By Amy Silverman
By Olivia LaVecchia
By Monica Alonzo and Stephen Lemons
By Chris Parker
By Michael Lacey
By Weston Phippen
While the accounting method used by Amity in its reports to the federal government appears to have been wrong and should have been discovered by the auditors, the error is essentially a technical problem, says Susumu Uyeda, a retired federal financial manager whom Mullen hired to review Amity's books.
But to blame Amity's financial collapse on an accounting error is ridiculous, Uyeda says.
"It is totally wrong to lay it on the auditors," he says.
Basically, the accounting mistake was an error in reporting when the federal money was spent, not how it was spent.
And it was how Amity spent its federal grants that really got it into hot water with the federal government.
Amity, under Mullen's direction, improperly relied on federal grants to pay bills not associated with federal programs, records and interviews show.
"Basically, it seems that money that should have been spent strictly on activities involving the federal grants was spent in a method of Peter to pay Paul," Fleming says.
Over a period of several years, Fleming says Amity relied more and more on the federal grants to cover nonfederal program expenses.
Amity's former chief financial officer, William Tisch, confirms that Amity frequently paid bills not related to federal grants with federal dollars and that this was part of Amity's "long-employed liquidity strategy." When money came into Amity from state grants or other sources, then that money would be used to cover federal programs, he says.
"If we had incurred an expense, then we had the right to draw those funds," Tisch explains. "Whether we actually paid that invoice or not was between us and the vendors."
One vendor that frequently went unpaid for many months at a time was the University of Arizona. Amity contracted with the university to conduct research at one of its programs. The contract called for UofA to be paid out of the proceeds from a federal grant.
In early 1993, Amity's east Tucson properties were flooded, causing severe damage. Amity experienced extreme cash-flow difficulties, and records indicate the agency began relying on federal funds targeted for UofA to cover immediate expenses.
"Amity developed a pattern of paying the university beyond the normal 60 to 90 day turn-around," Mullen stated in a letter to federal officials.
In January 1994, UofA suddenly demanded full payment from Amity for its services--a whopping $500,000.
Amity didn't have the money, and UofA immediately complained to the federal government.
"They called us up and said, 'Come on, we're not getting paid. What can you do to help us?'" Fleming says.
The call alerted federal-grant monitors like Fleming that all was not financially well at Amity.
"We had some little warning bells, but that was the biggest bell," Fleming says.
Less than a year later, federal granting agencies placed Amity on severe restrictions and began demanding that all federal funds be accounted for and paid to the appropriate vendor.
In December 1994, Amity controller Amy Ramm-Merkel admitted in a letter to the government that Amity had spent $517,000 on nonfederal programs to cover expenses that it expected to be later reimbursed from nonfederal sources.
It was the misapplication of federal funds, rather than Amity's incorrect method of accounting for its money, that alerted the federal government of Amity's financial problems, Fleming says.
In fact, Mullen's assertion that Quintenilla was supposed to begin reporting on a cash basis in 1992 when she began withdrawing funds electronically is incorrect, Fleming says.
Amity was always supposed to be reporting on a cash basis since it first began receiving the grants in 1990, Fleming says.
"That's one of the reasons they got messed up," he says.
Mullen's assertion that Amity's board conspired to ruin the organization has infuriated many current and former board members--especially in the face of documented misspending of federal funds by Amity's management under Mullen's direction.
Jon Young, who is the subject of a state accountancy board investigation instigated by Arbiter, is dumfounded by the conspiracy allegations.
"There was no conspiracy," he says. "Nobody here gained anything."
Young, who served as board president from 1992-94, says it was a frustrating experience working with Mullen and Arbiter because they didn't seem to understand the importance of keeping Amity's finances straight.
Amity's auditors, Young says, reported that the organization was overdrawing its federal grants in 1991 and 1992, yet Mullen failed to correct the problem. Young says Mullen told him and other board members that the problem would be corrected.
But Amity continued drawing down more funds from the federal grants than it was supposed to, culminating with the 1994 UofA fiasco, Young says.
"We were lied to by management," Young says.
Another former board president, Tom Chandler, says Mullen's allegation that board members were after the ranch land is absurd, especially since the ranch is still under Amity's control in bankruptcy court.
"Jesus Christ," Chandler roared over the phone from an Iowa retreat. "Who would say that? Who would have guts enough to say someone on the board wanted the land?"
Chandler says the conspiracy claim is simply an effort to shift blame from management to a volunteer board.