EX-WORKERS GIVE DETAILS OF VIP INVESTIGATION; PROBE TARGETS POSSIBLE FRAUD INVOLVING FUNDING

Copyright 2000

A five-year criminal investigation into the financial dealings of Southeast Missouri's largest service provider for the handicapped should be completed sometime this summer, a source close to the investigation says.

VIP Industries, which runs the largest sheltered workshops in Missouri, has been under investigation for possible fraud involving federal and state funding.

"Anytime you have an organization that is taking public money, it should be open to investigation at any time," said state Rep. Mary Kasten, a longtime state legislator from Cape Girardeau who just completed the last session of her Jefferson City career. Kasten, who isn't seeking re-election, said she has been aware of the criminal investigation for some time.

Several former employees of VIP Industries and related companies operated by Hillary Schmittzehe say they have been interviewed by both the Missouri attorney general's office and the U.S. attorney's office in St. Louis off and on since 1995. These former employees also said they have testified before grand juries regarding various allegations.

Officially -- as they do in all ongoing investigations -- representatives of the attorney general's office and U.S. attorney's office have declined to comment. And Schmittzehe also said he didn't want to comment.

But those who have been interviewed by investigators tell a tale of questionable pay practices and personal consequences as a result of the drawn-out investigation.

Dale Smith of Cape Girardeau, who managed a VIP sheltered workshop in Fruitland and also worked for Regency Management, another Schmittzehe operation that provides handicapped services such as group-home management, said he was fired because of his participation in the probe.

After leaving VIP, Smith worked for a while at a group home and then started his own company providing services for the handicapped and elderly, becoming a competitor of Schmittzehe's.

Questions first arose in 1995 when investigators from the U.S. Labor Department started looking at hourly pay rates for the disabled sheltered-workshop employees and staff members who worked with them, Smith said.

To avoid overtime pay, he said, staff members at one time received multiple paychecks: one for driving vans, one for performing maintenance around the workshops and one for supervising. Smith worked for Schmittzehe between 1994 and 1997.

In late 1995, the attorney general's office began an investigation into allegations of fraud and possible human-rights violations, Smith said.

Meetings with state investigators became regular events from March to September 1996, he said. Staff members from the Fruitland workshop would leave during the day to give statements.

"It was a bit scary," Smith said. "They'd send these big people to pick us up. It made you a little paranoid."

In late 1997, the U.S. attorney's office began its own investigation, Smith said.

Secret grand-jury hearings were held to explore possible charges, said state Sen. Peter Kinder of Cape Girardeau, who also was aware of the ongoing investigations.

In addition to pay issues, previous VIP and Regency Management employees claim the operations regularly charged the state for services to the handicapped that were not provided. Nancy Markhart of Cape Girardeau, who worked for Regency Management for three years, outlined some of those claims in a deposition given to the attorney general's office.

Regency Management is one of 14 companies operated by Schmittzehe or Susan Wallis, vice-president of VIP Industries and a longtime business associate of Schmittzehe's.

In her testimony, also given to a grand jury, Markhart explained how she had been instructed to complete paperwork so that it seemed that staff members were working longer hours with fewer people. This allowed the company to bill the state at a higher rate, she said, by giving the appearance that staff members were working with disabled clients one-on-one.

Markhart said she was also told to add an hour to group excursions, which would allow the company to receive an additional reimbursement at the rate of $16 an hour. This was to account for time needed to fill out the paperwork even if it didn't take an hour, she said. In her job, which was to assist with community integration of the handicapped, Markhart said she earned a little over $5 an hour.

Also testifying before a grand jury and investigators from the attorney general's office about charging the state for services that weren't provided was Jo Ann Sester of Cape Girardeau. Sester said she was involved in outings for disabled workers where the staff-to-worker ratio was three-to-one, but billings indicated that the ratio was one-to-one, resulting in higher state payments.

Sester said this billing procedure continued until 1997 when the U.S. Department of Labor told Schmittzehe he had to pay overtime to staff employees following a wage-and-hour review.

Another former VIP employee who worked there off and on over 27 years said little changed in the way the operation was run. Former VIP general manager Jerry Householder of Benton started with the company in 1972. He was fired in 1982, he said, for disagreements he had with Schmittzehe. Then he was rehired in 1994 and worked there until last year, when he was again fired -- this time, he says, because he failed a spot check for blood alcohol. He said the overall operation changed little over the years.

Householder said he testified before a grand jury a year and a half ago about this and then again for attorney general investigators last October.

Various funding streams from county, state and federal sources that went to VIP Industries were easily manipulated, Householder said.

"It's impossible to go broke at that place," he said. "Even if you don't have any contracts, you're making money."

One example of the so-called money manipulation was described by yet another former VIP employee. Bill Tweedy of Perryville says the scheme still in use involves bids for jobs at VIP's sheltered workshops in Cape Girardeau, Fruitland, Perryville and Marble Hill. Tweedy quit last March as the manager of the Perryville workshop, citing poor conditions for handicapped workers.

The jobs for disabled workers involve placing bolts in bags or similar simple tasks. A price is quoted to contractors in need of cheap labor to do easy jobs by Heartland Industries, a for-profit company also operated by Schmittzehe, Tweedy said. But the work is actually done through VIP Industries at a lower rate, he said.

"The work is done at a lesser price than the amount it was actually billed for," he said.