UPDATE: Case not viable for prosecution – Investigation of STARS, Inc. questions $359,931 in expenditures
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UPDATE: Assistant District Attorney Steve Strain with the 12th Judicial District said Tuesday evening, March 3, 2026, the Comptroller’s Office investigation has been reviewed and “this was not a viable case for prosecution.”
Fabricated invoices and unauthorized payments discovered
An investigation by the Tennessee Comptroller’s Office has revealed questionable financial activity involving the executive director of Skills Training and Rehabilitation Services Incorporated (STARS, Inc.). The nonprofit organization, located in Pikeville, provides residential and vocational services to individuals with intellectual and developmental disabilities.
The investigation’s findings have been submitted to the office of District Attorney General Courtney Lynch of the 12th Judicial District. The Comptroller’s Office found at least $359,931 in questionable expenditures and failure to file IRS Form 990 resulting in the temporary loss of its tax-exempt status resulting in an $11,000 IRS penalty for late filing.
Investigators determined the executive director submitted fabricated invoices resulting in at least $14,500 in payments to herself. The invoices were represented to the board as reimbursements owed to her former spouse’s business for renovation work allegedly performed on STARS’ main offices in 2014. Investigators found the invoices were created years after the work was completed and lacked supporting documentation. The timing of the payments coincided with a court-ordered settlement requiring the executive director to pay her spouse $10,000, stated the report.
It was determined at least $312,225 in bonus payments were made from April 1, 2018 to September 30, 2025 by the executive director without proper documented board approval. According to the Comptroller’s Office findings the funds were paid out accordingly:
•Director, $72,000
•Business Manager, $72,000
•Human Resource Manager, $80,300
•Quality Assurance Manager, $39,000
•Six Home Managers, $25,675
•69 Direct Support Professionals, $23,250
It was noted, bonuses were planned for discussion by the board on two occasions. In both instances, the report states, the discussions were held after the executive director had already issued the bonuses for the periods under review by the board. There was no documented vote approving specific bonus amounts, timeframes, or recipients, according to the Comptroller findings.
It was revealed STARS paid at least $33,206.85 for cellular devices and service without documented board approval. These costs included additional devices and service for the executive director, devices and service for her family members, devices for a retired employee, and smartwatches for family members and other various individuals. Board members stated they were unaware that devices had been issued to family members.
According to the report, from January 1, 2018 and October 31, 2025, STARS, Inc. paid:
•$12,328.18 for additional devices and service for the executive director, including a second cell phone in addition to her primary work-assigned cell phone, two smartwatches, one tablet, and one internet jetpack
•$10,929.65 for cellular devices and services for the executive director’s former spouse and parents, including three cell phones and two smartwatches
•$5,056.48 for a cellular device and service for an employee who retired in January 2018 and was no longer employed with STARS, Inc.
•$4,895.54 for five smartwatches, three of which were issued to administrative staff. The other two smartwatches recipients could not be identified.
STARS failed to file required IRS Form 990 returns for seven consecutive years, resulting in the temporary loss of its tax-exempt status and an $11,000 IRS penalty for late filing.
“Boards of nonprofit organizations must actively oversee finances, meet regularly, maintain proper minutes, and ensure independent audits are performed,” said Comptroller Jason Mumpower. “Without those basic safeguards in place, the risk of questionable financial activity increases significantly.”
The report further states three deficiencies including the board did not provide adequate oversight of STARS, Inc.’s financial operations and did not establish sufficient internal controls. The findings determined the board did not meet regularly or keep meeting minutes as required in its bylaws. Agendas were used in place of meeting minutes to document board meetings for the entire investigative period.
The board did not review STARS, Inc.’s finances until after management issued payments, states the report.
It was determined the board did not keep its minimum number of directors or appoint officers as required in the bylaws, and they did not engage independent audits as required. It was noted, in 2023, STARS, Inc. initiated independent audits of its financial statements to bring the organization into compliance with its provider agreement and federal law.
The Comptroller’s report stated the failure to fully address and correct findings identified by the independent auditors demonstrates the lack of commitment by STARS, Inc.’s executive director and board to curb wasteful spending, maintain good standing with its grantor agencies, and uphold a sufficient internal control environment.
The second deficiency was STARS, Inc. management did not maintain a sufficient internal control, the business manager signed checks on behalf of the executive director, and the business manager did not report the value of cellular devices and services used for personal benefit on federal tax forms.
The business manager reportedly failed to maintain backup records of its general ledger. QuickBooks records were lost in the 2018-19 fiscal year, according to the business manager, and the organization did not maintain backup records. The business manager told investigators she was still working to update STARS, Inc.’s QuickBooks system.
The third deficiency involved STARS, Inc.’s policies and procedures did not address cellular devices or bonuses. It was noted the board should establish a policy outlining allowable cellular devices for purchase, business purposes that justify the issuance of devices, procedures for device assignment, and controls to ensure the organization funds are not used for personal use of work-assigned devices or for devices issued to non-employees.
As for the bonuses, the Comptroller’s Office suggested the board establish and document a formal process for determining bonus amounts and recipients, and should vote to approve bonuses prior to issuance. Motions and votes related to bonus approvals should be clearly documented, including approved amounts, timeframes, and recipients.
