A non-profit set up to run Tennessee’s telehealth network is shutting down amid an investigation of its books and charges that two former officials skimmed hundreds of thousands of dollars in grant funding and misused other funds.

Savannah, Tenn.-based Community Health Network’s board of directors launched an audit and contacted state officials shortly after the abrupt resignation of Keith Williams, the group’s CEO, on Jan. 25, 2010. According to a letter issued on July 7 by board chairman Jeffrey McKissack, Williams’ refusal to communicate with the board about his departure – and the fact that he resigned by e-mail – raised concerns.

“Immediately after receiving Mr. Williams’ resignation, the board of directors engaged a consultant to review all of CHNs active contracts and grants,” McKissack said. “As soon as the board of directors realized that Mr. Williams misrepresented the financial affairs of the organization, it engaged an accounting firm to conduct a forensic audit. Additionally, the board of directors contacted the state of Tennessee to report its concerns and to initiate an investigation. Since that time, the board of directors has supported and cooperated fully with the state’s investigation.”

Within a month of William’s departure, the board fired Chief Financial Officer Paul Monroe.

According to news stories by Nashville Public Radio and the Memphis Commercial Appeal, Williams and Monroe allegedly skimmed about $90,000 in CHN funds for themselves and lost or misspent roughly $1.2 million more.

The NPR report indicated Williams and Monroe bought unauthorized software that was never used, overbilled grants that CHN had administered for the state and Blue Cross/Blue Shield, and misappropriated funding that had been set aside to establish videoconferencing services for physicians and patients in rural areas.

According to a report filed by the Tennessee Comptroller of the Treasury, which audited CHN’s records from Jan. 1, 2007, to Dec. 31, 2009, Williams gave himself $80,862 in unauthorized benefits, made $39,021 in unauthorized purchases on the agency's credit card, gave himself $18,192 in unauthorized salary, took $11,706 in equipment and made $11,943 worth of unsupported expense claims. The report said Monroe took $10,200 in unauthorized salary.

Williams and Monroe falsified grant invoices and grant reports and misused proceeds from a state grant to purchase unauthorized software at a cost of $597,458, the report said. CHN also overbilled the state for another software purchase for $131,163, the report said, and was unable to account for $446,712 in grant funds provided by the Tennessee Health Fund.

CHN also spent $1.47 million on a computer system that was never used, the report said, and failed to properly process $749,000 in grant applications from healthcare providers.

“CHN has continued to work with its member community health centers to assist them in making alternative plans for securing IT services. CHN has been able to continue operations but faces serious fiscal challenges,” McKissack said in the letter. “The board deeply regrets the breach of trust that occurred through the actions of its former CEO and has worked to assure that a full accounting of the organizations finances and operations has been made.”

The NPR report indicates CHN is not financially solvent and is winding down operations. The investigation into Williams and Monroe has been taken over by the state Attorney General’s Office.

According to the comptroller’s report, during his tenure as CHN’s CEO, Williams was paid by an unnamed vendor to supply CHN with its software. He now works for that vendor, the comptroller said.