Audit Details Misuse of Funds at U.S. Pain Foundation

By Pat Anson, PNN Editor

It’s been over a year since serious “financial irregularities” were uncovered at the U.S. Pain Foundation and former CEO Paul Gileno was forced to resign under pressure. But the Connecticut based non-profit is still dealing with legal and financial fallout from years of nepotism, self-dealing and lax oversight by its management and board of directors under Gileno’s leadership.

A newly released audit of U.S. Pain and its 2018 tax return indicate that Gileno misappropriated over $2,055,000 from the charity from 2016 to 2018. The board did not discover the financial irregularities until April 2018, when it hired an auditor and attorney to investigate.

‘The findings were clear that the former president had engaged in unauthorized transactions involving the misuse of assets of the organization. The Board demanded and received the former CEO’s immediate resignation on May 29, 2018, and shortly thereafter reported the matter to federal authorities,” the audit states. “The criminal investigation is still ongoing into the former president’s activities.”

In addition to the federal investigation, PNN has learned that the Connecticut Attorney General’s office is planning to seek a court order to prohibit Gileno from ever handling charitable funds again.

U.S. Pain is providing few details on how Gileno was able to misappropriate over $2 million from the charity over a three year period. The misused funds were reported to the IRS as “excess benefit transactions,” a broad category that includes unauthorized compensation, reimbursement for Gileno’s personal expenses, and payments to Gileno’s family members for unspecified work.

In addition to the $32,537 that Gileno received in wages for roughly five months of work in 2018, he collected over $166,000 in excess benefits last year. The latter amount includes a $36,000 payment to an unidentified company owned by Gileno. It is not clear what the payment was for.

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PAUL GILENO

Gileno’s wife, sister and step-daughter were also on the charity’s payroll, collecting nearly $71,000 in wages in 2018. It is not clear what work they did. Gileno’s sister also received an unspecified amount of severance pay and maternity leave, according to the tax return.

The auditor also reported that U.S. Pain has been unable to recover any money from a $100,000 investment in SMJ Homes, a real estate business owned by Gileno’s brothers. A promissory note from the company was due in February 2019, but has not be repaid.  

Poor Business Decisions

In addition to the questionable payments to Gileno and his family, the audit and tax return show that U.S. Pain entered into a series of poor business decisions.

In 2016, U.S. Pain launched an “unrelated bakery business” that Gileno, a former caterer, established to “further the general mission” of the charity. Nothing in U.S. Pain’s mission statement says anything about a bakery.

The bakery was unprofitable from the start, reporting a net loss of nearly $70,000 in 2017. The board voted to liquidate the business last year at a cost of over $72,000 and recently agreed to pay another $23,900 to settle lease obligations for the bakery. In all, over $165,000 in charitable funds were wasted on the failed enterprise.

After Gileno’s departure, the board agreed to forfeit a non-refundable deposit of $50,000 that Gileno authorized in a failed attempt to purchase PainPathways magazine.

The board also scrapped a $2.5 million prescription co-pay program with Insys Therapeutics, a controversial drug maker whose founder and four former executives were recently convicted of racketeering. U.S. Pain said it would no longer accept funding from Insys, but rather than return leftover funds the board has kept $200,000 from the company in an escrow account.

Dealing with all of these legal and financial issues has been costly. According to its tax return, U.S. Pain paid nearly $514,000 for legal services, accounting and penalties in 2018 — nearly a quarter of its revenue for the year.

Gileno: “I Never Misled Them”

How could the self-dealing and financial irregularities go undetected for so long? Interim CEO and board chair Nicole Hemmenway said in a statement last December that Gileno “repeatedly misled and concealed information from the Board of Directors and staff.”

But Gileno, who has admitted taking money from U.S. Pain for his own personal use, maintains that he kept the board informed. “I never misled them. They were part of U.S. Pain for over 10 years and I talked with them daily. Nicole and I were close like a brother and sister and I never hid one thing,” Gileno told PNN last year. 

Gileno did not respond to a request for comment for this story. Neither did Hemmenway. A spokesperson for U.S. Pain said in an email the tax return and audit “constitutes our public statements on these matters.”

The charity’s 2018 tax return was filed on time, but its 2016 and 2017 returns were delinquent and filed late in 2018. They indicate there was no real oversight of Gileno by the board until last year.

“The former President/CEO controlled the board process. The records maintained under his leadership list the officers and directors… but contain no evidence that election of officers and directors occurred,” the tax returns said.

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The audit indicates that U.S Pain “rents its main office from the father in law of an employee” who is not identified. Public records for the city of Middletown, CT indicate the building is owned by Ottavio Monarca, who is the father-in-law of Lori Monarca, U.S. Pain’s Executive Office Manager. Rent of $25,000 was paid for the office in 2018 and the lease continues until 2020.

Hemmenway was paid a salary of $71,750 in 2018. The other two board members, Wendy Foster and Ellen Lenox Smith, a former PNN columnist, did not receive any compensation. Smith’s daughter-in-law, Shaina Smith, was paid a salary of $76,700 in 2018 as Director of State Advocacy for U.S. Pain.

Despite all of these expenses and business losses, U.S. Pain appears to be in fairly good financial shape compared to other charities. It received over $1.8 million in donations and grants in 2018, and ended the year with over $454,000 in cash — an enviable position for most non-profits, which often struggle to raise money.

Major corporate donors to U.S. Pain include Abbvie, Amgen, Lilly, Sanofi, Novartis, Teva, Abbott, Pfizer and other pharmaceutical companies.   

Sen. Ron Wyden (D-OR), the ranking member of the U.S. Senate Finance Committee, sent a letter last December to Hemmenway asking a series of detailed questions about the charity’s relationship with Insys  and other drug makers. According to the senator’s office, Wyden has still not received a full response.  

“A substantial amount of information that Senator Wyden requested from the U.S. Pain Foundation remains outstanding. Staff continues to communicate with the foundation in order to fully understand the financial relationship and contacts it has had with pharmaceutical manufacturers, including Insys, and its compliance with applicable federal laws,” a Wyden spokesman said in a statement to PNN.

How to Check Out a Charity Before You Donate

By Stefanie Lee Berardi, Guest Columnist

Many of us have been following PNN’s reporting on the misuse of donated funds by the former CEO of the U.S. Pain Foundation. Paul Gileno allegedly misappropriated about $2 million for his own personal use from the non-profit from 2015 to 2017.

The acting CEO and chair of U.S. Pain’s board of directors has admitted that a lack of financial oversight enabled Gileno to commit his misdeeds. Nicole Hemmenway says the board has instituted “a robust system of checks and balances” to make sure it doesn’t happen again.

As the story continues to unfold, U.S. Pain has attempted to refocus the public’s view of this fraudulent activity by claiming that 2018 was “its most successful year of programs and services,” while also indicating that additional financial irregularities may be reported on its 2018 tax return.

Arguably, their claim of success does not comport with the facts and does not enumerate the numerous failings of the board and senior staff that enabled the fraud to continue for years. Until there is full disclosure of what happened and people are held accountable, the public cannot be sure that U.S. Pain’s resources are being utilized effectively going forward.

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Choosing to support a non-profit organization is an investment. And those of us who give our limited time and money to a charity must protect that investment by learning all that we can about what the organization does, what senior staff they employ, where they get their money and how they spend it.

It is not always easy to find reliable information about a non-profit, but if you know where to look, a short online search can give you a wealth of information. Here are some tips that donors and volunteers may want to explore.

Search Their Website

Consider an organization’s website as the front door to its operations and core mission. A disease-related organization’s mission, for example, might be to provide support for those affected, education about the disease, and research to find a cure.

An organization must be accountable and transparent to its investors. Their website should provide an annual report of its accomplishments from the previous year and goals for the next. You will need to review several annual reports to evaluate if the organization is making progress on the previous years’ goals.

Look at Their Tax Returns

Examine the organization’s tax returns to learn about how they operate, where they get their funding, and what proportion of their money is spent on programs that actually help people versus overhead costs like administration, salaries and fundraising.

There are a few exceptions, but most non-profit organizations’ tax returns are public information, meaning anyone can inspect them. When you compare two or three years of the organization’s tax returns, you can get a sense of the organization’s financial stability over time.

I find ProPublica to be the easiest place to find these documents. You can also search an IRS database to see if an organization’s tax-exempt status is in good standing. If a non-profit misses a tax return filing deadline, as was the case with U.S. Pain, that could be a sign of trouble.

Identify Their Funding Sources

In order for a non-profit to remain financially healthy and compliant with IRS regulations, it must seek funding from different types of revenue streams, such as grants and corporate or individual donations. For example, an organization may accept donations from pharmaceutical companies or charge membership dues or fees to attend their events.

Investors need to know where the organization gets its money. If the organization is growing and thriving, you will see a steady increase in the money they bring in (revenue); the money they spend (expenses) will remain proportional to their revenue; and their bottom line (net assets) will remain stable from year to year.

Learn Where They Are Spending Their Money

There are well-established benchmarks for how much of a non-profit’s budget should be spent on programs versus administration and fundraising. Organizations should be spending at least 75% of their revenue on programs that raise awareness or directly benefit a cause and less than 25% of their revenue on overhead.

As a reference, Charity Navigator publishes an annual report on CEO pay that finds mid-sized non-profits pay their CEO’s in the low $100,000’s. And the Better Business Bureau’s accountability standards indicate that fundraising expenses should not exceed 10 to 25 cents of every dollar raised.

As an investor, we want to see these figures as low as possible and to ensure they are aligned with organizations of similar size and type.

Engage with a Non-Profit at All Levels

If an organization is worthy of receiving your financial support, it should also be worthy of receiving your time and talent. Volunteering for the organization is an important way for you to increase the value of your investment. Most non-profits depend on volunteers to help them run programs, raise funds and promote awareness.

When you find the right organization, consider pledging a monthly, rather than a one-time annual donation. Large foundations that offer grants to non-profits want to see repeat donations because it is an indication of a healthy, growing organization that is capable of using their grant money effectively. Staying involved with an organization helps ensure your investment is used to its fullest potential.

There is simply too little time and money to waste on an organization that lacks oversight and is not using its resources effectively. Many of us have made donations to organizations simply because they asked and believed they were doing good things. In the future, we must raise that benchmark.

When nonprofit organizations solicit for financial support, they are in a position of public trust. That money is not theirs to misuse and they should be held accountable if they lose that trust.

Each of us has the responsibility to learn everything we can about an organization before we offer our time, talent and money. We must advocate for each other and contribute to the body of knowledge about the organizations that we support. 

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Stefanie Lee Berardi worked as an advancement and communications professional, grant writer and principal investigator of several multi-agency grant programs at Illinois State University. She has a graduate degree specializing in the management and administration of non-profit organizations.

Stefanie is an avid volunteer in her local community and has volunteered for organizations supporting individuals with Complex Regional Pain Syndrome, a disease she developed in 2008.

The information in this column should not be considered as professional medical advice, diagnosis or treatment. It is for informational purposes only and represents the author’s opinions alone. It does not inherently express or reflect the views, opinions and/or positions of Pain News Network.

PNN Gains Non-Profit Status

By Pat Anson, Editor

This past month marked a couple of important milestones for Pain News Network that I’d like to share with you.

We reached nearly 115,000 readers in January -- our largest monthly audience to date -- and the U.S. Internal Revenue Service approved our application as a 501 (c) (3) non-profit organization. It's always good to see that we're reaching more and more people, but the designation as a non-profit is a significant development that moves PNN closer to financial viability.

When we started PNN almost one year ago, our goal was to raise awareness about the many issues and challenges faced by chronic pain sufferers. We do that through original reporting and commentary about chronic pain and pain management, and our growing network of affiliates has helped spread this reader supported journalism.

None of this would be possible without the work of volunteers, especially the PNN columnists who share their personal stories of struggle and the valuable lessons they’ve learned about living with chronic pain.

I want PNN to continue to grow as a forum where pain sufferers know they can get reliable news and information about their conditions and treatments; not the tidal wave of misinformation and stigmatization pain patients often get from other news sources.

It is your donations, small and large, that will make this possible. All contributions are 100% tax deductible for U.S. taxpayers. Every dollar you donate will be used to support PNN’s mission.

We have partnered with PayPal to provide a safe and secure environment for donations made either by credit or debit card, or directly from your bank. Click on the donate button below to make a contribution.

If you prefer to make a donation by check or money order, please send it to this address:

Pain News Network, Box 261, La Crescenta, California 91214

Thank you for your continued support of independent, balanced reporting about chronic pain and pain management. It was here at PNN that you first read about the CDC’s covert development of opioid prescribing guidelines, Pfizer’s “quiet” recall of Lyrica, how pain patients are often mistreated in hospitals, and many other important stories that are ignored by other media outlets.  

With your help, we can change the dialogue and raise awareness about the real issues and challenges faced by pain sufferers.