Gatesway says state budget cuts caused its financial woes. Documents show the problems run far deeper

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Gatesway quickly fell from what appeared to be steady financial footing and tumbled into debts so unmanageable its leaders began frantically liquidating assets, laying off employees, slashing employee pay and picking off clients they deemed “unprofitable” just to pay its bills and staff, records show.
The Gatesway Foundation, a Broken Arrow nonprofit that has helped intellectually disabled adults for more than five decades, announced this week a sell-off of some of its “real estate assets,” blaming state budget cuts for the difficult financial reality it now faces.

But a closer look at the foundation through internal emails and financial documents obtained by The Frontier shows the problems there run far deeper.

Those documents show Gatesway quickly fell from what appeared to be steady financial footing and tumbled into debts so unmanageable its leaders began frantically liquidating assets, laying off employees, slashing employee pay and picking off clients they deemed “unprofitable” just to pay its bills and staff.

“We are down to a few thousand dollars in the bank and the difference between making payroll and/paying (sic) payables can be the timing of asset sales,” Gatesway Board President Greg Arend wrote in an email to foundation leaders on April 26.

“Please prioritize this as your top priority!”

In April, adding to the financial woes, the Central Bank of Oklahoma sent Gatesway a past-due notice for $1.75 million on a $1.9 million line of credit that, up until 2016, had mostly been left untouched by the foundation for years, records obtained by The Frontier show.

R. Greg Arend, current Gatesway Foundation Board of Trustees President and managing partner of Deloitte in Tulsa. COURTESY

Last August the bank suspended the line of credit, which is backed by half of Gatesway’s main campus in Broken Arrow, according to documents and interviews with sources who have knowledge of the account.

As Gatesway’s management and board of trustees told media outlets and the public both that the situation is the result of state budget cuts, the organization was paying hundreds of thousands of dollars hiring consultants closely tied to an influential board member, increasing employee and managerial salaries, creating new administrative positions and paying for or taking over personal debts and obligations of the organization’s former CEO, an investigation by The Frontier found.

According to these documents, the organization ended the fiscal year last June with a nearly $3 million operating loss “as a result of a combination of factors including state budget cuts, higher labor costs, accounting errors, write-offs of uncollectible receivable (sic), and lower private sector funding than planned, among other factors.”

In an effort to reduce costs, the organization in late 2017 terminated at least 16 clients — some of whom were Gatesway clients since the organization was formed — and laid off 54 employees.

Meeting minutes from a Gatesway Foundation Board of Directors meeting from Aug. 17, 2017, discuss the implementation of service termination for “the sixteen most unprofitable NGH (non-group home) Clients.”

Now, the organization’s board president has directed that Gatesway have a 20 percent profit margin on all clients, the records obtained by The Frontier show.

The organization is looking to “right size” itself by selling off all of its real estate assets and breaking itself up into subsidiary limited liability companies overseen by the Gatesway Foundation to provide employment assistance and housing services operations, the documents state. In addition, Gatesway is looking to hire a third-party service provider to continue its financial planning program for clients, the records show.

Arend, Gatesway President Gloria Morton and Christal Pellerin (Gatesway’s chief of staff, development operations manager and media liaison) declined multiple requests by The Frontier for interviews.

Arend, first reached last week, initially referred reporters to Pellerin. When Pellerin did not respond, Arend referred questions to Morton, and also asked for “an advance read of the article in draft form” so that “Gatesway management could fact check prior to issuance.”

After The Frontier agreed to provide Gatesway with three of the questions, with the understanding that more would be asked during a subsequent interview, the organization issued a public media release stating that it was putting most of its real estate holdings up for sale.

In the media release, Morton said the organization decided to sell its real estate assets because of financial difficulties brought about by a lack of state and donor funding, increased care costs, employee overtime and turnover.

“The organization’s liquidity has been adversely impacted by years of inadequate funding, both from the state as well as private resources,” Morton was quoted as saying in the press release. “While the state’s announcement of increased rates effective July 1, 2018 will help our operations, the reality is that the last several years of underfunding can’t be reversed without retroactive adjustment.”

However, the press release fails to mention what internal Gatesway documents obtained by The Frontier state was one of the root causes of the organization’s current financial crisis — mismanagement by Gatesway leadership.

“Gatesway incurred significant financial headwinds over the last couple of years primarily as a result of reductions in funding by the State of Oklahoma and decisions made by previous management that were later proven to be flawed in thinking and execution,” a Nov. 16, 2017, presentation delivered to the Gatesway’s Board of Trustees states.

The three questions The Frontier sent to Gatesway were never answered. The Gatesway Board of Directors is set to meet 11 a.m Thursday at the Stillwater National Bank, 1500 S. Utica Avenue.

Changes at the top
Gatesway’s legacy in Broken Arrow can be traced back more than 50 years. Helen Gates, whose son was diagnosed with Down syndrome, founded the foundation in 1963.

Like so many parents during that time period, Gates was left with few options once her child aged out of the state’s school for children with intellectual disabilities. Many were simply sent to nursing homes to live out their lives.

Gates opened Gatesway’s first residence in a farmhouse at East 71st Street and South Lewis Avenue that same year — one of the first group homes for people with intellectual disabilities in Oklahoma.

The city of Broken Arrow renamed a one-mile stretch of road that runs in front of the Gatesway Foundation “Helen Gates Way” when the nonprofit turned 50 in 2013.

By the time of its 50th anniversary, the organization had branched out to Bartlesville and acquired several properties that were used for residential and employment services and administrative offices, as well as property in Broken Arrow’s downtown Rose District.

Michael “Jim” Pacula, former CEO of Gatesway Foundation. COURTESY

In February 2016, the Gatesway Board of Trustees named Michael “Jim” Pacula as Acting CEO. Pacula, a native Ohioan, had served on the board since 2008 and was board president when he was hired, replacing long-time CEO Judi Myers, who resigned in late 2015.

At the time, Pacula was also president of the Tulsa-based Manufacturing Services & Innovations, LLC, a machine shop with its operations at a warehouse at 1844 N. 106th East Ave.

Pacula did not have experience running a nonprofit organization when he was named CEO, and the situation he was entering was a stormy one. The organization’s funding makeup is comprised of about 95 percent state and federal funds, and when Pacula was tapped to head the organization, state budget cuts were looming.

“I’m excited to take on this new role with Gatesway,” Pacula was quoted as saying in a February 2016 media release from Gatesway. “I look forward to working with staff to ensure the organization continues to thrive. I know with the cuts organizations like Gatesway have received from the state it will sometimes be challenging, but I’m confident Gatesway has a bright future despite the obstacles we will likely face.”

In March that year, state funding to Gatesway — and other nonprofits providing similar services throughout the state — was cut by 3.5 percent because of a state budget shortfall. In addition, the agency was also facing SoonerCare provider cuts of up to 25 percent, prompting Pacula to issue a public call for donors to aid the organization.

“It’s going to be rough,” Pacula told the Tulsa World, in regard to the 3.5 percent cut. “The last thing we’re going to do is cut services.”

Pacula told The World that one of the ideas to get through the cuts was to possibly lower management salaries at Gatesway.

But by mid-2016, the organization had taken the opposite approach.

According to the organization’s internal and public tax documents, Pacula was hired at a $150,000 salary, about $30,000 more per year than Myers, the previous CEO. In the early to mid months of 2016, Pacula’s son Tyler was also hired by Gatesway as transportation manager in June 2016, a new $37,000 “CEO assistant” position was created, and a new business development director was brought on board making $126,000 per year, more than the organization’s former CEO, records show.

Then there were the consultants.

In a five-month period, Gatesway paid or contracted with at least four firms for consulting services, internal records show. Almost all of the consultants had close ties to board members or Deloitte, one of the four largest professional services networks in the world, where former Gatesway board member (now current board president) Greg Arend is senior partner of its Oklahoma services.

The foundation entered into an agreement with the firm Resources Global Professionals in January 2016 to help improve the organization’s financial accounting, according to the contract. The company recruited a financial consultant for Gatesway for a $12,500 fee.

Over a four-month period, Gatesway paid RGP almost $80,000. The foundation then hired the consultant on as an employee, who started off on a salary of $50,000 per year, but was bumped up to $65,000 in late 2016.

Danny Lane, former Deloitte executive and manager of The Right Lane LLC consulting firm hired by Gatesway in 2016. COURTESY.

Gatesway then signed a contract with The Right Lane, LLC in May 2016. Danny Lane, who formerly worked at Deloitte as a senior manager in Tulsa, founded the Edmond-based firm about a month before the agreement was signed.

Gatesway paid Lane, who lives in Edmond, $95 per-hour and reimbursed him for regular meals, hotel stays, and travel to and from Broken Arrow. The foundation paid him nearly $81,000 over his six-month contract. And though Lane was being paid through his consulting firm, documents filed in late 2016 by Gatesway with the Oklahoma Secretary of State’s Office lists Lane as the organization’s Division President of Shared Services.

Lane did not respond to a phone message left on his cell phone by The Frontier.

In June 2016, Gatesway signed a third company, Four J, for consulting services. The Joplin, Missouri-based company was founded by Jeff Johnson, a former Deloitte employee and friend of Arend’s. Arend served as a pallbearer in Johnson’s mother’s funeral in 2011.

As of April this year, the organization has paid the firm almost $150,000, more than $16,000 of which was paid to Johnson for making dozens of drives from Joplin to Broken Arrow, records show.

Records also show that a Gatesway board member was paid for services through Four J. Former board member Anita Williams, who is Arend’s sister-in-law and was appointed to the board sometime in mid-2016, was paid nearly $1,500 between October and November 2017 by Gatesway through Four J while she was a board member. The organization’s bylaws prohibit board of trustees members from being compensated by the foundation, except for reimbursement of expenses approved by the board.

Gatesway Foundation’s 2015 IRS Form 990, showing the relationship between board members Greg Arend and Anita Williams, who was named to the board after Pacula stepped down to become Gatesway CEO.

Williams was paid at a rate of $70 per hour, the same rate as Four J’s manager, Jeff Johnson, records show.

However, when asked about Four J Consulting in a brief telephone interview, Williams said she did not know what Four J’s relationship with Gatesway is and declined to discuss the payments through Four J.

Williams said she left the board a couple of months ago.

“I stay close to the organization,” Williams said. “However I was doing some transitional work with them and it was turning into more of a non-board thing, so I stepped away from the board.”

In April 2016, Gatesway also paid $25,000 directly to Deloitte in Tulsa.

The $25,000 payment made to Deloitte was for its work on an “operational and strategic assessment report” for the organization, according to sources with direct knowledge of the plan who spoke to The Frontier on the condition of anonymity.

The plan laid out in that report appears to be at least part of the reason for some of the consultants — and Pacula himself — being hired.

According to The Right Lane LLC’s contract with Gatesway, the consultant was to “be responsible for the Implementation efforts associated with the Board approved recommendations reflected in the Operational and Strategic Assessment Report dated 4-7-16 completed by Gatesway under the guidance provide by the Client’s CEO (Pacula) and Board.”

In Pacula’s employment agreement with Gatesway, he was given all duties of CEO, but “Initially, Employee’s duties shall include oversight and direction of a comprehensive strategic plan as such is devised by the Board of Directors…” and lists his term of employment as running until the agreement expires or “until such time as the Board of Directors of Gatesway Foundation, Inc. determines that a more long term path has been structured for the future of Gatesway…”

Part of that plan involves the organization establishing subsidiary limited liability companies, which records show Gatesway did in late 2015 and early 2016.

Asked about the degree of involvement Arend had in implementing the plan formed by Deloitte for Gatesway, Pacula told The Frontier, “All I can say is there was an operations plan put together, that Gatesway contracted with them (Deloitte) directly, not with Mr. Arend but his firm. It was being implemented when I was there.”

It wasn’t just new hires and consultants benefiting from Gatesway.

In May 2016, Pacula signed documents that put the lease to the north Tulsa industrial warehouse his company was based out of under Gatesway’s name, records show. The three-year agreement, signed in May 2016, cost $3,100 per month, or $111,600 over the three-year period.

Pacula spent lavishly on the foundation’s dime, dropping thousands of dollars on elegant steak dinners, flowers, and his pet, credit card bills from the organization show.

He dropped $420 at Red the Steakhouse in Cleveland, Ohio, which touts endorsements from Playboy and Esquire, $2,500 on office furniture and more than $1,700 on vet bills and pet supplies, the records show.

The Gatesway Foundation, 1217 E. College Street, Broken Arrow. DYLAN GOFORTH/The Frontier

Pacula told The Frontier he doesn’t know anything about the credit card charges. He declined a request for a full interview.

Pacula also leased a Mazda through Gatesway, records show, and when he left as CEO in May 2017, the company had to pay a penalty because he had driven over the allotted mileage.

When Pacula left Gatesway, the foundation bought off equipment from his now-defunct business, such as a $1,500 forklift employees later complained was inoperable. The foundation purchased several pieces of equipment from Pacula, including a color copier, office furniture and a 2008 Dodge Ram pickup truck with 142,000 miles.

Pacula’s hiring was also marked with a substantial raise over previous leadership.

Myers, who was Gatesway’s CEO for more than 10 years, made $120,00 per year. When Pacula was hired, he started at $150,000 per year — an increase of 25 percent.

By late 2016, it was becoming evident that not all was well at Gatesway financially.

Pacula announced in August 2016 the organization would not hold its annual balloon festival as it had the 20 previous years.

“Unfortunately, because of the drastic budget cuts this year from the state we cannot, as good stewards of the money donated to the organization, spend our time and attention on an event,” he said. “We are focusing every dollar toward our mission, which is providing independence and dignity to adults with developmental and intellectual disabilities.”

But even with state budget cuts hitting Gatesway’s bottom line, the organization gave employees a pay raise in August 2016. The idea, sources who are familiar with the plan said, was to decrease the organization’s high rate of employee turnover. That high turnover rate was leading to large amounts of overtime being paid by the organization, as other employees filled the gap in staffing.

However, the pay increase also brought its own set of issues — it increased payroll costs and the amount paid for employee overtime, Gatesway sources told The Frontier.

Eventually, Gatesway began tapping into a previously established $1.9 million line of credit, which was backed by half of Gatesway’s main Broken Arrow campus, with the Bank of Central Oklahoma, records show.

The amount drawn from the line of credit grew from $859,000 in 2016 to $1.75 million in 2017, records show.

Pacula left his position as acting CEO of Gatesway in May 2017. It is unclear whether he resigned or was terminated — Pacula and foundation leaders declined to answer questions from The Frontier regarding his employment.

However, Gatesway paid Pacula severance for almost three months, a total of $37,500, internal records show. When including the $17,100 in property Gatesway bought from the former CEO, the foundation doled out more than $54,000 upon his departure.

Asked whether Gatesway was in better, worse or the same financial shape upon his departure, Pacula declined to comment.

“I really would rather not answer that,” he said.

The fallout from Pacula’s departure left the board scrambling. Rumors of the situation at Gatesway had been picked up by the media, emails between board members show. Some media outlets that had submitted questions to Gatesway around the time of Pacula’s departure did not end with a story being published, with the exception of a story by News on 6, in which the organization’s management blamed financial troubles on state budget cuts and rising health care costs.

In September 2017, a few months after Pacula left the organization, interim CEO Morton signed an agreement with a commercial real estate company in an attempt to sublease the warehouse Pacula rented. The Gatesway clients employed at the facility were relocated from the warehouse “thereby reducing employee/client environmental risk,” the Nov. 16 board presentation states. Though the agreement was sent to Arend at his Deloitte business address, the signature on the sublease was Morton’s.

Records show the property is still available.

Borrowing against a ‘restricted asset’
After Pacula’s departure from Gatesway in May 2017, the gravity of the organization’s financial situation started to become apparent.

Gatesway’s losses for that fiscal year, which ended June 30, 2017, were nearly $3 million, records show.

In August, Gatesway received a notice from the Bank of Central Oklahoma that the $1.9 million line of credit — from which Gatesway had drawn $1.56 million — was being suspended. Gatesway had not provided the bank with its financial information for the fiscal year that had just ended, Gatesway board meeting minutes show.

With the line of credit suspended, records show the company then tapped into its “restricted assets” in order to make payroll — specifically a $1 million donation from Broken Arrow business owner H.G. Ash that was to be used to construct a new building on the Gatesway campus.

Records filed with Oklahoma Secretary of State’s Office show Ash, who goes by the name Grady Ash, and AG Equipment (Ash’s company) would often donate money to Gatesway.

Gatesway’s 990 report from 2014 lists a donation from AG Equipment in 2011 of $56,029, then donations directly from Ash in 2012, 2013 and 2014 of $58,601, $47,561, and $845,463.

Secretary of State records show that in 2014, when Myers was Gatesway CEO, Ash made a personal $1 million donation that was later described in an internal email as being for a new building on the Gatesway campus.

By August 2017, Gatesway’s $1.9 million Line of Credit with Bank of Central Oklahoma had been suspended, and the foundation needed to “borrow against a restricted asset in order to meet payroll,” according to a Board of Trustees status report from November 2017.

“GW’s loan on restricted assets will be repaid as the top priority as organization begins to experience positive cash flows,” it said in the status report.

The “restricted” asset appears to refer to Ash’s $1 million donation, something sources familiar with the donation told The Frontier. In other company documents, including a July 16, 2017, email from Arend to several Gatesway members (as well as Jeff Johnson,) Arend refers to “the Grady Ash contribution” and says “management has always thought it should be non restricted.”

The Gatesway Foundation, 1217 E. College Street, Broken Arrow. DYLAN GOFORTH/The Frontier

“I also think that it is really important to be able to articulate the cost prohibitive nature of some of trying to build yet another new building with all the challenges and costs for utilities, etc and thus what the new plan of attack is,” Arend wrote.

Last month, with Gatesway in dire financial straits, Arend emailed Pellerin, asking her to step up efforts to raise cash and to have Myers, the former CEO who left in 2015, ask Ash to let Gatesway have the $1 million donation to use for other purposes.

“We need cash contributions yesterday!” Arend wrote in an email. “Please engage with Judy Meyers (sic) to resolve the restricted to unrestricted gift and separately see how she can help you with driving Adopt a Client Support.”

Myers declined to comment on the Ash donation and whether she had a role in discussing its use with the businessman. Ash did not return calls seeking comment.

‘Enterprise transformation program’
Shortly after Pacula’s departure, the board initiated an “enterprise transformation program” effort aimed at reducing costs, increasing revenue, and reducing debt, the records show. Those efforts were spearheaded in part by Arend, the records show.

Looking to cut costs, the organization, among other things, implemented a 19 percent pay cut for its community resident services workers, laid off 54 employees, cut 16 clients (including Lester Carter) from its rolls and began proposing a merger with other organizations (this last effort proved fruitless), according to the documents.

At the same time, the agency was looking to decrease its reliance on government funding, which made up around 95 percent of its revenue, the documents show, and was inventorying its transportation fleet, equipment used by its lawn care service (which employed Gatesway clients) and its real estate holdings in an effort to sell off some of its assets to generate quick cash, the email records show.

However, despite the financial crisis, Gatesway brought back its Balloon Festival, chaired by a then-board member named Anita Williams, to Broken Arrow in mid-September. The cost to hold the festival was more than $101,000, financial records show. It is unclear whether fundraising during the event allowed Gatesway to break even.

During the board’s Aug. 17 meeting, Coughlin recommended a board resolution to transfer all assets, liabilities, income and expenses for non-group home operations into one of the organization’s recently-formed LLCs — Gatesway Community Residential Services, LLC. In addition to the asset sales, Gatesway was also raising rates on its group home clients, from $650 per month to $700 per month, the records show.

Though Arend was only one of the 12 Gatesway board members at the time, he took an active role in the transformation program, negotiating with the bank about the line of credit, as well as the renovation and leasing of Gatesway real estate, the documents show. In July, Gatesway management set up an office for Arend at one of the foundation’s Rose District properties in downtown Broken Arrow.

In addition, during the Aug. 17 meeting, Arend proposed the creation of a “Board Liaison” duty as part of the transformation process and offered to serve in the position himself. Duties of the unpaid, non-management board liaison would include having “a high level of expertise available on a daily basis for the senior staff,” assisting “Gatesway’s management and report to the Board on key activities,” meeting minutes show.

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“By implementing a Board Liaison, Greg will be able to educate senior management in sophisticated management technics (sic),” the meeting minutes state.

The records obtained by The Frontier show Arend worked closely with Jeff Johnson, the manager of the Four J consulting firm, in the decision about what to with the Gatesway properties and the sale of assets. Johnson did not respond to a message left on his cell phone by The Frontier.

Though Gatesway’s president publicly announced plans to sell real estate on Tuesday, the foundation started attempting to liquidate its assets months prior.

In late 2017 and early 2018, at Arend’s urging, Johnson and Gatesway were trying to sell off the majority of the foundation’s vehicle fleet and lawn care service business and equipment, the emails and financial documents show, and had listed almost all of its real estate holdings — including parts of the main campus — up for sale.

“As a reminder, I reached out to Landmark about 3 weeks ago to explore interest in there (sic) buying GW’s Lawncare Business,” Arend wrote in an April 23 email. “They expressed interest. I have been following up every week. This is not moving along fast enough.”

Arend was even looking at selling Gatesway’s lawn care service customer list to other lawn service companies in the Tulsa area, the records show.

“First, I have two calls today in regards to the selling the lawn customers,” Pellerin, Gatesway’s chief of staff wrote in an April 30, 2018, email to Arend. “One of them I know personally and then the other reached out through Facebook Marketplace.”

On April 26, 2018, Arend sent an email to administration urging them to sell more vehicles in order to pay the organization’s bills and employees.

“PLEASE make sure to liquidate the vehicles we discussed today and more if you can,” Arend said.

At least one of the vehicles Gatesway sold for $5,000 the next day was originally purchased from Pacula. Administration also sold a cargo van for $1,700, records show.

Rose District office space
In addition to its main campus and several residences, Gatesway owns three commercial properties in downtown Broken Arrow’s Rose District at 112, 114 and 116 W. Commercial Street.

Part of the organization’s plan in mid-2017 was to lease out some of the space to businesses, the documents show, and at one point Arend had wanted to make space in one of the properties to house a small business incubator, though it has yet to come to fruition.

As with the sale of vehicles and other Gatesway assets, Arend worked closely with Four J’s Johnson on what to do with the foundation’s real estate holdings.

Around the time Gatesway management set aside an office space for Arend in one of the Rose District buildings in July 2017, it also started renovating the Rose District properties to attract businesses to lease some of the properties, the records show.

Arend, whose office was in the back of the 114 Commercial Street building, had requested that Gatesway employees who were working on fundraising be transferred to the building with his office in it, including Pellerin. In addition, Arend oversaw many of the fine details of the renovation going on at those properties, making suggestions about having a coffee bar at the site, floor tiling, office furniture and equipment, ADA compliance of the bathroom and even the amount of insulation in the bathroom walls near his office.

“Before hanging the sheetrock on the conference room wall and bathroom wall, please be sure to insulate those walls for privacy,” Arend wrote in a Sept. 1 email.

And privacy around his office space (referred to in emails as “Suite C”) was an important issue for Arend, emails show.

“There is too much confidential information involved in Suite C to give anyone access,” Arend wrote in an Oct. 2 email, asking that a church looking to lease the 114 W. Commercial Street property not be given access to the building’s back door, which leads to his office area.

“My desire is to shift hard into development/fund raising mode from cost take out activities,” Arend wrote in a Nov. 22 email requesting that Pellerin and other fundraising employees be moved to the Rose District office. “This also gives us ‘quiet space’ to hammer through any remaining cost take out opportunities that require extreme confidentiality Which is easier to manage from RD (Rose District).”

Arend was also giving direction on dealing with complaints from the church that had leased the front of the 114 W. Commercial Street property, which is now vacant and for lease. In an Oct. 22, 2017, email from Arend to Johnson and several Gatesway managers, Arend directed that an email be sent to the church addressing a complaint the church had made about the building’s flooring, stating that the foundation wants to fix the issue, but was unsure of when it could do so.

Arend’s direction appears aimed at having the church pay for the repairs.

“I would suggest you offer them the option to exit the lease,” Arend wrote. “You can expect the Church to offer to do this (repairs) themselves and on their nickel. The issue with this is GW has no idea what else could be discovered or who might get injured. As a result, GW believes that it really needs to handle the project itself and in a time frame that works for GW. You can also expect them to try to bill GW for their renovation work.

“If so, then ask them to send you the invoices for ‘non donated’ services and that you will consider some degree of payment but remember their (sic) was very well a tenant who wanted all the things they removed.”

By mid-November, Gatesway had gotten the green light from the state to sell its group homes to investors, according to an email from Morton to Arend. Arend was receiving weekly cash flow reports and regular “client profitability” spreadsheets from Gatesway management, emails show.

“This is critically important,” Arend wrote in a Nov. 22 email asking for an updated client profitability report for Gatesway clients living in non-group homes. “We need to identify all people in CRS (community residential services) NGH (non-group homes) that are below 20% margin quickly.”

An email from Greg Arend to Gloria Morton detailing efforts to make a “minimum direct margin of 20” off Gatesway clients.

At a March 23, 2018, board meeting, Arend proposed selling nearly all of Gatesway’s properties, including the Rose District properties, for a combined $3.75 million.

On April 2, Gatesway’s $1.7 million principal on its line of credit at Bank of Central Oklahoma came due, records show. Though the bank had obtained an appraisal of the property in late 2017, it has yet to take action against the foundation.

During an April 17 board meeting, Arend proposed breaking Gatesway’s “core” services into two subsidiary LLCs, one for housing services and one for employment services, and eliminating staff who were not aligned with either operation. A third part of Gatesway operations, financial and asset management training for clients, would be operated by a third-party contractor, Arend’s presentation states.

Also during that meeting, board members were told that Gatesway had recently eliminated seven employees — including a grant writer and two maintenance workers — to save about $297,000 per year, records show.

What started out as a 12-member board of trustees in September 2016 had been whittled down to only six members by May 1, 2018, with Arend as board president, records show. Gatesway’s bylaws allow for up to 18 people on the board.

To help put the organization on secure financial footing, Gatesway’s leaders are aiming to become less dependent on state funding, although the organization has struggled to secure backing in the form of grants and other private avenues, records show.

Part of the effort to establish alternative revenue streams is through donations driven by Gatesway’s “Adopt-A-Client” initiative. During the April board meeting, board members set a goal to raise $1 million through the program.

The money woes were apparently so tight that the agency turned to its employees for help. A “Sponsor-A-Friend” program was hatched where employees were asked to find donors who would pledge hundreds, even tens of thousands of dollars in assistance.

In an email dated May 3, 2018, Pellerin pitched the plan to all Gatesway employees, asking them if they would like some time in the sun.

“Would you like to get away for one week, sit on the beach and bask in the sun? Who wouldn’t?! You have a chance, and the ball is in your court.”

Pellerin said that to be eligible, employees would need to sign up at least 20 “commitments” to be eligible for the drawing.

“The sky is really the limit!” Pellerin wrote, urging employees, many of whom made less than $10 per hour, to ask “your bankers, your hairdressers….anyone, everyone!”

But even the prize was tarnished. Yes, the winning employee would “spend one week in paradise” at a Destin, Florida, beach home owned by Arend. But they would have to pay their own way there.

“Winner is responsible for transportation to and from as well as food/gas” read the fine print.

‘Back on an even keel’
Though she has been gone for about three years, Myers, the former CEO, was recently asked by Gatesway to come aboard as a consultant, and will likely begin work in the next week or two.

She said she had not yet gotten specific details about the organization’s finances, but overall, the organization is in dire straits.

Myers said the plan to sell the property, as she understands it, is for Gatesway to get out of the “home ownership business.” So rather than residents paying money to Gatesway for rent — and Gatesway being responsible for the property upkeep and maintenance — they would pay someone else, while Gatesway continues to provide the in-home services for them.

“You have to have a huge staff to maintain property,” Myers said.

Though a big factor in the financial issues being faced by Gatesway were the employee pay raises given in 2016, Myers said Gatesway employees do deserve a better wage for the type of work they do. Many earn slightly more than $8 per hour.

“It’s not a living wage. Some way, we have to come up with ways of meeting that,” Myers said. “The care Gatesway gives people is absolutely wonderful.”

In 2004, around the time she was first appointed CEO, Myers said Gatesway faced similar issues with its finances — the organization was deeply in debt and running behind on paying its bills. After several years, Myers said, she was able to help the organization get back on firm footing.

She hopes that happens again this time around.

“We want to get Gatesway back on an even keel again. It’s sad that it’s in the shape it is. We need to pull it back out again,” Myers said. “I’m willing to help — whatever I can do to work with the board to get on even keel again, but it will take donors.”

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Clifton Adcock

Senior Staff Writer

A veteran investigative reporter who has covered eastern Oklahoma for more than 15 years, Clifton joined The Frontier in April 2017. A native of southeastern Oklahoma, he has covered numerous issues from criminal justice to politics for publications including the Tulsa World, the Oklahoma Gazette, and Oklahoma Watch. Clifton holds a master’s degree in journalism from the University of Oklahoma. Clifton can be reached at clifton@readfrontier.com. Follow him on Twitter @cliftonhowze
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