Issue:  Vol. 48 / No. 7 / 15 February 2018

Tenderloin Health works to fix problems


David Fernandez (Photo: Jane Philomen Cleland)
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A San Francisco agency that serves some of the city's poorest residents and has appeared close to closing in recent years is working to improve its condition.

Tenderloin Health, which offers housing, primary care, and other services to people with HIV and AIDS and others, aims to seek new donors as it tries to pull itself out of financial trouble.

David Fernandez, who became the nonprofit's executive director in November 2009, wouldn't offer many specifics about the agency's strategic plans.

"The doors are still open and we're making progress every day to getting where we need to be," he said.

San Francisco Public Health Director Barbara Garcia expressed confidence in Tenderloin Health's ability to survive and said Fernandez "has worked extremely hard at bringing the organization to structural strength."

"David came in to a pretty weak organization," she said, but he's "done a pretty good job in bringing it back to an accountable organization."


Past troubles

Tenderloin Health was created in July 2006 when the Tenderloin AIDS Resource Center and Continuum HIV Day Services officially merged. The move was a response to the realities of reduced AIDS-related funding.

That same month, then-Executive Director Tracy Brown suffered a heart attack. Chiquita Tuttle, who had been the interim director of Continuum, remained to handle daily operations. Brown stepped down in October 2008, and Tuttle led the agency on an interim basis.

In May 2009, Colm Hegarty became Tenderloin Health's new executive director. Hegarty is the partner of Bay Area Reporter general manager Michael Yamashita.

Around that time, a contract Tenderloin Health had with the city's Human Services Agency was de-funded. That resulted in the shutdown of the nonprofit's community drop-in resource center, which had served over 12,000 unduplicated clients every year.

Brown didn't respond to an interview request sent through Facebook. Hegarty declined an interview request.

Tuttle said that when she was at the agency, they had worked on issues such as billing and expenses.

"We were doing our stewardship," she said.

Forms the agency filed with the IRS show its net assets declined from about $1.1 million for 2005 to negative $182,951 for 2009.

Tenderloin Health board Chair Andy Chen said in an interview that the drop in net assets from 2005 was ultimately a function of the agency bringing in less money.

"The economic environment has affected contributions from the full range of donors that we've historically depended on, and that's consistent with most all nonprofits," he said. "By and large, we haven't really lost a large percentage of contracts."

An audit of the agency's financial statements as of June 30, 2009 also pointed to problems. The B.A.R. obtained the document through a public records request to the health department after Fernandez declined to provide a copy. The audit, performed by PMB Helin Donovan and dated December 2010, is the most recent available for the agency.

The review indicated poor financial oversight was among the reasons for the agency's troubles. The audit found material weaknesses in several areas. A material weakness was defined as a deficiency or combination of deficiencies in internal control "such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis."

According to the review, Tenderloin Health attributed many of its problems to staff shortages and management turnover during 2009 and 2010.

The audit listed problems including reconciliations of multiple financial statements accounts such as accounts receivable and accounts payable weren't properly prepared at year-end.

Possible consequences mentioned in the review included the risk that timely financial statements wouldn't be available to funding sources and others when requested.

"This might have adverse effects on the organization's operations and financial condition," the audit said.

Among other recommendations, PMB Helin Donovan suggested that the agency adopt new procedures. The audit indicated that Tenderloin Health was working to address problems.

In an interview, Fernandez said that when he first joined Tenderloin Health, he was given the title interim executive director for 90 days.

"My job was to come back to [the board of directors] and tell them whether we should close the doors or not," he said.

He said he ultimately found no reason to do that. For one reason, he said, "The population we serve can get these services nowhere else," especially not all in one place.

Fernandez said that part of the problem when he joined the agency was that "We just weren't on top of billing," and there was a backlog. He said chief financial officer Stefanie Yurus, whom he brought in, has been "looking at processes and procedures in every aspect of the agency."

Sandra Miniutti, vice president, marketing and chief financial officer of Charity Navigator, said in an email to the B.A.R. that she and others at the charity rating company reviewed Tenderloin Health's 990 tax forms and "nothing really jumps out" to them in terms of the nonprofit's financial performance.

"However," she said, "please note that this charity functions a bit differently than the charities we rate because Tenderloin [Health] is mainly funded by government grants as opposed to donations."

Tenderloin Health client Michael Hampton, 56, said he's worried about government budget cuts and said he's a "booster" for the agency, which has been "a tremendous support" for him through groups and other services.


Fernandez couldn't say what the agency's total debt is because the nonprofit hasn't finalized all its financial data.

Tenderloin Health has a $500,000 line of credit from Wells Fargo and a $200,000 line of credit from Bank of the West, he said. The agency has used $600,000 of the combined amount.

It has a 15-year term for paying off Wells Fargo, and the agency will have seven years to pay Bank of the West, he said.

In addition to what it owes banks, it has about $1.2 million in accounts payable, which "technically" is more short-term debt, Fernandez said.

That number varies greatly depending on income and other factors, he said.

Fernandez said that figure "seems like a sizable number, but for the size of our budget, it's not." In a June interview, he said he thought the agency's budget was about $7.1 million.

He said this week that Tenderloin Health is "pretty close" to breaking even. He didn't have the most recent financial data but said, "We're covering our expenses."

Fernandez also said the net negative assets of about $183,000 reflects "a point in time" and that figure should be better by now.

In a June interview, Fernandez had been reluctant to discuss many financial details. The B.A.R. was not able to obtain the agency's most recent board meeting minutes.


Work with the city

Fernandez didn't discuss details about his agency's contracts with the city. Records indicate in the last fiscal year it received well over $500,000 from the health department alone.

He would only speak generally about the agency's fundraising plans. However, he said the agency is "on track to bring in a totally different donor base, in addition to what Tenderloin Health has had in the past. We're going after private money," because that allows more flexibility than government funds.

Garcia, the city's health director, expressed strong support of agencies diversifying their funding sources. She also discussed what Tenderloin Health owes to her department.

She said the agency didn't pay the department for some dental and primary care services. The problems stemmed from before Fernandez joined Tenderloin Health.

Around the time when the nonprofit wasn't "managing the books" and had trouble paying the health department and other vendors, health officials did "a deep review" of the agency, she said. That resulted in a payment plan.

Garcia, who was the health department's deputy director at the time of those troubles, said she went to two Tenderloin Health board meetings three or four years ago "to talk about their responsibilities as a board, and make sure they understood if I started pulling out their dollars, they were going to have a hard time surviving."

Fernandez estimated the agency owes the health department $280,000 to $290,000. That figure had been about $600,000.

Garcia said Tenderloin Health is still paying down what it owes the department. The department reduced Tenderloin Health's funding on a monthly basis. The agency's been "in good standing," she said.

She also said the nonprofit provides "an important service in the Tenderloin," and that's "a community we certainly are committed to."

Health Commission President Steven Tierney said he hasn't spoken directly with Tenderloin Health officials lately, but said, "They have a wonderful history." He said Brown had been "enormously effective at building community partnerships" and applying for grants. "When he left, that all seems to have disappeared," he said.

Tierney indicated the Health Commission would be willing to help, and the Tenderloin "desperately" needs services.

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