Audit: Lawrence Community Shelter financial problems caused by ‘difficult financial environment’

The Lawrence Community Shelter is pictured in this file photo from 2012.

The cost of moving to a new facility in 2012, coupled with a slow fundraising environment, caused the Lawrence Community Shelter’s drastic revenue shortfall this year that led to the nonprofit requesting emergency funding from the city and county to stay afloat.

Findings about how the shelter’s financial instability was created are outlined in a performance audit that will be presented to the Lawrence City Commission on Tuesday. City Auditor Michael Eglinski was tasked with looking into the revenue shortfall in July after the shelter received more than $100,000 in emergency funds from Lawrence and Douglas County.

Eglinski noted that the shelter had higher utilities and maintenance expenses at the larger facility at 3655 E. 25th St. than it did in its previous downtown location. The number of staff increased after the move, and the shelter grew in overnight capacity from 75 guests to 125.

In spring of this year, the Internal Revenue Service informed the shelter that it owed $37,000 in back payroll taxes, the report states.

“They [the City Commission] had concern if this is emergency funding, is there some bigger feasibility issue?” Eglinski said. “The shelter expanded in capacity; that’s a really huge change. That’s why their costs went up. It wasn’t that they suddenly became inefficient or offered a lot of services that were above and beyond what they could afford.”

In his report, Eglinski recommended the Lawrence Community Shelter improve its monitoring of revenues and expenses and build an operating reserve fund — actions the shelter’s executive director said it would work on.

“We’re going to use it as a tool to improve,” the shelter’s executive director, Trey Meyer, said of the audit. “I felt like all the recommendations were reasonable and well thought-out and things we could probably get on board with. We’re going to use it as an opportunity to continue to get better at what we do.”

Since receiving $50,000 each from the city and county in July, the shelter paid its back payroll taxes to the IRS and hired an accounting firm to provide financial reports and bill-paying services.

Eglinski said that a lack of financial reporting may have impaired the shelter’s board to oversee the nonprofit’s financial condition.

Meyer, who was named executive director in November after serving as the shelter’s director of operations, said the nonprofit is also working to better its fundraising and grant-writing efforts so it won’t have to ask the city and county for more funding.

The audit found that donations “may not be growing sufficiently” to offset the shelter’s increased costs of services. The report states that the local economy’s slow growth may have led to lower fundraising.

“We aspire to manage our finances in a way that we stay at an average level of contribution by the city and county,” Meyer said. “I am extremely grateful for what the city and county give to us, and we’re going to focus our attention on how we can improve our grant-writing and fundraising strategy so we don’t have to ask the city and county for any more.”

In his report, Eglinski compared how much the Lawrence Community Shelter receives in government support compared with 23 other similar shelters.

He found that the Lawrence shelter received about 30 percent of its revenue from government grants. The average for the group of shelters was 33 percent.

Eglinski said the finding indicated that the city and county contributions were “reasonable.”

“I think what the city and county can take from this is that they’re funding us at an appropriate level and don’t have to be concerned they’re funding too much of our operations,” Meyer said.

The Lawrence Community Shelter has a mission of providing shelter, food and other support services to all members of Douglas County. It’s governed by an 18-member board, and has annual revenues and expenditures of about $1 million.

Meyer told the city and county commissions in July that if the shelter didn’t receive emergency funding, it would have to cut the number of staff in half and allow for only 80 overnight guests.

With the move to its new facility, the shelter’s total expenses had increased by 40 percent, according to the audit. Staff compensation increased by approximately $164,000 from 2012 to 2014 and utilities by $57,000.

The shelter was also faced with monthly payments to the city of $1,848 to pay back a $725,000 loan for construction of the new shelter.

Besides the 2012 expansion and a bad fundraising environment, Eglinski said that a high turnover of the shelter’s top management could have “hindered the organization’s ability to manage finances.”

He noted in his report that four different executive directors have led the shelter since May 2014.

“I think it was bad luck they went through the turnover,” he said. “I think having more consistency, they’ll be in a better situation.”

Eglinski said he would give the City Commission a presentation on his audit Tuesday and answer questions. He anticipated commissioners might ask the shelter’s staff whether most of those who use shelter services are from Douglas County, among other specific questions.

The City Commission meets at 5:45 p.m. at City Hall, 6 E. Sixth St.