Audits: As Amistad Finances Collapsed, State Money Kept Flowing

When the cash began running out at the nonprofit Amistad America Inc., officials defaulted on bank loans, skimped on bills, borrowed from employees and used state grant money as a temporary loan against other grants, a series of audits released Friday shows.

They also laid off employees with financial expertise, stopped preparing federal tax returns and got permission from the state, year after year, to delay filing financial audits that would have shown the depth of Amistad America's troubles.

And while the charity's finances were collapsing, state grant money kept flowing — more than $1 million from 2009 to 2011, even as the organization's assets fell below zero, the audits show.

Amistad America, founded in 1996 to manage the Freedom Schooner Amistad, a replica of the famed 19th-century slave ship, has been under intense scrutiny for more than a year following revelations that it had lost its nonprofit status, had no functioning website or telephone and had signed an agreement that placed the ship in Maine, rather than on the Connecticut coast.

State agencies, in turn, have been under similar scrutiny for what some saw as lapses in oversight of a politically connected organization that has received millions in taxpayer dollars.

A year ago, state officials hired the New York accounting firm of CohnReznick to sift through Amistad America's financial records and prepare the first audits since a March 2008 accounting. CohnReznick's $78,000 fee was taken out of the state's annual grant to Amistad America.

In four long-awaited audits released Friday, covering the fiscal years 2009 through 2012, CohnReznick found "material weaknesses" in Amistad America's internal financial controls and found that the group did not comply with certain reporting requirements related to its state grants. But the audits, which focused on accounting practices, did not conclude that money was missing or misappropriated from the organization. The audits also did not address the day-to-day operation of the nonprofit group, or assign culpability for its financial problems.

The audits do, however, show how dramatically the organization's fortunes changed, especially after the loss of federal grants, which totaled nearly half a million dollars in the 2009 fiscal year and then abruptly stopped. On March 31, 2008, Amistad America had net assets of more than $1 million, the auditors found. A year later, that figure fell to a little more than $700,000, and a year after that, to about $140,000. By March 2011, the group's assets had fallen below zero, and the group was yet deeper in the red by March 2012, with negative assets of nearly $200,000.

As the assets fell, Amistad America fell behind on loans due to the Greater New Haven Community Loan Fund, Bank of America and TD Bank, the audits show. In late 2009, the organization was declared in default on the TD Bank loan, and its interest rate was raised to 18 percent. Amistad America cut a deal with the bank to lower the rate to 5.25 percent — and then defaulted on the revised agreement as well, the audits found.

The organization also slashed spending, from $1.6 million in fiscal 2009 to $627,000 three years later, according to the audits. The group's travel budget was cut in those years from $49,000 to $21,000. Its website costs dropped from $60,000 to $9,000 and telephone bills fell from $29,000 to just $698. But those savings came at the cost of a functioning website and telephone system. And each year, expenses still outpaced revenue by more than $100,000.

At the same time, state aid remained strong, accounting for 59 percent to 77 percent of the organization's funding from 2010 to 2012, according to the audits.

The audits found deficiencies in how Amistad America tracked, classified and approved certain expenses, which the auditors said could lead to inaccurate financial statements. Officials with Amistad America concurred with all of the CohnReznick's findings and its recommendations to revise the group's accounting procedures.