New River Service Authority board members, including Ashe County Manager Pat Mitchell and Ashe County Commissioner William Sands, were informed Monday morning they could be charged with a class III misdemeanor, and held personally liable, if audited financial statements cannot be produced for the failed New River Behavioral Healthcare.

“We were told that if we closed down (New River Service Authority) and made no good faith effort (to complete audited financial statements), we could be held personally liable,” said Mitchell.

The New River Service Authority is the organization tasked with overseeing the dissolution of New River Behavioral Healthcare, an area mental health care service provider that ceased operations last fall.

The news came during an NRSA Board meeting in Wilkes County Monday morning from the Director of the Fiscal Management Section of the N.C. Local Government Commission Sharon Edmundson.

Edmundson told the 10 member board that convictions on the misdemeanor charge could result in up to a $1,000 fine.

According to Mitchell, Edmundson told the board that they had a fiduciary responsibility to the citizens of Ashe, Alleghany, Avery, Iredell, Surry, Yadkin, Wilkes, and Watauga Counties, all residents of New River Behavioral Healthcare’s service area, before the agency collapsed.

Edmundson told the board that annual audits of the NRSA is required under the N.C. Local Budget Fiscal Control Act, and that audited financial statements of NRBH should have been completed by Lowdermilk Church by Oct. 31, 2011. An audit will also be required for fiscal year 2011-2012 because NRBH was still in operation at the start of the fiscal year.

The board voted unanimously to authorize the audit work after they emerged from their closed session after nearly five hours.

Mitchell said Edmundson instructed the board that they must also first contact Lowdermilk, Church & Co, the firm that previously audited NRBH and formally terminate the contract.

“I’d be surprised if Lowdermilk Church would perform the audit,” said Mitchell. “If you look at the accounts payable list, NRBH owes them considerable dollars. We’ve also had public talks about looking at their (Lowdermilk Church’s) liability policy. I don’t think they’d perform the audit.”

The termination will also need LGC approval to be valid.

“We never wrote an official letter telling Lowdermilk Church they were no longer engaged,” said Mitchell. “If we send them a letter disengaging them, that has to be approved by the Local Government Commission. We really need to go back to them (Lowdermilk Church) first, and cancel that obligation.”

Mitchell said the NRSA would then be free to contract with another independent auditing firm, to attempt to produce audited statements for 2010-2011 and 2011-2012. Edmundson also told the board that she could supply them with a list of auditing firms who may be able to complete the work.

Audited statements must also be signed by a responsible party that the audit accurately reflect the condition of NRBH, according to Mitchell. Alleghany County Manager Don Adams said he wouldn’t sign such a statement.

“None of us are going to sign off saying (the audit) accurately represents NRBH,” said Mitchell. “Four of the five (county managers) believe that the best we will get is some accounting papers that show revenues and expenses. I think they’ll eventually say that we can’t get qualified financial statements out of that.”

Mitchell said the NRSA may also be able to hire Martin Starnes and Associates to complete the audit. The board contracted with Starnes last year to examine NRBH’s financial records and come up with a reason for the firm’s collapse.

“We hired them as consultants, not as auditors,” said Mitchell. “But we’ve not talked about (Martin Starnes), but Ms. Edmundson is going to furnish us a list. She’ll identify auditors for us that have come into a bookkeeping situation such as this, and those are probably the ones that we will look at. I will be surprised if Martin Starnes is not on the list, because they’re very well respected.”

The board also voted unanimously to cease NRSA operations by April 18. Two scheduled meetings remain. Gary D. Blevins, chair of the Wilkes County Board of Commissioners, requested a meeting to discuss “confidential issues” at 3:30 p.m. Thursday, March 29, in the second floor conference room at the Ashe County Courthouse. Another meeting is also scheduled for April 12, at the Wilkes County Office Building.

Even though the NSRA’s administrative oversight is scheduled to end next month, Mitchell said several questions remain unanswered.

“Medicaid has not been resolved, and the Lowedermilk Church liability policy hasn’t been resolved,” said Mitchell.

Mitchell also said other questions about how the board’s attorney Bruce Kaplan will continue to represent the NRSA if it is no longer providing oversight is also unanswered.

“ I don’t know how he does that, and I don’t know the legal answer. We certainly won’t get a resolution on the Medicaid issue by mid-to-late April,” said Mitchell.

Kaplan is representing the NRSA against claims worth $2.1 million in secured debt and $10.3 million in unsecured debt.

After finding numerous NRBH Medicaid claims, “out of compliance,” the North Carolina Division of Medical Assistance, the state agency tasked with uncovering fraud at NRBH, requested payment of more than $2.1 million on Feb. 6, 2012. Ashe County may be responsible for up to $446,266 of that total bill.

NRBH staff also continued to file Medicaid claims through the month of December, worth more than $600,000. NRBH employees had filed Medicaid claims, and re-filed denials, through December 2011. The consulting firm Martin Starnes found suspended claims worth $626,977 “are approved, due, and payable to NRBH as soon as Medicaid completes its fraud investigation and releases fund to NRBH.”

“If there is still Medicaid to pay back to the state, and we don’t exist, what happens to that situation,” said Mitchell. “I don’t think closing it (the NRSA) out settles all the questions.”