StarVista closure a ‘wake-up call’

It’s been two months since its abrupt closure and questions linger over its shutdown, what led to it and how warning signs were simply missed. But perhaps most importantly, how this county can avoid the impact of sets of crucial programs being ripped away from vulnerable communities.

The nonprofit experienced relatively rapid growth, especially during COVID-19, and has received about $17 million from the county since 2024, according to the county ledger.

After a host of financial problems over the last year — from payroll delays to layoffs, program closures and the CEO’s sudden leave of absence — the nonprofit announced in July that it was shutting its doors for good as of Aug. 1, leaving clients, employees and the county’s Behavioral Health and Recovery Services Division scrambling to make sense of what happened and find comparable services — which in some cases included shelter — in a short period of time.

About 20 programs have been affected as a result of StarVista’s financial issues — such as a detox facility, mobile crisis program and driving-under-the-influence classes. Another one of those programs is First Chance, a sobering station where individuals can go instead of county jail and get connected with additional treatment services.

Some mental health leaders have pointed to increasingly precarious federal funding, in addition to Medi-Cal reimbursement changes that took effect for providers last year. After all, another large mental health contractor, Caminar, has also shut down several programs over the past year.

Finances, and internal controls

But many former StarVista employees, including former directors, have cast doubt on that assessment, citing dubious financial practices and relaxed financial oversight.

The nonprofit’s financial downturn comes a little less than two years after its former clinical director Clarise Blanchard was charged with embezzlement — and more recently money laundering and tax evasion — allegedly funneling $700,000 worth of donations meant for StarVista to her own foundation over a period of nearly two decades. The incident triggered a host of concerns from employees and the public over leadership’s level of financial scrutiny and oversight.

Upon learning of the allegations, San Mateo County CFO Roberta Manchia said the county requested StarVista provide it with documentation on what internal controls — or processes and practices — would be put in place to avoid a similar situation happening again, and it relied on StarVista’s annual audit to ensure those processes were being followed.

“The request was, how was the organization going to make sure the practices were in place so that they could avoid this happening in the future?” Manchia said.

The county was neither able to provide the documentation nor details of what it entailed in time for publication.

The county’s current oversight process generally involves reviewing the prospective contractor’s financial documentation during the initial request-for-proposal process. Every year thereafter, it requires the provider conduct and send over an independent audit report.

But the audit reports from the last several fiscal years — including the time period immediately before and after the alleged embezzlement came to light — state that the auditing firm, Harrington Group, looked at StarVista’s internal controls as a basis for designing its audit procedures, “but not for the purpose of expressing an opinion on the effectiveness of StarVista’s internal control,” and thus, the firm does not “express an opinion on the effectiveness of StarVista’s internal control.”

Deep dive needed

James Marta, who runs an accounting firm that conducts nonprofit audits, said such language is a standard disclaimer on reports, and while some audits assess a firm’s internal practices and processes in depth, it’s not uncommon for nonprofits to undergo less intensive audits.

But especially given the circumstances and recent history of alleged embezzlement, Regina Birdsell, a nonprofit consultant and director of the University of Southern California’s School of Public Policy, said the auditors should have been done a deep dive on their internal controls.

“I don’t know why anyone accepted that,” Birdsell said. “The board hires the auditor to take the deep dive and … report back on, ‘Are we doing this correctly? Is there anything you’ve noticed that is of concern and are there any recommendations?’ Sometimes they don’t want to go too far in the recommendations, but they can say that you need to clean up your act and can recommend strategies for doing that.”

For instance, according to the investigation from the District Attorney’s Office, Blanchard was granted signing authority, allowing her to sign off on important documents, such as donations. Some former colleagues, who also held director-level positions, said that was odd, given her role did not involve development or finance-related duties. Usually, such authority is granted by executive leadership and the board of directors.

During a Sept. 9 Board of Supervisors meeting, Supervisor Jackie Speier also questioned why the county didn’t know that the nonprofit had been taking out lines of credit to cover payroll for years, which she said is a “real red flag.” It is not unusual for health nonprofits to take out lines of credit to cover payroll, but doing so for such a long period of time is concerning, Ruth Bernstein, associate professor of nonprofit management at Pepperdine University, said.

“That’s not good,” Bernstein said. “That’s just not being able to live within your budget.”

Unfortunately, lack of oversight, even if it isn’t rooted in fraudulent or malicious intent, can be common among nonprofit boards, she added.

“Board members have other jobs. They’re part-time volunteers, and as a result of that they may not have the time and energy to review financial documents as carefully as they might otherwise,” she said. “But ultimately, the buck stops with them, and they have to pay attention, read the materials, do their job and not just go along with others who are voting, but it happens. And I think it’s more prominent than we want to admit.”

After multiple requests for comment, most of the six former board members that were contacted declined to comment. Rather than citing internal decisions or processes, Alison Proctor, former treasurer of the board, said via email that “more funding” would have been most impactful to prevent the organization’s closure.

According to the audit reports, key financial markers — such as revenue, expenses, net assets and assets that could be available within one year — don’t vary drastically between fiscal years 2022 to 2024. Based on the reports’ financial figures, the most likely explanation of such an abrupt closure would be a cancellation of some key county contracts, where most of StarVista’s revenue was concentrated, Marta said. County spokesperson Preston Merchant confirmed the county hadn’t canceled any of its contracts with StarVista over the past year.

More oversight?

Manchia said the county was surprised by the sudden closure and is still in the process of identifying ways it can ensure sufficient financial oversight without burdening nonprofits further. Even though the county has since received more financial details from StarVista over the last several months, he said it’s still unclear what led to the fiscal collapse.

“We are trying to come up with what financial documents would be needed to actually do some sort of financial assessment of these larger organizations,” he said.

Speier said there needs to be more robust oversight of the behavioral health nonprofits, stating that the type of audits they provided to the county were “not effective.”

“It’s an important wake-up call for us to expect more rigorous oversight,” she said. “The county has known many of these providers for a long time and has confidence in them, and that’s wonderful, but I think we have to have a level of arm’s length in terms of evaluating their work product and their fiscal stability.”

She added that she’d also be in favor of conducting more inspections of providers’ properties, citing the StarVista house used for Daybreak — a transitional program providing support to late teens and young adults — as an example.

“The conditions of that house that we almost bought were evidently very poor. It wasn’t [American Disabilities Act]-compliant, and they had issues with vermin,” Speier said.

Despite initially expressing interest, the county opted not to acquire the property after hearing of the program’s closure.

First Chance

David Canepa, president of the San Mateo County Board of Supervisors, has been vocal about the closure of First Chance. While primarily used by law enforcement, homeless outreach workers would also bring individuals to the center to encourage them into detox and eventually treatment. Unlike the county jail, it had connected individuals with mental health services and saw up to 2,400 individuals per year.

“What we don’t want to do is to have people who have behavioral health issues being stored in our county jails,” he said. “They need help. They need professional guidance, and so we have to serve people who have certain needs.”

Between May 21 — when the center first closed — and the beginning of September, DUI bookings in Maguire Correctional Facility have more than doubled since the same time period a year before, going from 258 to 580. Due to complex licensing requirements, it could take at least several more months to reopen.

Both Canepa and Speier said they hope the county can come up with better mechanisms to review contractors’ fiscal health, but it remains to be seen what exactly that would look like.

“We all have to take a fair amount of responsibility for not doing the kind of oversight that I think is part and parcel of our function,” Speier said.