More Money Problems For Troubled C4 Mental Health Centers: State Demanding Return Of $1.3 Million Grant, Plus Interest; Group Owes $250K In Federal Taxes

CHICAGO (CBS) -- "Battling ghosts of our past;" that's how the new head of a struggling Chicago mental health services provider described their financial issues.

CBS 2's previous reports about questionable spending at Community Counseling Centers of Chicago led to a probe by the Illinois Attorney General's office.

Now the Morning Insiders have learned of more state and federal investigations into taxpayer money given to the non-profit.

CBS 2's Lauren Victory digs even deeper.

Getting to root of issues at Community Counseling Centers of Chicago, or C4, was difficult when we first reported on their money troubles one year ago.

Exactly 12 months later, new leadership not only invited CBS 2 inside, but opened up.

"We've been tight on money for some time," said interim CEO Pat Nichols.

RELATED: Head Of Chicago Nonprofit C4 To Step Down After Probe Into Money Troubles, Late Paychecks

It's about to get worse for the mental health services provider; almost $2 million worse.

The Illinois Department of Commerce and Economic Opportunity sent C4 a demand letter a few weeks ago, seeking the return of $1.3 million plus interest from a 2013 grant to buy and fix up the C4 administration building.

"We finished the renovations a couple years ago," Nichols said.

Nichols showed CBS 2 what some of that cash was used for, but the state said C4 is missing some bank statements from the project.

"We feel we have produced ample evidence to establish how we handled the money," Nichols said.

DCEO sent CBS 2 a statement regarding the demand letter to C4:

"DCEO is committed to funding capital projects that make the highest and best use of taxpayer dollars by generating economic development and spurring a positive impact for their communities. Our grants team works closely with grantees to support them in achieving compliance with their grant agreements, ensuring that all applicable requirements are being met. In the case of C4, our department has worked closely with the organization over the years to help the grantee come into compliance and remedy the issues raised by our monitoring of their grant performance, which they have not been able to do."

C4 lawyers are fighting the grant takeback. The non-profit is cash-strapped already, and in the process of selling its Broadway location that includes a client drop-in center, fishing to plug holes.

Nichols said C4 owes roughly a quarter million dollars on its federal taxes.

"My predecessors made the decision to not pay those taxes and instead use the money for salaries," Nichols said.

The non-profit is slowly paying the IRS back.

It also plans to replenish a second pot of money meant for clients. Nichols said it's used to help clients pay for rent and medications.

Instead, those people received a letter from Social Security last month, informing them their funds were misused; $256,000 worth touched without permission.

C4 tried to quell anxieties with a follow up letter, "Telling them that we own the mistake we had made, and saying your money is available," Nichols said.

Missed paychecks, benefits issues, back taxes, grant non-compliance; why should C4 receive more grant money?

"We no longer have the people that made the unfortunate decisions here," Nichols said. "We're turning around rapidly, we're growing rapidly, and most importantly the need is so acute."

Despite all of these situations with money, C4 proudly said that the City of Chicago is giving it more cash to expand services on the West Side. A city spokesperson told CBS 2 that C4's budget and grant work plans were "carefully audited."

C4 sent us a longer statement after our story originally aired:

"C4 has spent hundreds of hours, In the midst of Chicago's mental health crisis, providing documentation to exorcise these old ghosts from 2013.  The Board and executive team believe, unanimously, that our partners at DCEO should not be haunting us with  issues that have been haunting C4 longer than we have been here. We feel so strongly that we enlisted the pro bono support of international law firm, Sidley Austin, to make our case for us yet again!"