Mental Health Trust violated law, audit asserts

ANCHORAGE, Alaska (AP) – The Alaska Mental Health Trust Authority violated several state laws, according to a special audit.

The Alaska Division of Legislative Audit released a report Tuesday that said the Trust Authority violated state statutes by investing $44.4 million in commercial real estate, and the trust's board violated the Opening Meetings Act and the Alaska Executive Branch Ethics Act by purposely trying to keep board issues out of the public eye, Alaska Public Media reported.

The trust authority was established to fund services for people with mental illnesses, developmental disabilities, traumatic brain injuries and memory loss.

The authority's funds were supposed to be managed by the Alaska Permanent Fund Corporation, or APFC, according to state statutes.

Since November 2008, the authority's board has not given the money to APFC and has instead held it in a separate account and invested in commercial real estate around the country, according to the audit.

Legislative auditors found this to be in violation of five different state statutes, one of which reads, “The cash principal of the mental health trust fund shall be retained perpetually in the fund for investment by the Alaska Permanent Fund Corporation.”

The authority disputed the audit's findings in a written response.

“The Trust's investment decisions were authorized by and consistent with applicable regulations and legal advice,” the authority said.

The authority's board cited attorney-client privilege and refused to give auditors access to those legal opinions.

The board decided to invest in commercial real estate outside of the APFC, “specifically with the goal of increasing the amount of spendable income available for our beneficiaries,” Trust Authority CEO Mike Abbott said.

The real estate investments earned about $3 million more for programs than would have been available through the traditional distribution from the APFC, according to the authority.

Though the audit said the individual investments made by the trust were sound, the outside contractors hired by auditors, RVK Inc., found the trust's overall investment strategy aimed at aggressively increasing their income was not.

“Trust asset management policies do not fully comply with State investment laws and industry best practices,” the auditors concluded.

The audit recommends the trust stop investing in commercial real estate, consult with the APFC to determine what to do with its current investments and restart transferring cash principal to the APFC.

Another finding of the audit was that the board violated the Open Meetings Act on multiple occasions and purposely kept information from the public.

The audit report cited emails where board members set up retreats and held meetings without properly noticing the public.

Abbott acknowledged that the board has had problems with openness and transparency.

In response, the board has re-written its bylaws, written guiding documents for the board's officers and committees, and received more training on the Open Meetings Act, ethics and conflicts of interest, Abbott said.