The untold story of the Haight Ashbury Free Clinics embezzlement.

By A.C. Thompson

You might have heard about the rip-off at the Haight Ashbury Free Clinics, how some guy was arrested in late June for allegedly embezzling three-quarters of a million bucks from the venerable hippie-era institution, which for the past 37 years has provided free health care to the poor.

What you haven't heard is just how the purported scam went down, and who, besides Carl E. Gill, the former clinic executive charged with the crime, may be partially responsible.

Through court documents and interviews with insiders, the Bay Guardian has gained a sense of the previously untold dimensions of the scam and the dynamics that allowed it happen.

Several current and former staffers we spoke to weren't at all surprised by the indictment and subsequent media mini-frenzy. Dr. Joe Elson, the former director of the organization's Clayton Street walk-in medical facility, told us he began asking the company's chief executive officer, Dr. Darryl Inaba, how the finances had gotten so screwed up some three years before Gill was arrested. "I expressed great concern about the financial situation," said Elson, who left the company in early 2003 to work for Kaiser Permanente. "I said, 'Where's the money?'"

But money's always tight in the health care business, and the company's lawyer David Schwartz said none of its execs or board members had any warning it was being robbed - until it was too late.

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The organization now known as the Haight Ashbury Free Clinics Inc. came into existence in 1967 when a young M.D. named David Smith scraped up $600, rented a small apartment, and began offering no-cost medical care to the unwashed and uninsured hordes then flooding into the Haight for the Summer of Love.

Not surprisingly, Smith and his volunteer docs quickly became experts at treating bad-tripping hippies and other drug-culture casualties. Today HAFCI remains a link to the idealism of the ’60s, still running on the motto that "health care is a right, not a privilege," still treating any sick or wounded people who walk through the door, regardless of their ability to pay.

Over the decades it's mutated into a sizable enterprise, ballooning from one makeshift clinic to a network of a dozen facilities with a budget of roughly $14 million and around 300 employees. According to HAFCI, the nonprofit organization cares for some 60,000 destitute San Franciscans each year - evaluating schizophrenics in the county jail, stitching up bloody mosh pit victims at rock shows, handing out clean syringes to junkies, and counseling drug and alcohol abusers.
The current scandal is in part a cautionary tale about the failure of an Aquarian-age institution to adapt to the realities of a very different time. "Our trusting nature is not going to work in the lean and mean 2000s," Inaba told us.

The theft has left HAFCI, which survives on local, state, and federal grants, as well as donations, in critical condition. "It's a horrible situation for us," Inaba complained. "We have no cash flow to speak of. We're going from paycheck to paycheck."

Gill started pulling down fat paychecks when was hired on as chief financial officer in 2000. Internal Revenue Service records indicate he was handsomely paid, more than $112,000 in total compensation in 2002, the last year for which records are available.

According to an affidavit filed with Gill's criminal indictment, in June 2003 Inaba began scrutinizing Gill's activities and "became concerned about certain expenditures, i.e. expenditures for DVD players, laptop computers, and certain computing software." Inaba's concern grew when Gill couldn't explain what had happened to the stuff. What Inaba apparently didn't know was that Gill, in addition to making questionable purchases with HAFCI money, had allegedly also devised a fairly simple scheme to defraud the clinics, siphoning off $773,000 in HAFCI funds over a three-year span ending in August 2003, prosecutors charge.

One prong of the alleged scam involved federal grant money HAFCI received from the U.S. Department of Health and Human Services. The health department money came to HAFCI through the department's Payment Management System. Explaining to fellow staffers that HAFCI had been overpaid by the health department because of a billing mix-up, Gill allegedly cut five checks totaling $711,080.20, all made out to Payment Management System.

But the money never went to the feds - and, in fact, HAFCI didn't owe the health department anything. Instead, the money, prosecutors charge, was funneled into the Washington Mutual bank account of a company called Payment Management Systems. That company, state records show, was established by Gill in the summer of 2001. Its supposed headquarters was a UPS storefront in Sacramento.

The District Attorney's Office says Gill then took the money and attempted to launder it by moving it into the account of another company he owned, a firm called Compuquick, and by paying down a loan. The scam's second prong centered on yet another Gill company, this one named Data Management Services. Prosecutors say Gill wrote $62,000 in checks to Data Management Services, telling HAFCI the company had been brought in to sort out computer problems at the clinics.

Early this year, as suspicions about Gill mounted, Inaba went to the D.A.'s Office asking for help investigating what he'd begun to fear was an epic-scale embezzlement. Around the same time HAFCI's board placed Gill on administrative leave; he was later fired and, on June 24, indicted by San Francisco district attorney Kamala Harris.

"The D.A.'s Office is taking this very seriously because the allegations involve over $750,000 allegedly stolen from a nonprofit that serves the public interest," assistant district attorney David Pfeifer said.

Perhaps aware of the strength of the evidence arrayed against him, Gill, who bailed himself out of county jail July 1 with $250,000 in cash, isn't playing innocent. "He's extremely remorseful, and he's not contesting the financial irregularities for which he's responsible," Gill's attorney, Doug Horngrad, told us. "He's doing what he can to come up with restitution. Carl is taking full responsibility for what happened."

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But some close to the situation feel Gill isn't the only culprit. They claim that HAFCI's current executive team lacks the managerial prowess needed to guide a business as large and complex as HAFCI and that it shares some of the blame for the $773,000 debacle. They think a sharper crew of execs would've noticed the missing money sooner or maintained tighter controls that would've kept the coffers from being drained in the first place.

HAFCI bosses have barred all employees from talking to the press about the embezzlement issue, but several workers agreed to speak to us anonymously. They were scathingly critical of management. Inaba, said one, "never should've been put in charge of the clinics."

This employee also blasted HAFCI's 25-person board of directors, which the worker views as hidebound, calcified, and less than diligent. "I never see the board. I've never seen them do anything," the source said. "I'm sure there's some good people on it, but they're not overseeing jack shit."

Elson, an HIV specialist who ran the Clayton Street clinic for 13 years, offered similarly pointed commentary. During 2001 and 2002, Elson said, he and coworkers "inundated the board with letters and pleas" about conditions at the facility, which was reeling from internal divisions and a serious cash crunch. "We said, ‘There's something wrong here.’” During the same general time period, nearly every staffer on the medical clinic's 30-person roster quit, a sign of turmoil Elson thinks HAFCI execs and board members ignored (see "The Price of Change," 1/21/04).

When it comes to Inaba, he doesn't pull punches. "Darryl does not have the skills to run a $14 million organization. He's a pharmacist," Elson said. "I wouldn't want an MBA mixing my medicine, and by the same token, I don't want Darryl Inaba running a $14 million operation."

HAFCI lawyer Schwartz defended the company's management team. Noting that Inaba and the board uncovered the rip-off, he said, "The board, in my view, has done an extraordinary job. Some board members have been working around the clock to deal with the crisis."

Asked about the criticism, Inaba responded, "I think those are valid concerns. I'm meeting with as many staff as I can," to allay any fears that HAFCI is sinking.

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A review of the available evidence suggests financial controls broke down in a few key places. According to HAFCI rules, any check for $5,000 or more must be approved by Inaba. Yet Gill allegedly managed to generate $773,000 in checks - many of them for tens of thousands of dollars - without even telling the CEO.

"We had several people who were supposed to honor our controls and didn't," Inaba admitted to us. The finance department staffers who helped Gill cut the checks "should've said, ‘We can't do this because it's against corporate policy.’” HAFCI bosses say the lax money managers were fired earlier this year.

According to Inaba and others, accounting procedures have now been tightened. "We're putting a lot more scrutiny over our finances," he said.

HAFCI's outside auditors, who checked over the books during the three years Gill was CFO, may also have played a role in the mess. How the auditors overlooked the book-cooking remains an open question, one HAFCI didn't want to shed much light on. Inaba said the organization's auditor is a Los Angeles-based firm called the Harrington Co. However, we were unable to find any phone listing or Web site for the outfit, and Inaba declined to give us a copy of HAFCI's most recent audit.
According to HAFCI insiders, Gill pulled at least one other stunt that so far has gone unreported.

They say he improperly leased two vehicles, an SUV and a van, without the knowledge of other clinic execs. "The only way we found out about the vehicles was when we got a request for insurance for the vehicles," Inaba said, adding that Gill kept one of the vehicles at his Oakland home.

Questioned about the allegation, Gill's attorney said he knew nothing about the vehicles. Gill himself declined to be interviewed.

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Some rank and file workers at HAFCI are giving their full support to Inaba, a likable character who's been with the organization since the beginning. Said one, "He would cut off his arm and sacrifice one of his children to save the clinic. He puts in 12-hour days."

Others, though, think Inaba is in over his head. And everyone close to the crime says the full scope of the scandal may not have emerged yet - that there may be even more cash missing. If things get worse, Inaba may find himself looking for a job. "Darryl," Elson argued, "should turn in his resignation."

For his part, Inaba is focusing on rescuing the organization he's devoted his life to: "We want to totally clean house."

E-mail A.C. Thompson