The Dermott Juvenile Correctional Facility as it appeared in May 2014 while South Arkansas Youth Services Inc. of Magnolia was in charge of managing the center.
Federal prosecutors said Thursday that Jerry Walsh, the former longtime director of the South Arkansas Youth Services Inc. of Magnolia, pleaded guilty to conspiring to misapply more than $380,000 from the now-defunct organization, which provided services to delinquent and at-risk juveniles.
According to plea documents, the scheme involved steering the nonprofit’s money to an unnamed Arkansas state senator, to the lobbying firm of convicted lobbyist Milton “Rusty” Cranford and to a relative of Cranford.
More: Read Walsh’s plea agreement and the information in the case.
In February, Arkansas Business reported that the FBI and Arkansas’ attorney general were investigating SAYS, which declared Chapter 7 bankruptcy after losing a key state contract. Its filings showed that the FBI and U.S. Department of Health & Human Services had a pending “Investigation of Corruption & Fraud” and that the attorney general’s office has a pending investigation involving Medicaid.
“This plea exposes the depths to which ‘pay to play’ politics has corrupted a non-profit organization which was formed with the best of intentions, to help children,” said Duane Kees, U.S. Attorney for the Western District.
Prosecutors said Walsh admitted that, beginning in 2013, while serving as SAYS executive director, he agreed to divert SAYS money to Cranford and an unnamed Arkansas state senator in exchange for the state senator’s influence in protecting the nonprofit’s state contracts with the Department of Human Services and Department of Youth Services.
As part of the deal, Walsh was to provide a monthly “legal retainer” to the senator without the expectation that the senator ever provide any legal work.
“Instead, the purpose of the payment was to obtain the senator’s assistance in preserving the contracts in his official capacity,” prosecutors said in a news release. “According to the plea, the amount paid to the senator was negotiated by convicted lobbyist Rusty Cranford and amounted to over $120,000.”
Prosecutors said Walsh was to get SAYS into a more expensive contract with Cranford’s lobbying firms and employ a relative of Cranford who would have a “no-show” job with SAYS. Between the new contract with the lobbying firm and the no-show job, the nonprofit paid out an additional $262,000, prosecutors said.
As part of his plea, Walsh admitted that the payments and those to the state senator were not authorized by SAYS’ board of directors.
Walsh received a $171,000 salary from SAYS for the fiscal year that ended June 30, 2016.
It’s not the first case of wrongdoing alleged at the nonprofit. Arkansas Business reported earlier this year that SAYS’ former chief financial officer and her husband were charged with theft in 2017 in Columbia County Circuit Court.
The former CFO, Jennifer Knight, 36, of Magnolia, is Walsh’s daughter, who left SAYS May 2017. Her husband, Aric Knight, 37, of Magnolia, worked at SAYS as a computer specialist. The couple allegedly used a SAYS credit card to pay for gas, food and a trip to Florida, some of which was repaid. Aric Knight was allegedly paid for work he didn’t do.
Cranford’s Scheme
Thursday’s plea comes a little more than a month after Cranford, 57 of Rogers, pleaded guilty in a Missouri federal court to bribing Arkansas elected officials in what prosecutors there called a “multimillion-dollar scheme.”
Cranford pleaded guilty before U.S. Magistrate Judge David P. Rush in Springfield, Missouri, to one count of federal program bribery. Cranford was an executive at the nonprofit Preferred Family Healthcare Inc. of Springfield (formerly Alternative Opportunities Inc.) and oversaw its operations and lobbying efforts in Arkansas.
By pleading guilty, Cranford admitted that he and other Preferred Family executives paid bribes to former Arkansas Sen. Jon Woods, former Sen. Henry “Hank” Wilkins IV, a person identified in court documents as “Arkansas Senator A” and others, to “provide favorable legislative action for Cranford, his clients, and Preferred Family Healthcare,” according to a statement from the U.S. Attorney’s Office in the Western District of Missouri.
In turn, the legislators “steered Arkansas General Improvement Fund (GIF) money to Preferred Family Healthcare and other Cranford clients; held up agency budgets; requested legislative audits; and sponsored, filed and voted for legislative bills that favored the charity and Cranford clients,” prosecutors said.
The guilty plea was the latest in a still-unfolding scandal involving bribery and GIF dollars in Arkansas. Federal prosecutors in Missouri have accused multiple Preferred Family executives of embezzling money from the nonprofit, which is largely supported by Medicare and Medicaid. They have elicited guilty pleas from former Arkansas state Rep. Eddie Cooper of Melbourne and Wilkins.
‘Perplexed’ Over Contract
Founded in 1977, SAYS provided services to juveniles who had been convicted of crimes. In 2016, SAYS operated five facilities: Dermott Correctional Facility and Dermott Juvenile Treatment Facility, both in Chicot County; the Lewisville Juvenile Treatment Center in Lafayette County; and two juvenile treatment centers in Scott County. But those management contracts ended by the end of 2016.
DHS spokeswoman Amy Webb told Arkansas Business in February that the state Division of Youth Services wanted to “enhance and improve the services at the facilities” and put the contracts to operate the juvenile treatment centers and lockups out for bid in 2016.
Initially, Youth Opportunity Investments LLC of Carmel, Indiana, won the bid. It was supposed to start managing facilities on Jan. 1, 2017.
But awarding the contract brought scrutiny from the Arkansas Legislature. The contract for the facilities that SAYS managed would have paid Youth Opportunity $16.1 million annually, up from the previous $9.4 million. As a result, the state’s contract with Youth Opportunity was voided before it began operating the treatment facilities. In December 2016, Gov. Asa Hutchinson said DHS’ Division of Youth Services would manage the centers.
Losing the bid stunned Walsh.
“I’m a little perplexed about it because all of our programs are all accredited. All the DYS audits have been good. The Health Department audits have been good,” Walsh told the Arkansas Democrat-Gazette in August 2016.
As the bidding issues were playing out at the state Capitol in late 2016, financial problems emerged at SAYS.
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