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Are PHS social enterprises doomed?

March 20th, 2014 · 2 Comments

I would think, as a new board takes over at PHS Community Services, that one of the first of the organization’s unusual ventures they’ll be looking at are the many social enterprises that operated under the PHS umbrella.

Both the VCH and BC Housing audits raise a lot of questions about all these affiliated companies, and I can’t tell which ones are just staff entities created to handle certain types of jobs and which are social enterprises that PHS used to create employment for residents. Whatever the case, there are vintage-clothing stores, the chocolate-making shop, the beekeeping and honey-making, the store selling arts and crafts, and a few other operations with a big question mark beside them now.

Mark Townsend, when I did a story about PHS social enterprises, said they didn’t make money and I believe him. So there has to be a question about how a new board will feel about continuing these money-losing ventures, which were paid for by ??? PHS administration fees? Private donations that won’t be coming in any more? Can’t figure out the finances, but doesn’t look good.

This is what one set of auditors specifically noted.

PHS provides accounting, operational support, payroll and other services to eight incorporated entities.  These entities were set up and provide service to primarily PHSThe shares of these entities are owned by PHS employees and external acquaintances.  Some of these entities provide support for various programs such as pest control or laundry services; however, some are unrelated to direct provision of health services (e.g. thrift clothing store, café).Per PHS, two key reasons for this structure are to provide employment for individuals in downtown eastside and to benefit from potential profits generated. The existence of these entities creates potential transparency issues as to use of funding received by PHS.
Five of the eight corporations generated losses in the year; however, all eight corporations have negative retained earnings, which indicate a history of losses.   Furthermore, as of Oct 31, 2013, PHS had outstanding cash advances to these corporations of approximately $481 K.
As these organizations have a history of losses, it is not clear that the benefits of running these companies outweigh the cost.  There is no clear documentation or process to continuously assess the cost/benefit of continuing these operations versus acquiring them elsewhere (such as through tendering processes).  Use of funds to cover losses by these organizations are questionable.  VCH management should converse with PHS whether the above services can be acquired at lower rates through tendering.  PHS management indicated they are working towards moving these entities under a Community Contribution Company structure where PHS would own the shares of these entities.The use of a Community Contribution Company should also be discussed further.Detailed Report Finding # 9.

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