In January, I published a detailed installment outlining how the Virginia Association of Recovery Residences (VARR) had been quietly directing substantial sums of taxpayer money to for-profit companies owned by its own leaders. 

Less than two months later, the Virginia Department of Behavioral Health and Developmental Services (DBHDS) – the state agency that funds VARR – initiated an audit of VARR’s financial records and programs. 

That review confirmed “lack of robust conflict of interest policies and disclosures” and “lack of supporting documentation and monitoring of the expenditures,” among other deficiencies.

This article highlights the audit’s key findings, discrepancies between its conclusions and VARR’s public statements, and omissions in the organization’s 2021 IRS filing, which was recently made public.

VARR conflicts of interest

VARR’s required independent audit for 2021 noted related-party transactions of $960,507 — less than the actual total, but still nearly half of the organization’s income that year.

As VARR’s revenue surged past an estimated $6 million in 2022, the organization continued directing payments to companies owned by its leaders, despite lacking a “robust” conflict-of-interest policy. The DBHDS audit noted:

Per discussions with VARR, there was a significant delay between initial VARR agreements with the Department and the full execution of a robust conflict of interest (COI) policy for VARR board members. As of visit March 2, 2023, a policy had been developed but had not been adopted or implemented. Because of this, the related party transactions that were identified in VARR’s independent audit were conducted without clear management of COI, as VARR board members had ownership interest in entities that VARR was conducting financial transactions.

At the 2022 annual summit of the National Alliance for Recovery Residences (NARR), VARR’s parent organization, VARR Executive Director Anthony Grimes told the audience he was “not going to apologize” for being well-funded.

While discussing VARR’s role as a conduit for state funding, Grimes claimed the organization had passed its first independent audit with “flying colors.”

However, the audit’s findings contributed to DBHDS initiating its own review and implementing a corrective action plan with VARR.

Under that plan, VARR “adopted a revised Conflict of Interest Policy at the Board of Directors strategic planning session and disclosed all conflicts as of 3/23/2023” – more than two months after the conflicts were publicized in this series.

Eight days after I published this installment, DBHDS sent me VARR’s revised conflicts-of-interest policy.

Key points from the policy include:

• A financial interest is not considered a conflict of interest unless the “appropriate governing board or committee” (i.e., VARR) determines that it is.
• If the board or committee identifies a conflict, it will follow established procedures to decide whether to proceed with the transaction.
• VARR will have “periodic reviews” to ensure the organization “operates in a manner consistent with charitable purposes…” During these reviews, “VARR may, but need not, use outside advisors.” (Emphasis added.)

Grimes and VARR President Sarah Scarbrough did not respond to a request for comment.

VARR payments to recovery homes unaccounted for

Starting in mid-2021, VARR was awarded $1.012 million annually for three years to expand recovery housing across Virginia through grants to recovery residence operators.

As I reported in January, VARR has provided DBHDS with no supporting documentation for these expenditures beyond vague general ledger reports.

For example, VARR supplied the following minimal details regarding its award to Lotus Recovery RVA, the for-profit sober home organization owned by the brother of VARR ally and state Sen. Lamont Bagby (D-Henrico), then serving in the House of Delegates.

Similarly, VARR provided scant information on payments to Urban Recovery RVA, owned by VARR board member Jimmy Christmas:

During visits to VARR’s office in March, DBHDS auditors reviewed 32 expenditures and found that nearly half lacked supporting documentation. They reported:

• “15 of 32 (47%) of the expenditures tested lacked supporting documentation such as invoices, timesheets and receipts evidencing payments.
• Due to the lack of adequate supporting documentation for all 15 transactions, it could not be determined if some [of] these expenditures were allowable under the federal grant or restricted state funding requirements.”

Eight days after I published this installment, DBHDS sent me the list of those 15 expenditures.

Six were for capacity-expansion projects, all paid to for-profit operators:

Lotus Recovery RVA – $90,288 rent payment with no lease provided, plus an additional $21,190 unaccounted for

Isiah Bagby, owner of Lotus Recovery, did not respond to requests for comment via email or social media.

Peters Place RVA – DBHDS “couldn’t determine” what $72,375 was used for

I was unable to reach then-Executive Director Shauntelle Hammonds, who is no longer affiliated with Peter’s Place.

The current director, Jayden LeBlanc, provided the following response regarding these expenditures.

I wasn’t the director of Peter’s Place at that time. I was working on a grant project in which I definitely tracked everything and submitted my reports.

I was made aware of the discrepancy you are referring to and reported on it to the appropriate entities as soon as I was made aware. What happened after that wasn’t up to me and I don’t know the details of that.

I will let you know that I have already been working to officially disband Peter’s Place (which will be completed within the next month or so) out of respect for where that name originally came from and in order to expand our mission and level of transparency into something that better serves the LGBTQIA+ community.

I would appreciate support and not confrontation. I will not be answering any further questions, as I will not speculate on things I do not have full working knowledge of.

I need to be very clear… If you misrepresent my statement in any way, I will post my statement as I have given it and pursue litigation against you.

I wish to be left out of this matter and I hope you respect the LGBTQIA+ community enough to let us continue our work in peace.

When asked to clarify what discrepancy he reported to the “appropriate entities” and whether his new role as director allowed him to see how the money was spent, LeBlanc replied: 

Those questions are not my responsibility to answer for you as I was not the director at that time.

The $72,375 reviewed by DBHDS accounted for less than half of the $151,520 VARR paid to Peter’s Place in fiscal year 2022 (FY22).¹

Starfish Recovery – No supporting documentation for salary expense

Before publishing the first article on Starfish Recovery & Wellness, I made several attempts to reach Starfish owners Frank and Stephanie Bellanger for comment. About a week later, I received emails from them asking me to cease all contact. If either reaches out to me to comment on the above discrepancy, I will promptly update this section with their statements.

***

As part of VARR’s corrective action plan, the organization reported:

VARR will revise current reporting for capacity expansion recipients to include monthly supporting documentation receipts for expenditures non-payroll related for goods purchased.

DBHDS did not respond when asked whether the Department will take further action to verify the unsupported expenditures or require VARR to return any unaccounted-for funds.

(The list of 15 expenditures along with organizations’ responses are available here.)

VARR grants for recovery residences: Correcting a non-transparent award process

On the first day of the October 2022 NARR summit, Grimes said VARR’s role as a conduit for public funding ensures small operators across the state don’t get “left behind.” He added, “We’re willing to be that fiscal agent because we know how desperately needed the resources are.”

As I outlined in a January article, VARR awarded most of its Year 1 capacity-expansion funding to Richmond-area organizations owned by or benefiting a few VARR board members, without input from the full board.  By mid-2022, VARR planned to continue funding at least three of the same organizations in Year 2. Meanwhile, many small operators across the state were unaware that the funds existed.

As a result of its recent review, DBHDS recommended that VARR implement a transparent process for awarding funds to recovery organizations to ensure inclusion and equity for residents and operators.

In response, VARR wrote:

VARR has implemented a new policy for capacity expansion funding to include a notice of funding opportunity, application, and a review panel. A portion of this funding has been spent on minority owned organizations and the indigent bed funding has increased the number of non-Caucasian individuals accessing recovery residences.

This new policy was implemented in March, just in time for the third and final year of VARR’s award. In a March 30 Facebook announcement, VARR gave two days’ notice of the funding application, which would be available to the public for 10 days.²

In a June newsletter, VARR announced it had awarded $1.18 million in capacity-expansion grants to 16 organizations.

According to the announcement, recipients were selected through “a review panel consisting of the VARR Board President, a federal grant program manager, a director of a collegiate recovery program and an academic and researcher.”

• Who were the panelists making decisions alongside the VARR president?
• Which 16 organizations received funding?
• How much did each organization receive?

Grimes and Scarbrough did not initially respond to these questions. Several months later, Scarbrough provided the names of the other three panelists: Dr. Amy Cook (associate professor, Virginia Commonwealth University), Tom Bannard (program coordinator, Rams in Recovery, Virginia Commonwealth University), and Michael Zohab (then-State Opioid Response grant manager for DBHDS).

Scarbrough also wrote:

[In] order to facilitate a more objective decision-making process and ensure impartiality, a panel was convened to review all grant applications, comprising individuals not directly associated with VARR or specific organizations. The selection of grant awardees was made through a numerical grading system, emphasizing the merits of each application. Importantly, the panel members were generally unfamiliar with the individuals, their affiliations, or associations connected to the applications. This approach aimed to maintain a fair and unbiased evaluation of the submissions and therefore those selected also.

(Zohab was involved in developing VARR before taking a job with the state in 2018. While at DBHDS, he continued working closely with VARR leaders, approving funding for projects that personally benefited them — even as other DBHDS officials raised concerns about conflicts of interest. Bannard and Cook have no known affiliations with VARR leadership.)

Scarbrough also provided the list of FY24 capacity-expansion grantees and award amounts. Sixty-five percent of the total funding was designated for projects outside the Metro Richmond area – a marked geographic improvement from prior years, though still disproportionately favoring Richmond-area organizations.

Among the grantees were five of the organizations for which VARR had been unable to substantiate expenditures, including the three featured in this section: Lotus Recovery RVA ($125,000), The Dandelion Hive (formerly Peter’s Place) ($42,000) and Starfish Recovery & Wellness ($42,000).

When asked about re-funding these organizations and how VARR would oversee the awards, Scarbrough explained in an email:

Several of the organizations mentioned [with unsubstantiated expenditures], including VARR, were relatively new (or new to such processes) and did not have well-established processes for documenting receipts. Initially, VARR had communicated the necessary requirements to the organizations, but did not conduct an extensive training session for a detailed review and implementation of these processes.

When shortcomings were discovered during the auditing process, VARR took proactive steps to remedy these issues. This included implementing additional protocols and enhancing the onboarding process for organizations receiving funding, with ongoing efforts each year to further strengthen this process. In instances where organizations did not have the receipts mentioned, VARR staff made site visits to confirm the purchases, using photographs as verification.

In the case of Peter’s Place, issues under previous management led to Jayden, the new acting director, rebranding the facility as Dandelion. Jayden made significant efforts to address and correct past issues, while also ensuring that the residents continued to receive uninterrupted services. Both VARR and Jayden took active steps, including unannounced visits and interviews with residents, to address these concerns, with the identified problems being unrelated to Jayden’s management. It’s also key to highlight that the funding decision for this initiative was made in cooperation and consultation with DBHDS.

The complete list of FY24 awardees is included in the next update on VARR spending, following a breakdown of FY23 awards.

VARR payments to for-profit entities violated federal guidelines

DBHDS auditors reported:

Out of the 32 expenditures, 13 (41%) were with [for] profit entities with whom VARR completed award letters that establish a sub-awardee relationship rather than a vendor/contractor arrangement. These included, Starfish Recovery, Eco Flats, Lotus Recovery, Evolution House, WAR Foundation, Peters Place, and True Recovery RVA. Per the SAMSHA guidance, federal grant requirements prohibit expending the Block Grant funds to any other entity than a public or non-profit entity. However, such arrangements are permissible if entered as a procurement contract. A recommendation for establishing contracts has been included in the program review section.

VARR’s funding agreement under the Block Grant stated it would administer sub-awards to 18 “Peer Recovery Community Organizations.” According to the Substance Abuse and Mental Health Services Administration (SAMHSA), Recovery Community Organizations are “independent, non-profit organizations led and governed by representatives of local communities of recovery.” This definition is widely recognized by state agencies and recovery organizations across the country.

When VARR applied for Block Grant funding, it omitted the “LLC” from the names of several proposed sub-award recipients. It remains unclear whether DBHDS was aware at the time that several of those organizations were for-profit entities.

For-profit operators such as True Recovery, WAR Foundation and Starfish charge residents thousands of dollars per month for program services — fees typically paid by participants’ families. The federal Block Grant funds have been used to cover a portion of these operators’ staff expenses, effectively supplementing the revenue of private recovery businesses with public dollars. It is unclear what, if any, public benefit this arrangement provides.

It is also uncertain whether DBHDS’ recommendation to replace sub-awards with procurement contracts will meaningfully change these funding practices.

(The full “Fiscal and Programmatic Review” by DBHDS is available here.)

VARR’s IRS form omissions

Since I published the January article on VARR funding, the organization’s 2021 IRS return has become available online through third-party public interest sites. Several notable omissions appear in the section disclosing related-party transactions.

Imagine the Freedom Properties LLC

VARR reported that the executive director and his wife were members of Imagine the Freedom Properties LLC, but left out shared ownership by two additional VARR officials: Jimmy Christmas (then board member and now vice chair) and David Rook (then president).

Imagine the Freedom Recovery Foundation

VARR disclosed that the executive director’s wife was an officer of Imagine the Freedom Recovery Foundation but omitted three VARR leaders who also served as directors:

• Anthony Grimes, VARR executive director
• David Rook, then VARR president
• Sarah Scarbrough, then VARR vice president and current president

WAR Foundation LLC

VARR reported that the executive director and his wife were founders of WAR Foundation but did not note that, despite its nonprofit-sounding name, the entity is a for-profit company owned by the executive director’s wife.

True Recovery RVA LLC

VARR reported that one of its board members was “also a board member and officer of True Recovery RVA,” which received $288,902 from VARR in 2021. The filing omitted that the board member — then-president David Rook — was also an owner of the company, and that Eco Flats RVA LLC, which received an additional $88,413, was a division of True Recovery.

The return also omitted $98,150 in payments to Peter’s Place RVA, owned by then-board member Shauntelle Hammonds.

The related-party note in VARR’s 2021 auditor’s report (see p. 14) appears to mirror these omissions, as it also excluded payments to Eco Flats and Peter’s Place.

Once these oversights are accounted for, direct payments to entities operated by or benefiting VARR officials represented more than half of the organization’s 2021 revenue.

Grimes and Scarbrough did not respond to my request for a copy of VARR’s 2022 IRS return. They also did not respond to questions or a request for comment regarding the 2021 return or DBHDS auditors’ review.

***

The third and final installment in the subseries on Starfish Recovery & Wellness will be published soon. After that, this series will turn to the Henrico County-based Journey House Foundation. 

If you have information about Journey House or any other Richmond area recovery residence, please reach out. As always, I will not share your name or any identifying details without your permission.

Correction

An earlier version of this article incorrectly described Lotus Recovery RVA as a duplex owned by Isiah Bagby. The intended meaning was that Bagby owns Lotus Recovery RVA, which operates a recovery duplex. Bagby does not own the property itself.

Scroll below to view investigative stories in The Parham Papers series, or visit the homepage to explore all articles, including legislative updates.

1. Documents obtained from DBHDS show that in FY22, Peter’s Place received $140,000 in capacity-expansion funds, $6,520 in indigent bed fees, and $5,000 for a staff position. [Return to article]

2. As originally reported in this article, the announcement also stated that “VARR has also awarded a portion of capacity expansion funding to minority owned or operated organizations,” which initially suggested this funding was not open to the public under the newly announced process. Grimes and Scarbrough did not respond to inquiries at the time. Several months after publication, Scarbrough clarified that funding for minority-owned organizations was available through the same public application process. [Return to article]