Can a Ghost be Revived? The Case Study of a Missing Nonprofit

At the 34th Annual ACFE Global Fraud Conference Michael Booher, CFE, CPA at the Tennessee Comptroller of the Treasury scared his audience with a fraud ghost story during his session “Ghost Story: A Case Study of a Nonprofit That Disappeared.” The subject company of the investigation, Phases, Inc., was a nonprofit dedicated to helping women with substance abuse issues in Tennessee. Phases, Inc. was a recipient of a grant from the Department of Mental Health and Substance Abuse Services (MHSAS), when MHSAS noticed a red flag and a tip was reported to the Comptroller of the Treasury.  

In the spring of 2018, MHSAS staff were scheduled to conduct a routine site visit with Phases, Inc. when a delay was requested due to an upcoming “surgery” for the director, Julia Armstrong. After some time, MHSAS staff reached out to reschedule the site visit and when they called Phases, Inc. they found that the phone lines had been disconnected. Quickly pivoting, the team went to make an unscheduled site visit and discovered that not only was Phases, Inc. no longer there, the building had been sold and already had a new tenant. MHSAS had essentially been “ghosted,” said Booher. 

The Skeletons in Phases, Inc’s. Closet 

So, who was associated with Phases, Inc.? The investigation began with the original founder of the nonprofit, Tate Rogers, who at the time of the investigation was unable to be contacted due to his ongoing battle with Alzheimer’s disease, so investigators spoke with his spouse. Roger’s spouse stated that he had been involved in the recovery business for decades and started multiple programs throughout his life. He founded Phases, Inc. as a recovery business focused on supporting women with substance abuse issues through housing assistance and multiple forms of counselling including individual, group, spiritual and secular options. 

When Rogers’ health began to decline, the couple made the decision to leave Phases, Inc. to their most successful client, Julia Armstrong. At the time, Armstrong was essentially a posterchild for the program and after her recovery she volunteered and became a house manager for the nonprofit. In 2017, Rogers kept ownership of the property and agreed to lease the space to Armstrong and signed the bank account over to her as she continued to operate Phases, Inc. From Rogers’ spouse, the investigators learned that in the beginning Armstrong did well leading the nonprofit, but soon stopped paying rent. She had incurred debts in Rogers’ name. So after paying off those debts, Rogers evicted her from the building and gladly ceased contact with Armstrong. The investigative team continued their search and around every corner found little to no information to help them. In fact, it was suggested they end their investigation after a myriad of problems. There was lack of substantive records and Armstrong was not to be found. The chances of the team coming up empty handed were high, increasing the potential opportunity costs. However, this was not the death of the ghost hunt. 

Can a Ghost be Revived? 

]The team took one last leap of faith and began looking into similar cases. A past investigative report showed that another addiction rehabilitation program, Mount Hopewell CDC (MHCDC), received the same grants as Phases, Inc. and had run a misappropriation scheme that lasted from 2011-2015. Mount Hopewell had charged services carried out for people who were deceased or incarcerated at the time, and the team began to wonder if the same was happening at Phases, Inc. So, they once again pivoted. Using public data, they began looking into the “clients” whose services were paid for by the grant program. Of the 35 people serviced, many of them had criminal records, which was not surprising due to their experience with substance abuse. But many had been incarcerated when Phases, Inc. was providing them services. The team found 135 false entries worth a total of $6,260. While this dollar amount may be considered low, this is what Booher’s team was able to prove without a reasonable doubt had been bilked from the MHSAS system. The real dollar amount is likely much higher. The team was able to locate Armstrong thanks to an address update of her driver’s license, and she was charged with forgery, theft of property and computer theft by fraud. She was ordered to pay restitution to MHSAS for the total amount of $6,260.