Spokane has chosen a new operator for two of its homeless shelters just weeks after fraud allegations against one of the former operator’s employees became public.
During a special meeting Thursday, the City Council approved two contracts with the Salvation Army to run the city’s Cannon Street and Trent Avenue shelters. The Salvation Army will take over operations from the Guardians Foundation on Nov. 1. Spokane Mayor Nadine Woodward declared an emergency so the city could bypass competitive bidding requirements and approve the contract quicker.
The hasty switch to a new operator comes after the mayor’s office in late September learned that a Guardians Foundation employee may have embezzled between $100,000 and $1 million.
It isn’t clear if any of the missing dollars are Spokane taxpayer funds. The Spokane Police Department is investigating the incident, and the city is conducting an audit.
Spokane had two multimillion dollar contracts with the Guardians Foundation.
In September 2021, the City Council approved a $1.9 million contract with the organization to run the 72-bed Cannon Street shelter through June. The council later extended that contract through the end of 2022 for an additional $1 million.
The City Council in August approved a $6.6 million contract with the Guardians Foundation to operate the new Trent Resource and Assistance Center through 2023.
That shelter, which will eventually have 250 beds, could see heavy use in the coming weeks as Spokane and Spokane County look to clear out Camp Hope. Woodward has said she hopes to transition many of the homeless encampment’s 450 residents into the east Spokane facility by mid-November.
Financially speaking, the Salvation Army’s contracts will be identical to the ones Spokane had with the Guardians Foundation. The city will pay the Salvation Army $341,000 to run the Cannon Street shelter through Dec. 31 and $5.6 million to run the Trent Avenue shelter through 2023. Spokane’s contract with the Guardians Foundation included a clause that allowed the city to end the agreement at any time.
Spokane City Administrator Johnnie Perkins said the Guardians Foundation employees working at the two shelters will be offered jobs with the Salvation Army. The Salvation Army will assess the shelters over the next 60-90 days and determine if operational changes are needed.
The Guardians Foundation’s relationship with the city appeared to be in jeopardy since early October when council members Karen Stratton and Lori Kinnear disclosed that one of the organization’s employees may have committed fraud.
Stratton has said she learned of the missing funds through community members, not the mayor’s office.
Perkins said Thursday he learned of the possible embezzlement in late September and asked city staff on Oct. 6 to begin a forensic audit, shortly before he told City Council members.
Guardians Foundation CEO Mike Shaw has said he learned of the missing funds earlier this year thanks to an annual audit.
Shaw said the organization’s former bookkeeper was misusing funds and covering her tracks by manipulating expense records in QuickBooks. He said the issue began 18 months ago and he wanted to complete an investigation before alerting the city.
The Guardians Foundation has lost its tax-exempt status after failing to file the annual paperwork nonprofits are required to submit to the Internal Revenue Service. The organization also lost its business license on July 31, according to the Washington Secretary of State’s Office.
Perkins said the decision to end the city’s agreement with the Guardians Foundation was due to contract violations and troublesome accounting practices, not alleged fraud.
“There was an inability to maintain accurate records to account for expenditures and performance, which are terms that are very clear in the contract,” Perkins said. “We needed to make a change for the protection of the taxpayers of the city, the city itself, as well as the occupants of both sites.”
City Councilman Zack Zappone asked Perkins why the city hadn’t known before signing the Trent Shelter contract that the Guardians Foundation had lost its nonprofit status.
“I’m just really concerned about why did we get to this spot,” Zappone said.
Perkins said the city is still learning about the Guardians’ finances.
“We will continue to improve our systems to make sure taxpayer dollars are protected,” he said.
City Council members and Perkins all emphasized that they appreciate the work the Guardians Foundation and its employees have done over the last year.
“They did step up in a number of instances when the city needed them,” Perkins said.