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Politically connected nonprofit misused state-issued federal COVID relief funds

Records obtained by The Nevada Independent reveal that Positively Kids committed ‘fraudulent activities.’ Two lawmakers cut ties with the organization.
Tabitha Mueller
Tabitha Mueller
State Government

Bounced payroll checks, payments for work that was never started or finished, poor staff retention, disconnected office phones and insufficient funds for other checks and invoices.

These were among the many concerns an internal whistleblower flagged in January 2023 regarding the Foundation for Positively Kids, a nonprofit based in Las Vegas and established more than two decades ago to serve children who are medically fragile or have developmental disabilities.

As state investigators would discover, the problems stemmed from how the nonprofit, which employed one state lawmaker and had another on its board, managed funds, which included federal cash released as part of a state-managed grant program. 

The report on the state’s investigation, obtained by The Nevada Independent, revealed fraud, questionable expenses, inaccurate financials, lack of documentation, improper payroll management and poor cash management, among other issues. The situation was so severe that a state-led investigation led one official to conclude that the “financial management is severely deficient at best and fraudulent at worst.”

Months before the investigation took place, the organization was approved to receive nearly $1.5 million through a state-managed $30 million grant program to distribute federal American Rescue Plan Act (ARP) dollars directly to nonprofits. The grant was for the nonprofit to start a “Social Skills Program” aimed at increasing access to early intervention services for children in Clark County with “developmental delays,” in particular children ages 3-5 with social skills deficits. The organization also received $100,000 in ARP funds from the City of Las Vegas for the same program.

Established in 1999, Positively Kids employs nearly 100 people and is well-known in the community — hosting visits with Santa, duck race fundraisers and partnerships with celebrities and sports teams. Offering programs to assist with behavioral health, early intervention and complex care for newborns, the nonprofit’s CEO and President Fred Schultz said Positively Kids had “cared for over 10,000 children in Nevada.”

But the organization faced financial troubles. Its most recent 990 tax report from 2020 shows it had less money in the bank than Schultz’s listed annual salary — a problem it attributed to a 32 percent drop in donations during COVID. After the ARP award was granted, an internal whistleblower notified state officials of more financial problems, noting that the dollars were not going toward their intended use.

“I have evidence that shows we haven’t actually paid the bill [for rent]. This leads me to believe we are submitting false documents stating that we paid a bill when in fact, we have not,” the whistleblower stated in an email, raising a host of other financial red flags. 

Hundreds of emails, documents and invoices obtained through public records requests filed by The Nevada Independent reveal the scope of the state’s investigation into Positively Kids. The report found numerous problems, including that the nonprofit only had a record retention policy for clinical documents and no formal policy for keeping financial or grant documents. 

Reviewers who compiled the state report also indicated the nonprofit regularly bounced checks to vendors and had only served 10 children in six months since the grant-funded program began, despite indicating it would “serve an average of 30 children in a six-week cycle.” 

Notably, investigators discovered that the organization had submitted three invoices to the state identical to invoices paid in 2020 — except that the year had been changed to “2022.” The investigators noted in the March report that it was “most likely, an intentional attempt to defraud the state, as too many deliberate actions were taken for it to be an accident, including the fact that the original invoices were stored off site at a storage location.”

The report indicated that no one reviews reimbursement requests submitted by the grants manager, who reports to the CEO. State reviewers wrote that the CEO was “unwilling to state which staff members were responsible” for any problems and took responsibility for the forged documents.

In response to emailed questions about the information contained within the report, Schultz said that in the past 25 years the nonprofit has never had any issues with audits or grants.

"For profit, and not for profits, face financial business challenges on a regular basis and are dealt with appropriately," Schultz said in an email. "Although some of your comments were taken out of context, you do need to know that the offenders who committed the issue with the grant are unemployed by Positively Kids and under investigation."

The nonprofit's Executive Director Amanda Cormican responded to an email query by saying that Positively Kids is still providing services, accepts all forms of Medicaid and offers a sliding fee scale for those who are underinsured.

“Unfortunately, some of our grant funded programs did have to close this year, but we are working hard on new and improved programs in the months to come,” Cormican wrote. “I apologize, I am not at liberty to share any further information with you at this time, but as I said before, we appreciate your consideration for us!”

Following its investigation, the state terminated the grant and requested that the organization repay more than $50,000 already allocated. Officials told Positively Kids that they planned to contact the U.S. Department of the Treasury and the Nevada attorney general’s office to notify them of “fraudulent activities.”

In April, the organization repaid the grant. The Positively Kids entry on the state website listing grant awardees has been removed.

The attorney general’s office wrote in an emailed statement to The Nevada Independent that the matter was referred to the U.S. Department of Agriculture, Office of Inspector General.

“When something like this happens, it's unfortunate, because it affects the trust that the community has in us,” said Assemblywoman Michelle Gorelow (D-Las Vegas), who resigned from her position with the nonprofit in April. “And they want to make sure that their dollars are going toward mission and helping people. And when you have this, that erodes that trust.”

During an Assembly Judiciary hearing, Assemblywoman Michelle Gorelow (D-Las Vegas) speaks with Secretary of State Cisco Aguilar at the Legislature in Carson City on Monday, March 6, 2023. (David Calvert/The Nevada Independent)

Two lawmakers cut ties with nonprofit

The financial revelations about Positively Kids led to at least two resignations. Assemblywoman Shea Backus (D-Las Vegas), who served as a member of the board and Gorelow, who worked as the vice president of business development, left their roles this year after learning about the state’s investigation into the nonprofit’s financial irregularities.

“I was just appalled,” Gorelow told The Nevada Independent. “I will never be a part of an organization that does that.”

Gorelow worked at Positively Kids for seven years before leaving in April.  She said lack of upward mobility, poor communication and “toxicity” led her to almost quit in 2021, but she stayed because she believed in the organization's mission.

After she resigned, Gorelow took a position with another nonprofit, Arc of Nevada, in July. The timing of that job change, coupled with state lawmakers allocating $250,000 to Arc of Nevada through legislation passed in late May, was highlighted earlier this year by the Las Vegas Review-Journal — sparking an outcry fanned by a PAC supportive of Gov. Joe Lombardo. 

Gorelow, elected to the Legislature in 2018, announced plans earlier this month not to run for re-election. 

She said the pushback did not affect her decision not to run in 2024 because she wanted to focus on her new role implementing an early intervention program for children with disabilities, which would be time-consuming.

“It was unfortunate that [the announcement] came out the way that it did,” Gorelow said. “But it was something that was already being considered because of the amount of time it will take to implement early intervention.”

Gorelow and Backus both indicated they had no knowledge of the potentially fraudulent undertakings at Positively Kids, and Gorelow said she was one of many employees who had a paycheck bounce because of the company’s financial issues.

“I was not involved with the grants at all,” Gorelow said. “When I saw the report. I was absolutely stunned.”

She added that she turned the report in to authorities after she received it.

In a separate interview with The Nevada Independent, Backus said she joined the organization's board in July 2019 because she believed in its goal to deliver high-quality integrated behavioral and primary care services to Southern Nevada children.

She said she resigned from the board in April after learning about the state’s investigation into Positively Kids.

“It was twofold,” Backus said. “It was the allegations that were being made. And also the fact that I didn't have the time that it would require [during session] to step up and serve as a board member to get to the bottom of it.”

From left, Assembly members Venicia Considine (D-Las Vegas), Greg Hafen (R-Pahrump) and Shea Backus (D-Las Vegas) during a conference committee meeting inside the Legislature during the 82nd legislative session at the in Carson City on June 5, 2023. (David Calvert/The Nevada Independent)

Establishing a social skills program

Positively Kids was one of the 50 nonprofit organizations selected out of a pool of more than 330 that applied for the state’s ARP-funded $30 million community recovery grant program last year. It was one of several programs funded through Nevada’s nearly $7 billion allocation of federal ARP funding.

Former Gov. Steve Sisolak’s administration awarded the $1.5 million grant to Positively Kids in July 2022, touting the allocation as increasing “access to critically needed early intervention services for Clark County children with developmental delays.” The money awarded to Positively Kids marked the seventh-largest allocation of community recovery grant dollars.

When the funding was allocated by the Interim Finance Committee in 2021, Gorelow — who was serving on the interim committee that makes spending decisions while the Legislature is out of session — recused herself from the vote because she worked at the organization. Backus was not in the Legislature in 2021.

Around the same time it received the grant, the foundation held a groundbreaking ceremony for a future Center for Special Needs Children. Positively Kids said the center would be a 31,225-square-foot facility with 60 beds aimed at supporting the long-term needs of children with health issues but who are not sick enough to be hospitalized.

However, the organization says on its website that the facility would “provide 36 inpatient beds for pediatric extended care for medically fragile children.”

On Thursday, roughly a dozen workers at the construction site were busy, walking along the scaffolding as they put together the building’s frame. Piles of lumber surrounded the site, and a large sign proclaimed: “Coming Soon! Future Home of Center for Special Needs Children.” 

Though no timeline for project completion was announced, the project’s dust control permit with the county expires Oct. 17, 2025. No one from the organization responded to phone messages or emailed questions asking about the differences between the number of projected beds.

When reached by phone, the project manager for the construction site declined to give information about whether there had been payment issues, the number of people working on the site or other details.

In its agreement with the state, the organization indicated that the Social Skills Program would increase access to early intervention services for Clark County children with developmental delays, in particular children ages 3-5 with social skill deficits.  

The agreement detailed “extensive waiting lists” for children with disabilities with developmental delays and said there is a “significant lack of access to diagnostic and/or treatment services in Clark County.”

‘An intentional act of fraud’

In January 2023, a Positively Kids employee sent a whistleblower email to the state.

The email raised concerns about invoices sent to contractors for which work was never completed. It also drew attention to bounced payroll checks, a request to front $5,000 for insurance funds and discussions with the executive secretary and CEO, who had allegedly asked if they could get an advance payment of nearly $30,000 for room modifications and learning toys. Fronting the grant funds in that way would potentially provide money to the organization without a way of verifying the dollars would go toward the Social Skills Program under the grant.

Additional issues raised by the whistleblower included problems with office phones that were disconnected on Jan. 10. The whistleblower noted that “as an organization with clinical operations, having the phones disconnected can have serious consequences,” adding that it could potentially violate privacy regulations.

Officials with the Governor’s Finance Office conducted a site visit 11 days after receiving the whistleblower complaint.

In March, more than six months after the organization had received the green light for the grant and two months after the site visit, the state office sent a damning site visit monitoring report to Schultz, exploring and confirming many of the issues pointed out by the whistleblower.

“Overall, [Positively Kids] lacks written policies, procedures and controls over the accounting functions,” the report said. “When questioned about many asset and liability accounts, [Positively Kids] was unable to provide sufficient backup or calculations detailing what makes up those accounts.”

Examples of questionable accounts included admin cash on hand, vendor advances, medical equipment (which reviewers noted “had a negative balance as an asset”) and payroll taxes. The nonprofit also charged the state for ineligible expenses, such as rent at other locations.

Reviewers noted three altered invoices, a loss of access to accounting software and a lack of detailed budgeting and requests for reimbursements that contain “either outright forged documents or eligible costs in questionable quantities that management is unable to justify or explain.”

State officials emailed Schultz in February to notify him of the altered invoices and asked him to explain who was responsible.

Schultz replied that the charges fell under the grant’s budget for construction, but “unfortunately, they were outside of grant dates.”

“Certainly all things that occur in our organization always fall under my responsibility. Although, I don’t and can’t see every single document, checks, and every paper that passes through daily,” Schultz wrote. “We certainly were not under any illusion that we could do something outside of allowability and do see the error. Thanks for your understanding.”

In an email discussing the exchange with the attorney general’s office, one Governor’s Finance Office employee said, “As you can see, he [Schultz] isn’t getting the point that this was an intentional act of fraud.”

Among some of the questionable reimbursement requests highlighted were funding for 12 desk calendars — even though the state was only paying for two employees at the time — and orders for 12 boxes of paper in less than a month. The organization was unable to explain how a program with five to 10 participants and four employees would need to go through that much paper.

In the initial agreement for the state grant, Positively Kids pledged to serve an average of 30 children every six weeks, and claimed the grant would help fund 13 new positions for the program, rent for usage of a new space, office supplies, utilities, accessories to accommodate special needs and room modifications, among other expenses. 

However, the state review found that the nonprofit had only hired two employees and served 10 children in the six months since the grant was awarded.

Even with the limited hires, the report noted that the organization appeared to struggle with paying bills and employees, including highlighting past-due invoices for cable, insurance and payroll. The report said that checks were regularly issued and then held for four to six weeks before they cleared.

“Paychecks also regularly bounced, and employees are asked to hold off for a few days to cash paychecks,” reviewers summarized. “The CEO and Executive Assistant explained these issues as being a result of the COVID-19 pandemic and a cut in services without a similar cut in staff.”

Though leadership blamed the pandemic for cash flow issues, the nonprofit received a Paycheck Protection Program loan in May 2020 of more than $1 million to cover 72 jobs. The report indicated that cash issues appeared to grow substantially worse between June 2022 and December 2022.

Ultimately, officials terminated the program and notified the nonprofit that the state was canceling the entire $1.5 million award “as the lack of internal controls, policies and procedures, and financial reliability are too high of a risk.”

Around the same time, state officials also alerted the City of Las Vegas about their decision to cancel the award and shared that the organization lacked appropriate financial controls to continue to receive federal funds. Officials with the city said the organization was unable to fix the situation and it subsequently ended the $100,000 ARP fund contract in July.  

The city did not ask the nonprofit to repay the more than $20,000 it had already given it because “the city’s consultant has done accounting and reports that what was provided was administered properly.”

Though the City of North Las Vegas also issued grant money to the nonprofit, officials with the city said Positively Kids requested that the city “deobligate” the more than $230,000 grant award in direct costs via ARP funds due to “internal staffing issues.” On July 19, 2023, at the foundation's request, officials said they canceled these funds.

Email exchange between Positively Kids CEO Fred Schultz and the Governor's Finance Office officials.

Backus said it’s not clear how pervasive the financial problems were.

“It's always a struggle for me with respect to talking about this, because I know the great [good] that has been done in the community,” Backus said. “It's hard, because I don't know the breadth of everything that has now transpired … I don’t know how deep this went.”

A spokesperson for the Governor’s Finance Office (which oversees the community grant program) wrote in an email that the Department of Health and Human Services has also suspended funding for an ARP-funded child care expansion project at Positively Kids.

She said that outside of those instances, the state has not terminated any other ARP-funded grants for nonprofit organizations.

Wage complaints

The state Department of Labor also received 19 valid wage complaints from employees and former employees of Positively Kids between December 2022 and June 2023, alleging issues related to nonnegotiable checks, not making wages available on the scheduled paydays and not paying wages on a timely manner upon termination and resignation from employment. 

The state’s Office of the Labor Commissioner imposed nearly $8,000 in penalties and $12,750 in administrative fines, but following a settlement agreement, the penalty was lowered to $4,541.86 with an administrative penalty of $5,000.  

“Ultimately, the Labor Commissioner’s first objective in this process is to ensure that the employees are paid what they are owed,” spokesperson Teri Williams said in an email. “In this case, lowering the assessed penalties and fines was done so that the company had sufficient resources to pay past wages and to pay employees in a timely manner moving forward.”

As of Aug. 30, Positively Kids paid the wages owed for 19 of the employees. The company also paid the full penalty settlement ($4,541.86), which officials said has been distributed to the claimants that were due penalties. 

The state issued an administrative fine of $5,000, which the nonprofit paid in September. No additional claims have been filed.

‘I’m not proud of that’

Positively Kids’ most recent tax form showed a $1.3 million decrease in contributions and grants from the prior year and a deficit of more than $662,000. As of the end of the fiscal year (June 2021), the organization had a fund balance of just over $208,000.

The organization’s 2021 annual report noted that it was “looking forward to a positive fiscal year” in 2022, adding that COVID took a toll on donations and the organization faced revenue shortfalls. 

Still, Schultz highlighted the nonprofit’s employment of Gorelow, writing in the report that “We became much more active in the legislative system than in the past.”

Gorelow said she tried to “maintain a firewall” between her work with Positively Kids and her role as a lawmaker. She said even though Schultz made those comments in the report, she never gave him insider information, and the only time she notified him of a meeting was for a meeting on early intervention services so he could attend and testify.

“Mr. Schultz likes to pretend he's a little bigger than what he is sometimes,” Gorelow said.

As a board member, Backus said she had no idea about what was happening. She said nonprofits play a vital role in filling service gaps in Nevada, and she’d seen Positively Kids help people.

“It's really hard,” Backus said. “I was just bamboozled and had no idea.”

In an email, Schultz said the nonprofit updated and implemented policies, procedures, plans of correction and protocols.

"Our intention is to continue on caring for this vulnerable population," he wrote. "We will continue to move forward with our vision and strategic plans."

Gorelow said that she wholeheartedly believed in the work Positively Kids was doing, but the financial issues and withdrawn state grant “hurts my heart.”

“I did not know any of this was going on. I am very disappointed and shocked and disturbed that it happened because the organization for years had done some amazing work,” she said. “I was proud of that work that Positively Kids was doing, but I’m not proud of that.”


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