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Problems are mounting at Phoenix Frontier Inc., a Buffalo human services agency that offers day programs for individuals with disabilities.

The agency’s board of directors fired its president and chief executive officer in March after learning the agency owed the Internal Revenue Service about $133,000 in overdue payroll taxes.

Jack K. Manganello, the fired executive, responded with a lawsuit last month saying the agency owes him $132,408, including $72,261 in severance pay, $13,460 in bonuses and $8,000 in consultant fees.

The firing and lawsuit follow a 2011 finding by the state Office of the Medicaid Inspector General that Phoenix Frontier had overcharged the state’s Medicaid program by at least $600,000 in a three-year period.

Key Bank froze the agency’s line of credit.

And Timothy Maggio of Buffalo, the board chairman, died unexpectedly in April.

Despite the turmoil, board members said the agency continues to provide services to its disabled clients while taking steps to improve its finances.

“I can tell you that the board is unquestionably protecting its consumers, which is our obligation. The consumers are well taken care of,” said Timothy G. O’Connell, a Buffalo attorney and Phoenix Frontier board member.

Founded in 1965, Phoenix Frontier assists about 400 people with developmental and physical disabilities, including those who have trouble hearing or seeing or who have suffered traumatic brain injuries. The agency is headquartered on Leroy Avenue and has satellite sites in Amherst and North Tonawanda.

Court filings for Manganello’s State Supreme Court lawsuit revealed the agency’s financial troubles.

Manganello, who headed the agency for 24 years, said the board fired him without cause and that he should be paid the $132,408 under the terms of his contract.

He also wants Phoenix Frontier to defend and indemnify him against any attempt by the IRS to recoup the agency’s taxes from him.

O’Connell submitted an affidavit spelling out how the agency became “mired in serious financial peril under the watch” of Manganello.

The directors, O’Connell said, “lost all confidence in Mr. Manganello, whose relationship with the board became very difficult.”

The agency, with a $4.8 million budget and more than 100 employees, has been forced to cut staff and sell some of its property.

“Unfortunately, plans are under way to cut benefits and trim programs in order to try to save the agency from financial ruin,” O’Connell wrote.

In addition to the IRS debt, the agency owes $164,000 to the Office of the Medicaid Inspector General and $175,000 on its line of credit with Key Bank. It also owes money to vendors.

“Mr. O’Connell alleges that Phoenix became mired in serious financial peril under my watch and that I refused to take personal responsibility,” Manganello said in his affidavit. “What responsibility has the board taken for its actions, or rather, its inaction?”

The agency’s most recent problems with the IRS began in February 2012, when withholding payments were made late, resulting in penalties and interest. Between April and July, no payments at all were made to the IRS.

Manganello said the agency’s chief financial officer never told him about the overdue taxes and late tax payments. He maintained it was the chief financial officer’s responsibility to pay the taxes.

Manganello fired the chief financial officer in August 2012 when the officer told Manganello about the IRS “intent to seize notice” for monies owed.

Manganello said O’Connell blames him for the late tax payments.

“However, my job as CEO was to supervise the employees and to carry out the policies and directions of the board,” Manganello said in his affidavit. “My job was make sure that policies and procedures were in place for the payments of taxes, not to make the payments myself.”

Manganello’s annual salary was $108,392 at the time of his firing.

The IRS informed Manganello earlier this year that it would hold him personally liable for paying the taxes if Phoenix Frontier did not pay.

Manganello said the board received monthly reports last year indicating the agency did not have a surplus. And the board was told of “extraordinary expenses” and cash flow issues caused by delays in state funding that hurt Phoenix’s financial condition, he said.

Board members said Manganello never advised them that payments were not being made to the IRS until the financial officer was fired, nor did he make them aware that the agency did not have enough money to pay its debts.

“Bottom line is Mr. Manganello was the chief executive officer of the organization. If that’s not his responsibility, then whose is it?” asked board member Marty Haumesser. “Mr, Manganello’s departure was unfortunate, but the board felt it was necessary to take action to right the ship.”

The board hired a forensic accountant, who is still investigating the agency’s financial records, said Haumesser.

Taxes are being paid now and the agency is “in the process of correcting those past-due taxes,” he said.

But the other debts remain a huge fiscal challenge, and the board has been in discussions with the state Office for People With Developmental Disabilities to help map the agency’s future.

“We’re going to do everything in our power to keep Phoenix going,” said Haumesser. “We’ve got a strong board in place, so that if anyone can turn this around, I’m confident we can.”

email: jtokasz@buffnews.com