Donald "Louie" Clayborn, the former executive director of the Helena Indian Alliance, appeared in federal court this week to answer to charges that he allegedly stole around $40,000 from the nonprofit organization.

Clayborn, 51, was arraigned Thursday in U.S. District Court in Missoula on a charge of "theft from an organization receiving federal funds." He pleaded not guilty, and was released from custody with special provisions limiting his activities. If convicted of the charge, Clayborn faces up to 10 years in prison and/or a $250,000 fine.

Clayborn couldn't be reached for comment, nor could his attorney.

But the current director of the Alliance, Nicholas Vrooman, said the alleged theft was a blow to both the organization and to the community in a number of ways.

"It was a real breach of trust -- that's the overarching impact," Vrooman said. "The fact that there was a significant amount of money that wasn't there had an impact on our Indian community, and we've been operating at a deficit because of this kind of behavior.

"... And we have to work on building up trust again with the community, and in the organization."

Yet Vrooman said the organization holds no ill will against Clayborn.

"In the end, Mr. Clayborn made some incredible mistakes, but he did do a lot of good for this community," Vrooman said. "He's not a bad man. He's a man who made some mistakes and in the end, we really wish that he reclaims his life and recovers from his circumstances."

According to court documents, during the four years from 2003 until 2007 while Clayborn was the head of the Indian Alliance, the organization received more than $3 million in federal funds from the U.S. Department of Health and Human Services.

As with other nonprofit groups that receive federal funding, their books are audited on a regular basis. In early 2007, the Alliance's board of directors was given a draft audit of 2005, which found various problems with their finances.

"There was an isolation of leadership and control that didn't allow other eyes (on the books) to understand what was going on," Vrooman said. "There were board members who thought things were not quite right, and it eventually did unfold and fall apart."

Clayborn allegedly would tell co-workers or the board that he needed extra money for work-related travel expenses. He wasn't actually making any trips, yet still obtained cash advances and reimbursements for official travel.

The Alliance's policy was that any checks for more than $500 had to be approved, so Clayborn wrote himself numerous ones for $490, Vrooman said.

Typically the Alliance's annual traveling costs were around $2,000, but during the times of the alleged thefts they jumped to about $20,000 per year.

Clayborn resigned his position in February 2007. Vrooman was appointed director of the Alliance in January 2008, but had served as interim director since the previous July.

Vrooman said they're not sure how much money Clayborn allegedly stole, but the 2005 audit showed it was at least $36,000.

"We still have two audits of the organization that will bring to light the continuation of the behavior that was identified in the 2005 audit," Vrooman said. "We know the amounts increased as time went on while Mr. Clayborn was here."

He added that the Alliance has fraud insurance that might cover some of the costs. That company also is conducting its own investigation of the alleged theft.

The Alliance, which has served the Native American community since 1969 in the greater Helena area, has changed some of its accounting practices and made cuts in its programs to stay afloat, including laying off the medical director of the Leo Pocha Health Clinic. It's also paying back $117,000 on debts from years of deficit spending under Clayborn.

While some of the changes are painful, Vrooman said the Alliance is on its way to becoming a stronger, better organization.

"This has really required the organization to shore itself up and refine its operations to the point where we are a renewed organization, and that's good," Vrooman said. "We have survived this."

Reporter Eve Byron: 447-4076 or eve.byron@helenair.com