimbursement of expenses
- Both the interim Chief Financial Officer and Chairman of the Board must approve all disbursements
- The Board and the interim Chief Financial Officer instituted separation of duties and internal controls surrounding all banking transactions
- The Board receives cash flow reports and financial statements on a regular basis.
According to the Board’s statement, “With these checks and balances in place, the organization is stronger than ever before.”
The organization was founded in 2006 by the former CEO, and until late April 2018, he controlled the organization’s operations, finances, records and bank accounts, as well as the Board process. His mismanagement and dishonesty left the records in disarray. Under the former CEO’s management, the 2015 990 Return was filed 11 months late (after extensions), and at the time of his departure, the 2016 990 Return was five months late (after extensions) and far from ready to file.
To correct these issues, under the direction of the Board, the interim Chief Financial Officer undertook a challenging and lengthy process that involved: conducting a review of the 2015 990 Return and the associated financial reports prepared by a former accounting firm; retrieving the 2016 records from a former accounting firm and organizing those records; creating financial statements that meet customary standards for both 2016 and 2017; controlling current disbursements; maintaining accurate records for 2018 and implementing the critical controls adopted by the Board of Directors outlined above.
While the interim Chief Financial Officer worked with the Board to collect, review and organize financial records, the Board also hired a new independent tax accounting firm to prepare the 2016 and 2017 990 Returns. On December 22, 2018, both the 2016 and 2017 Form 990 Returns were mailed to the IRS.
In just eight months since the Board of Directors removed the former CEO and assumed leadership of U.S. Pain, the organization has:
- Produced three years of professionally prepared unaudited financial statements that meet customary standards
- Filed two years of back-990s with the IRS
- Begun the process of retaining an independent accounting firm to prepare the 2018 990 and is preparing for a full audit for 2018.
The misappropriated funds are reported on the 2016 and 2017 990 Returns (Part VII, Section A, Column F) as “Other Compensation” and on Schedule L of the 990 as “Excess Benefit Transactions.” The 2015 Form 990 prepared under the former CEO’s direction did not report the $403,901 misappropriated in 2015 as excess benefit transactions. Therefore, the funds originally reported on the 2015 990 Return as “Reportable Compensation” have been reclassified on the 2016 Form 990 as an excess benefit transaction.
“U.S. Pain continues to work with law-enforcement authorities to resolve this matter and is also working with the Connecticut Department of Consumer Protection to renew its charitable solicitation registration, which expired on December 1, 2018, as soon as possible,” according to the statement.
2018 Accomplishments and Plans for 2019
“Despite the misuse of funds by the former CEO, the organization’s dedicated staff and volunteers ensured 2018 was its most successful year of programs and services,” notes the statement, which points to some of U.S. Pain’s 2018 activities:
- Producing four editions of the INvisible Project magazine, which tells the courageous stories of people with pain to help improve disease understanding
- Hosting two support group leader trainings and growing support groups nationally
- Celebrating the appointment of two staff members to federal committees
- Producing 12 educational webinars
- Organizing our most robust Pain Awareness Month campaign to date
- Hosting two daylong educational events and two state advocacy days
- Holding our first-ever pediatric pain retreat for children and families.
The statement concludes: “U.S. Pain fills a vital gap in support for the pain community and refuses to let the actions of one individual impede its efforts to educate, connect, empower, and advocate for those living with chronic pain. The organization is poised for a 2019 that will include even more services and events and looks forward to continuing to offer help and hope to individuals with pain for years to come.”
About U.S. Pain Foundation
The mission of the U.S. Pain Foundation is to empower, educate, connect, and advocate for individuals living with chronic illness that causes pain, as well as their caregivers and clinicians.
Through our multiple programs and services, it works to enhance the quality of life for people with pain, improve patient outcomes, address access and affordability issues, and increase public awareness and empathy for the issue of pain. The U.S. Pain Foundation is a nonprofit organization, tax exempt under Section 501(c)(3) of the Internal Revenue Code.