Federal prosecutors’ interest in Southwest Key builds on a continuing inquiry by the Federal Bureau of Investigation into the finances of a smaller Texas-based shelter provider, International Educational Services. That nonprofit lost its federal contracts in February for possible self-dealing, including renting shelters owned by charity officials and using public funds to pay them well above what the government permits. Southwest Key’s founder and chief executive, Juan Sanchez, helped start I.E.S. more than 30 years ago, though he is no longer affiliated with it.
Last year, at least eight of Southwest Key’s executives earned more than the federal salary cap of $187,000. Mr. Sanchez made $1.5 million. His wife earned $500,000 as a vice president, and the organization’s chief financial officer made $1 million.
Additionally, Mr. Sanchez and the chief financial officer have for years collected government money in rent as landlords of a Southwest Key shelter. The Department of Health and Human Services, which oversees migrant shelter grants, requires shelter employees to avoid “private financial gain,” or even the appearance of it. Asked by The Times about the payments this fall, the nonprofit’s leaders said they would sell their personal stakes in the property.
Though Southwest Key has come under scrutiny after a series of abuse allegations at shelters in Arizona in recent months, the organization has remained a critical partner to the government. Mr. Sanchez and the former Walmart have become symbols of the migrant shelter industry.
To get that former superstore up and running, Southwest Key engaged in a convoluted real estate transaction, loaning $6 million to a pair of South Texas developers to buy and renovate the property. Southwest Key now pays nearly $5 million annually in rent — more than the property itself cost. It is unclear whether prosecutors are scrutinizing that deal, which has the potential to disguise kickbacks.
Officials at H.H.S. declined to comment Thursday on the Justice Department’s investigation into Southwest Key’s finances. H.H.S. has hired forensic accountants to review the finances of shelter operators. That review is continuing and could affect the government’s future grant decisions, a spokesman for the agency said. According to government records, H.H.S. last paid grant money to Southwest Key at the end of the past fiscal year, on Nov. 6.
Should Southwest Key’s contracts be in jeopardy, the government would need to find a new custodian for the children in Southwest Key’s shelters across Arizona, California and Texas. When the government revoked the contracts of I.E.S. this year, its shelters’ operations were transferred to another organization, Comprehensive Health Services, a for-profit company.