May.15, 2010, 10:25 p.m.

In June 2008, representatives from the Austin/Travis County Health and Human Services Department made a monitoring visit to Family Connections to check on whether the $280,000 it gave the agency to distribute child care vouchers was being used correctly. The next month the agency issued its findings.

"The monitoring review revealed that Family Connections has adequate administrative and fiscal policies and procedures in place to properly administer the ... program," they wrote. Despite a handful of minor paperwork issues, "the agency has appropriate internal controls and safeguards for the administration (of) grant funds."

Two years later, the nonprofit's executive director, Louanne Aponte, faces criminal charges accusing her of siphoning more than $300,000 from Family Connections over the past five years and using it to help pay for her $388,000 Circle C home, a ski boat and a Mercedes convertible, according to court filings. She has not been seen since early March and is believed to have fled the country. Her husband has been charged with money laundering.

City workers weren't the only ones who missed the alleged theft. In the past couple of years alone, Family Connections underwent more than a half-dozen reviews from three government agencies. All gave it a clean bill of health.

Aponte also has been accused by Travis County prosecutors of draining more than $130,000 from another nonprofit, the Texas Association of Child Care Resource and Referral Agencies, where she was treasurer for a decade, and $8,000 from Hyde Park Christian Church, were she was a congregant and volunteered as treasurer of the grants committee. Each of those organizations also had a system of financial checks and balances in place that did not catch the missing money, either.

How could so many people whose job it was to check up on Family Connections' finances let the alleged misdeeds slip by so often and for so long?

One reason is that the deceptions appear to have been as deep as they were wide. Not only did Aponte fabricate financial audits, according to arrest warrant affidavits and interviews, but a number of former Family Connections employees said it now appears she manipulated performance measures, inflating the amount of work the nonprofit did. In one instance, Aponte apparently created a fictional consultant representing a made-up company, who she told employees had been hired to evaluate the agency.

"A venal person intent on doing wrong can do so in almost any circumstance," said Ken Gladish, president and executive director of the Austin Community Foundation. "The reason there are controls and best practices is that it's possible to limit damage. But you can never eliminate the possibility."

Yet a review of events leading up to Aponte's criminal charges suggests that signposts pointing to the alleged wrongdoing, or opportunities to expose it, were missed. For example, a background check would have turned up her criminal history; demanding direct reports from auditors might have uncovered the alleged fraud sooner; and Aponte wasn't challenged when discrepancies showed up in performance measures for Family Connections that she produced for public consumption.

The consequences have been severe. Last month, Family Connections folded, leaving thousands of people without child care referrals, intensive case management, library materials, parent training and other services. City officials have scrambled to transfer some of the organization's services to other nonprofits.

Trust can hurt agencies

Nonprofit organizations lose as much as $40 billion — 6 percent of their combined annual revenue — each year to fraud, according to "An Investigation of Fraud in Nonprofit Organizations," a study by four accounting professors published two years ago in an industry journal. "An atmosphere of trust, the difficulty in verifying certain revenue streams, weaker internal controls, lack of business and financial expertise and reliance on volunteer boards are all contributory factors," it said.

Consequently, the study found, the majority of nonprofit fraud is not uncovered by auditors scouring financial records, but rather through employee or vendor tips or by accident. Despite what prosecutors allege was at least six years of stealing from local nonprofits, Aponte did not arouse suspicion until November 2009. That's when state auditor Priscilla Suggs, who was assigned to a routine review of the nonprofit's annual audit, happened to notice that the firm Family Connections listed as its outside auditor was an accounting firm she knew was not licensed to perform such work.

A call to Austin's Faske Lay & Co. confirmed that the firm was not Family Connections' outside auditor and had never reviewed the organization's books. That led to more questions and a deeper examination of the nonprofit's finances. In late February, investigators told the board of directors that every audit Aponte had presented to the board since 2004 was falsified.

Since then, investigators working for the Travis County district attorney's Public Integrity Unit have alleged that Aponte perpetrated a years-long embezzlement from at least three nonprofits whose finances she controlled, diverting as much as $500,000 from the organizations into her own bank accounts. She has been charged with felony theft, as well as tampering with government documents. Authorities have seized the Apontes' house, car and boat.

Last month, prosecutors charged Louanne Aponte's husband, Marco, with money laundering because his name was on bank accounts in which the purportedly stolen money was deposited. He was released on bail after surrendering his passport and being fitted with a GPS monitoring device.

"They're trying to punish him for what she did," said his attorney, Joe Turner. "I think he's not guilty. There's no reason for him to leave."

Getting in the door

As the revelations about the alleged misdeeds have continued, former employees and board members have racked their memories seeking hints that might have prevented the catastrophe. What has become apparent is that a series of small missteps early on resulted, over time, in an employer ripe for exploitation being led by an employee with a history of it.

When Aponte was hired to work in the finance department by what was then called Austin Families Inc. in 1990, she was still on parole for two theft convictions in the 1980s. According to Travis County court and state prison records, she stole as much as $60,000 from her employers and was sentenced to four years in prison. Yet the organization apparently never performed a background check that would have turned up her history.

The state Bureau of Pardons and Paroles can provide another layer of protection by imposing restrictions on a new parolee's employment, such as prohibiting financial work for a theft convict, said Michelle Lyons, a spokeswoman for the Texas Department of Criminal Justice. Parole officers can also make site visits to a parolee's workplace.

It is unclear whether that happened in Aponte's case, however — her file has been destroyed because of its age — and Lyons said she didn't know whether current department polices were the same 20 years ago. Former Austin Families officials recall receiving no such warning from parole officials.

After four years of handling Austin Families' invoices, billing and other financial records, in 1994 Aponte was promoted to executive director.

"The most important responsibility of a board is the selection of the executive director to run the organization," said Peter Frumkin, a professor of public affairs at the University of Texas and director of the RGK Center for Philanthropy and Community Service.

With her four years of service, "the board's guard was probably down," and it apparently didn't examine her past, Frumkin said.

A review of her history would have turned up more red flags. Aponte's resume lists a master's degree from St. Edward's University — a distinction she never earned, officials at the South Austin school said. For the time she was in prison, Aponte claimed to be working for companies in Venezuela, where Marco Aponte, whom Louanne married in 1983, is from.

By the time Austin Families merged with Connections Resource Center in 2004 to form Family Connections, Aponte had a decade-long track record running the organization. Over the years, she kept tight control of the financial records, not permitting others to review them and storing the files on a removable data stick rather than on her computer, according to Family Connections' former business manager, Frances Neely.

The nonprofit's board of directors conceded that it never demanded to meet face-to-face with the nonprofit's outside financial auditor. Receiving reports directly from auditors is a standard practice among nonprofit boards, according to those in the field.

"I've never ever worked in an organization that the board wouldn't have laughed me out of the room if, as executive director, I'd come in and said, 'I took care of the audit; don't worry about it; there's nothing to look at,'\u2009" said Gladish, who before coming to Austin in 2008 was president of the national YMCA.

Experts said a common weakness of nonprofits is that board members can act more as boosters than overseers. One current Family Connections board member was a former employee; another volunteered for the board after being helped by one of its programs.

"The people who go to work for the nonprofit sector don't wake up in the morning and say, 'How can I clear up the finances?' It's, 'How can I advance the cause?'\u2009" said Frumkin.

One Family Connections board member who did ask about finances said she was quietly removed. Shirley Gamble, who owns Child's Day Preschool, joined the board in May 2007. Gamble said she knew from her other work with nonprofits — such as the United Way Capital Area — that the board should be meeting directly with an auditor. So in November 2008, she recalled, she asked Aponte when that would happen.

Aponte told her that Family Connections couldn't afford to pay the auditors to present their findings directly to the board, so the auditors gave her their report and she would present it to the board herself.

A week later, Gamble said, Aponte asked her to leave the board. Aponte said that she had reviewed the agency's bylaws and that Gamble was not eligible to serve.

"At the time, I didn't link the two," Gamble said. "There weren't any warning signs I had seen."

No flags went up

Unlike those who worked and volunteered for Family Connections, outsiders had plenty of opportunities to examine the organization's books. Government agencies that give nonprofit organizations money typically require regular reviews to make sure their money is being spent appropriately.

Numerous state and local reviews of Family Connections never raised any warning signs, however. In February 2010 — three months after the state auditor's office discovered problems at the nonprofit — the Texas Department of State Health Services, which gave Family Connections $50,000 for a nutrition program in 2008 and 2009, advised the nonprofit that the state's review had turned up only minor problems with its bookkeeping.

In January 2008, inspectors for the state's Department of Family and Protective Services spent three days at the nonprofit's offices going over its books to make sure $176,000 worth of vouchers for a child abuse prevention program were properly handled. Their April 2008 report cited small violations — incomplete forms, billing delays, $1,000 in reimbursement mistakes and a $30 mistake in travel expenses — that the Family Connections staff easily remedied.

Since 1990, the Austin/Travis County Health and Human Services Department has given Austin Families, and then Family Connections, more than $15 million. By 2008, the city was providing 45 percent of Family Connections' $3 million budget.

Before 2007, the city staff simply reviewed invoices and performance-measure reports from the nonprofit. Once a year, the city staff also performed a "desk audit" that went over the organization's documents and conducted risk assessments each time the grants were renewed. A review of those assessments from 2004 on shows that Family Connections was rated as a low or moderate risk, meaning it was considered a worthy agency.

Carole Barasch, a spokeswoman for the health services department, said that in 2007 the city staff began a more rigorous process, some of it performed on-site, to ensure its money was being well-spent.

"We monitor the organizing documents, the agency's bylaws and board membership documents; we look at client files to monitor performance to make sure the agency's records are consistent with the performance reports they submit to us, and we review the invoice backup — which is the documentation behind the payment requests agencies send to us on a monthly basis," she said.

In 2007 and 2008, the city checked on Family Connections four times. Each time, the nonprofit emerged from the examination unscathed and without suspicion.

"Where was the breakdown in being able to determine where something was amiss?" City Council Member Mike Martinez asked recently in a public meeting. "We may have some good things in place. But not good enough to catch this."

Barasch said city officials are working to figure out what, if anything, they missed.

"The investigation is in progress, and that will help the parties involved determine what happened and how it happened," she said.

Officials last week announced a series of reforms that will require additional checks to verify contractors' financial statements.

One explanation is that the outside audit, which Aponte is accused of fabricating, is the keystone of a corporation's financial integrity; every other check and balance depends on that review being accurate, said Mary Fischer, a professor of accounting at UT-Tyler and co-author of the nonprofit fraud study.

"In this case, it apparently was the Band-Aid that held everything together," she said.

According to Family Connections staffers, other numbers were manipulated as well. Three department heads said that figures Aponte wrote into Family Connections' annual report were dramatically inflated.

The organization's 2008 report claims the Family Connections agency's resource library helped 6,500 people. Former library manager Melissa Fuentes says the actual number was closer to half that.

And though the annual report said the nonprofit assisted 3,500 families as part of its child care locating program, Lynn Payne, who ran that program, says it was about 860.

Meanwhile, the agency apparently provided parenting classes for about 1,000 people, not the 2,300 the annual report claims, said Mary Robinson, who oversaw the program.

"The numbers just didn't add up," she said.

All three women said they asked Aponte about the issue. Fuentes said Aponte told her that library numbers included hits to the website and downloaded materials. Robinson and Payne said they were both told their statistics included figures from other programs.

Despite their individual suspicions, the managers said they never alerted board members because they didn't know others had similar concerns. Robinson said Aponte rarely held staff meetings, so no one really knew what was happening in other parts of the agency.

Robinson said she didn't know where the annual report numbers came from.

"I didn't have to produce reports for my department. I was not asked to," she said.

Payne said she was later told by another Family Connections employee that the figures for the child care locating program had been provided by Samantha Richards, who Aponte claimed was a woman she had hired to evaluate Family Connections' programs.

A document employees discovered while searching through Aponte's computer after she resigned contains the resume of a Samantha M. Richards, who earned a doctorate in experimental psychology at the University of North Carolina and taught for UT-San Antonio before forming a company called EAC.

The same document described her company, Evaluation and Assessment Consultants Inc., as a "woman-owned small business incorporated in 2003" that "recently has relocated from San Antonio, Texas, to Chapel Hill, North Carolina. EAC provides research consulting, applied research, program evaluation and development services. \u2026 Our work focuses on education, environmental and community health, and family and youth services. Western Institutional Review Board is the designated IRB," an independent agency that monitors and reviews research.

Yet corporation records in Texas and North Carolina turn up no companies with those names. The Massachusetts-based American Evaluation Association, a trade association whose membership database goes back to 1986, has no mention of the company or of a Samantha Richards.

Nor does the Western Institutional Review Board, a Seattle company that monitors research on human subjects.

"We looked for the company and name, and we couldn't find anything on either," said Stephen Rosenfeld, the review board's president.

A spokeswoman for the University of North Carolina registrar's office said the university had never conferred a doctorate on a Samantha Richards. And at UT-San Antonio, spokesman Tim Brownlee said, "No one by the name of Samantha Richards has ever worked at UTSA."

According to court filings, one of the bank accounts into which Aponte diverted tens of thousands of dollars was in the name of EAC.

Neely, the former business manager, recalled several "large checks — tens of thousands of dollars" — being written on Family Connections' account to EAC. Neely said she assumed the money was going to Extend-A-Care, a child care service with which Family Connections had a relationship.

Others affiliated with the organization are questioning their assumptions as well. "I was at the agency every week, sometimes multiple times per week," said Holly Van Scoy, an independent grant-writer and consultant who worked for Family Connections for many years. "I knew it as well as anybody. Which is to say, I knew it as poorly as anybody."