Questions Rise Over Hospital Accounting
Some directors of the now dissolved South Coast Medical Center foundation contend that the hospital's nonprofit parent, Adventist Health, failed to properly account for restricted gifts by donors and for several years failed to provide a satisfactory accounting of the foundation's assets.
Even as Adventist Health was seeking a bidder for the Laguna Beach hospital, a request in September for a real estate appraisal of a foundation-owned office building and fiduciary information about donor gifts went ignored, said Dana Point Mayor Joel Bishop, a recent appointee to the foundation's board.
A backlash is building among some foundation supporters who fear foundation assets, built up through donations from the community, will be absorbed for other than designated purposes in the hospital's pending sale. On Nov. 14, Adventist Health dissolved the hospital foundation and announced St. Joseph Health System the winning bidder for the 50-year-old, 208-bed hospital that has generated $44 million in losses over the last decade.
Cecil Spearman, who chairs the foundation and also sits on a separate board governing the hospital, this week said, "I have always wanted more financial information than we received."
The foundation's 2007 financial statement was still incomplete when the foundation was dissolved on Nov. 14, according to Bishop. Victor K. Hausmaninger, chief executive of the Irvine auditing firm HBLA, who was responsible for the audit, did not return phone calls.
Adventist Health, which acquired the hospital in 1998, began overseeing the foundation's financial reports in 2005, taking away the responsibility from former executive director Joe Orsack, Spearman said. Martha Harrington served as an interim foundation director until the appointment of Elizabeth Pearson as executive director in 2007. Pearson, who also serves on the Laguna Beach City Council, declined to comment about the lack of foundation financial data.
The pending sale, which was possibly going to a for-profit buyer, gave greater urgency to the foundation board's demand for current financial information, Spearman said. "There is nothing to worry about now because St. Joseph's is a non-profit buyer," he said.
Last week, Adventist attorney Jerry Peters said restricted foundation funds would pass through to a St. Joseph affiliated foundation, though details of such an arrangement have not yet been disclosed. In a memo circulated to foundation board members, he defended Adventist Health's legal right to dissolve the foundation and its assets, based on the original terms of its 1998 acquisition agreement.
"Adventist Health has acted appropriately, legally and logically in this matter," said Alicia Gonzales, an Adventist spokeswoman, in response to a question about donor restricted funds.
Spearman also contends that, "Nothing improper or immoral has taken place in the sale of this hospital. I hope whoever is raising all these allegations will relax and let this sale go through. St. Joseph's is one of the great companies in the business," he said.
But Bishop, board member Susan Morrison, also of Dana Point, along with at least eight others, remain skeptical. Last week, Morrison asked the state attorney general's office, which must approve the transaction, for an investigation into the accounting of donor-restricted gifts.
Bishop and Morrison questioned SCMC's handling of $2.1 million in donations designated for a cancer center, which was never built.
"We put our reputations on the line with our donors," said Bishop, who as a board member, is expected to seek financial support from his friends and colleagues. "I don't want to call all my donors and explain the money trail," Bishop said, "I don't know what it is."
"There is only one venue left," he said, referring to the attorney general, who will hold a public hearing as part of overseeing the sale, which won't be officially filed until mid-December. Bishop said he had been told the sale could conclude as soon as 105 days after the filing.
Local real estate developer Joe Hanauer donated to the hospital's cardiac unit. "What needs to come first are the long range plans for the hospital facility and that it doesn't take second place to land development needs," said Hanauer, who expressed concern over whether his gift will be used properly and whether he will get a proper accounting.
"I was just talking to my wife last night," Hanauer said, "and we thought 'we shouldn't have to ask'."
