County auditors looking into one of Los Angeles' biggest foster care agencies in 2003 uncovered $445,000 in ineligible or unsupported spending.
Auditors found $234,000 in wages with no supporting documents to verify the hours worked, up to $29,000 in unsupported vehicle expenses and $47,000 that the agency paid to purchase one building and lease another from its top executives, according to the audit report.
The county Department of Children and Family Services demanded that the private agency, Homes of Hope, return $440,000.
Five years later, the county agreed to settle the matter for $36,000, to be paid in installments without interest. Homes of Hope is still paying off the debt today — at $600 per month.
"I can't explain it," said Philip Browning, who took over as director of Children and Family Services two years ago. "I would have asked for more information before making the decision to give up on all that money."
Homes of Hope is emblematic of the decades-long failure to adequately monitor California's $400-million-a-year private foster care industry.
The agency, which receives about $3.6 million a year to care for neglected children, has become the focus of a renewed government effort to impose stricter controls on private groups that recruit and supervise foster families.
Sukhwinder "Suki" Singh, the agency's founder and executive director, said in a brief interview: "We work very, very hard to provide care and supervision to our children." She declined to comment further.
California began an experiment nearly 27 years ago that took a portion of foster care away from county bureaucrats and placed it in the hands of private agencies that legislators believed would be cheaper, more efficient and better for children who found their way into the system.
In Los Angeles County, the 46 foster family charities typically undergo financial audits once a decade.
Of more than $11 million in inappropriate expenditures identified by auditors at foster care charities from 2000 to 2010, only about one-tenth has been recovered, county records show. And no effort has been made to get back millions more potentially owed the state, according to other county records and interviews.
"We have not done nearly as well as we need to be doing," Browning said.
Auditors found that one agency, Teens Happy Homes in Los Angeles, spent liberally on cigarettes and beer — 30 cases in one instance. At another Los Angeles County contractor, America Care, taxpayer dollars were spent on alcohol, clothing from Nordstrom, tobacco, jewelry boxes, fine china, perfume and a martini set, according to county auditors.
The two agencies, which are no longer caring for foster children, later reimbursed the county for some of the expenses but never reached an agreement on all the expenses flagged by auditors.
Salaries at some charities are high as well. ChildNet Youth & Family Services' former Chief Executive Robert Di Stefano, for example, received a compensation package worth $522,000 in 2010, according to the agency's tax returns.
The agency said in a statement that a compensation survey had been used to ensure Di Stefano's compensation was at "market level" and sufficient to attract "the highest-quality executive talent."
Singh, of Homes of Hope, opened her first foster care agency in 1994 — then another and another.
By 2009, Singh was working full time as chief executive of Homes of Hope in West Covina and Interim Care in Rancho Cucamonga. She also worked a third full-time job that year as board president of Specialized Care in Rancho Cucamonga, according to the agencies' tax returns.
Between 2008 and 2011, 2,300 children lived in foster homes supervised by the agencies, according to state records.
In their federal tax returns for 2009, the agencies reported that Singh worked a total of 120 hours a week at the three nonprofit corporations, receiving $311,000 in pay. In 2012 she collected $195,000, working 80 hours a week at two agencies, according to tax returns.
She also charged almost $1.8 million in rent from 2007 to 2011 for properties she owned and leased back to her foster care agencies, according to financial statements filed with the state.
"On the face of it, this does not appear to be the best use of funds," said Armand Montiel, spokesman for the Department of Children and Family Services.
The privatization of foster care poured hundreds of millions of dollars into a system that had been dominated by government-run facilities. The private system now cares for over 80% of foster children placed with strangers in Los Angeles County.
The state pays the private agencies about $2,000 per child each month. As much as 60% of that money can be retained by the agency to pay for rent, supplies and salaries for administrators and social workers, who make weekly visits to foster homes to ensure children are properly cared for.
The more children the charities place in homes, the more income.
Monitoring the finances of the 46 private foster care agencies in Los Angeles County is the responsibility of the auditor controller. Five staff members are assigned to the task.
Robert Fellmeth, director of the Children's Advocacy Institute at the University of San Diego School of Law, said: "When there are incentives to gather large numbers of foster homes without contributing very much to the kids' care, you need to check properly. Are they doing it? No."
Questions about Homes of Hope's finances date to a county audit of the group's 2000-2001 expenditures.
Auditors identified $445,000 in unsupported spending, including a $28,750 full-time salary paid to a relative of Singh's who was employed elsewhere. The agency's lawyer told auditors that the relative worked nights and weekends at Homes of Hope.
In a rebuttal letter, Homes of Hope also said the supporting records for his hours and those of other employees were destroyed in an accidental fire. The agency declined the county's request to provide signed declarations with the employees' names, titles and typical hours.
Auditors also learned that Singh and her then-husband were landlords at three Homes of Hope locations. At one, the charity was charged for more space than it was using, resulting in more than $14,000 in unallowable payments, the auditors concluded.
Homes of Hope also failed to obtain required county approval in 2001 when it purchased residential property for $238,000 from Singh and her husband for a group home, the auditors reported. Singh had purchased the property in 1997 for $135,000.
In her rebuttal letter, Singh said she was unaware that prior approval was required, and she argued that the purchase price reflected the fair market value.
In 2003, auditors forwarded their findings to the Department of Children and Family Services, recommending that it get the money back.
After initial letters were sent to Homes of Hope, four years passed without any written communication, according to county files.
In 2009, six years after the audit, new fiscal workers took charge of the case and the county dropped its claims in return for a $36,000 settlement without obtaining the requested documentation to support the expenditures detailed by auditors.
"From everything I've seen, I don't believe we handled this very well," Browning said.
Amid Homes of Hope's financial troubles, state and county officials cited the agency for varied deficiencies.
State regulators found that an adult male had been convicted of sexually abusing a foster child in her foster home. They also said that a foster father made sexual advances to with a foster child and had been certified despite similar allegations at another agency.
In recent years, some of its foster homes lacked hot water, according to state licensing records. Others had no food in the refrigerator and cabinets. One had a bathroom with a crumbling tub and a sink with no faucet handles, according to state records of substantiated licensing violations.
In 2008, a baby living with a Homes of Hope foster mother was taken to the hospital and was placed on life support. Doctors believed the baby suffered from shaken baby syndrome, and the foster mother was later banned from foster care for life for the "nonaccidental injury," according to state licensing records and county correspondence.
Homes of Hope was cited for poor screening that allowed the woman to become the foster parent of five children under the age of 5 when she was already running a day-care center.
In a written response, Singh said her social worker had properly monitored the home and the incident was unforeseen.
State auditors also examined the 2009 finances of San Bernardino County-based Interim Care, where Singh also served as executive director, and found weak fiscal controls and $50,000 in spending that was disallowed.
The disputed expenditures included $21,912 in lease payments to Singh above the appraised fair market value for two properties, the state auditors found. One — a house with a dirt yard in Hesperia — cost Interim Care $2,400 per month. The state determined that the fair market rental was $1,036.
In Los Angeles County, Singh's case has sparked efforts to improve financial oversight of foster care agencies.
Officials are working with state regulators to rewrite the rules on real estate transactions to ensure that contractors do not pay more than market value.
The officials said that new real estate contracts would have to be approved in advance, and existing contracts for inappropriately high levels of rent will be renegotiated.
Despite the focus on Homes of Hope, the county continues to fund Singh's group and send children there.
Officials say they can't afford to drop the agency because of the overload of foster children, whose numbers are increasing for the first time since the 1990s.
"We just don't have enough homes," Browning said.