Southwest Portland neighborhood coalition disputes findings of audit commissioned by metropolis
An audit reported launched Tuesday factors to financial mismanagement and an absence of transparency and oversight inside Southwest Neighborhoods Inc.
The nonprofit district coalition is one of seven publicly funded coalitions in Portland. It oversees 17 Southwest Portland neighborhood associations, managing belongings for a lot of of them.
The audit, carried out by Marsh-Minick, P.C., concluded that whereas there hasn’t been any criminality or fraud at Southwest Neighborhoods Inc. since 2010, roughly 7% of the $3.17 million in taxpayer funds the coalition has acquired since 2010 have been mismanaged or misspent.
The audit centered closely on how Southwest Neighborhoods, Inc. (SWNI) dealt with and recovered from the embezzlement of $130,000 in funds by a former worker, over the span of seven years from 2003 to 2010. The worker was capable of write private checks to herself, use SWNI funds to repay private bank card debt and steal money donations from the group over the seven-yr timespan. The worker was ultimately reported to police by SWNI’s govt director in 2010 when SWNI paychecks bounced and the worker resigned abruptly, admitting financial wrongdoing. That worker was later convicted of 11 counts of felony theft.
Perhaps one of essentially the most damming revelations to come back from the audit was that SWNI’s govt director, Sylvia Bogert, knew concerning the embezzlement for years previous to reporting it to police. At one level in 2005, auditors famous, Bogert took out a private line of credit score to cowl greater than $19,000 in debt on an unauthorized SWNI bank card. Bogert informed police at the time that when she discovered concerning the bank card debt, she felt obligated to repair the difficulty as a result of she was tasked with overseeing the group.
Bogert nonetheless serves as SWNI’s govt director.
Auditors famous the delay in reporting of the theft “allowed the former employee who was convicted of theft additional opportunity to embezzle, and there was no accountability for the Executive Director who had converted SWNI debt to personal debt.”
Bogert declined to reply on to questions concerning the incident from practically a decade in the past, as a substitute deferring to a ready memo to board members denouncing the audit’s findings.
Following the embezzlement, the previous worker was ordered to pay again practically $170,000 in stolen funds and bills to SWNI, however thus far, solely about $35,000 has been paid again.
Problems lingered following embezzlement
With a SWNI checking account closed and a brand new one opened following the embezzlement, auditors discovered insurance coverage declare checks had been by no means tracked correctly on financial data. Additional discrepancies had been famous, leading to restricted account balances being decrease, and at different occasions a lot increased, than what was reported to SWNI’s board members.
“There was evidence SWNI had mismanaged financials, unmitigated risks, and dysfunctional internal controls which resulted in SWNI being vulnerable to losses,” the Marsh-Minick report notes. “There were occurrences of misapplication and unallocated money. SWNI’s leadership demonstrated being willfully blind to noncompliance with governance documents, standards and ethics.”
Years later, in 2016-17, financial data had been nonetheless inflated or misrepresented.
For instance, SWNI had created what some board members known as a “slush fund” with the native Post Office, making a hefty pre-fee at the tip of the fiscal yr and carrying over a greater than $31,000 stability, regardless of spending nowhere close to that on charges and prices for delivering the group’s month-to-month neighborhood newspaper. The purpose? Some informed the audit staff’s investigators that the tip-of-yr spending was to make use of up any leftover Civic Life funds so as to maximize the grant funding it acquired, as a result of unspent funds would possible be decreased from future grant agreements.
The odd postage account was by no means raised as a crimson flag, possible as a result of SWNI had not undergone any variety of thorough financial assessment, past IRS audits, for a lot of the timeframe following the felony theft incident.
The following yr, in 2017-18, a line merchandise of $4,000 for skilled charges was included in funds paperwork, which included $2,500 for a financial assessment that was by no means carried out. Documentation confirmed the complete $4,000 as being spent, regardless of the discrepancy.
The report concluded SWNI’s report conserving, mixed with its “dysfunctional and ineffective financial controls” had been made worse as a result of an absence of transparency and absence of actual oversight by its board members.
“The root cause of the financial mismanagement was the lack of accountability for financial duties, outdated financial policies and procedure, non-adherence with written policies, providing incomplete and inadequate records for all Board members, a lack of transparency, unperformed financial statement audits and reviews, and irreconcilable difference among board members,” the auditors acknowledged.
They cited breaks with SWNI’s personal whistleblower retaliation insurance policies, noting 12 completely different board members who expressed worry of retaliation and both declined to be interviewed or did so regardless of being pressured by others to not discuss to auditors.
“Retaliation and pressure that was documented and observed by the forensic auditors included threats of personal lawsuits and removal of Board members that were deemed as detractors by others,” the Marsh-Minick report states.
Auditors additionally dialed in on SWNI’s utility and receipt of a $66,300 Payroll Protection Program mortgage from the federal authorities again in May. The PPP mortgage program was created to assist companies keep away from layoffs and closure through the pandemic, by subsidizing some of their prices with a forgivable mortgage.
As beforehand reported by the Connection in June, some neighborhood affiliation members critiqued the group’s utility for the small enterprise mortgage, noting SWNI’s metropolis grant funding for the upcoming fiscal yr was not jeopardized by the pandemic. SWNI’s management stated the nonprofit group did the truth is, face the risk of decreased funding from the town as a result of COVID-19.
The $66,300 created a surplus of funds for SWNI. In response, the board opted to make use of some of its unspent grant cash from the Office of Community and Civic Life—the town bureau that funds SWNI and different district coalitions with annual contracts—to create a $25,000 mini grant program known as the Community Engagement Allocation Program, shortly after the mortgage was acquired. Under the CEAP, neighborhood associations may apply for as much as $1,000 in funds to make use of towards worthy engagement endeavors, applications or bills associated to COVID-19, like Zoom accounts.
Communication despatched to board members indicated the CEAP program was a partnership between Civic Life and SWNI, when the truth is, Civic Life later indicated it had no involvement and did not approve of SWNI repurposing its metropolis contract funds for non-payroll functions like CEAP.
The PPP mortgage dealing with was one of a number of examples discovered by auditors of SWNI’s board not being given satisfactory data to carry out practical oversight of the group.
“It was problematic that there was evidence the special PPP committee had not regularly met,” the audit report states. “This was evidence that SWNI had mismanaged the oversight of the PPP money, and that decision making regarding CEAP, engagement with Civic Life regarding handling of expenses, and the PTO payouts were not adequately disclosed to Board members.”
The audit comes as SWNI is actively fundraising and receiving donations from the general public to backfill an enormous funds hole after not receiving metropolis grant funds in July. By November, greater than $9,000 in donations had been logged by SWNI.
SWNI disputes audit
During a board assembly Wednesday, Nov. 18, representatives from every of the 17 neighborhood associations underneath SWNI got an opportunity to touch upon the audit. Most declined, saying they had been nonetheless digesting the 124-web page report. Some discredited Marsh-Minick’s credentials, whereas others refuted the agency’s findings.
“It makes sweeping and overreaching statements without first articulating reasonable facts that would support that,” Hillsdale Neighborhood Association President Tatiana Lifshitz stated Wednesday.
Board President Leslie Hammond was fast to level out what the audit did not discover.
“If you really read that report carefully, you’ll find that they do not find any facts or find any evidence that there’s been any fraud, abuse or waste since 2011,” Hammond stated. “That gives us a clean bill of health in my mind, in terms of how we’ve handled our finances. There are a lot of allegations but no facts.”
Katie Daly of Arnold Creek Neighborhood Association wasn’t as fast to dismiss the audit.
“Attacking an expert is never really a good plan,” Daly stated. “Getting them to explain this report in detail might be more productive. The inference that a 2014 IRS audit is anywhere near a forensic audit is (inaccurate.) It seems they were not so much indicating fraud, but a failure to apply policies consistently.”
In a memo to board members issued Tuesday, board officers stated they disagreed with the conclusions within the audit and pointed to no situations of financial malfeasance because the 2010 embezzlement. They famous many of the practices put in place had been executed so with oversight from the town.
“It was our hope that the Office of Civic Life’s audit would be fair and focus on the financial management system that SWNI has put in place following the fraud conviction of a former employee in 2010-2011,” the memo states. “Unfortunately, this does not appear to be the case. Marsh-Minick’s audit asserts a pattern of financial mismanagement. It fails to recognize that there has been no financial wrongdoing since 2011 and does not acknowledge SWNI’s work to improve and strengthen its financial management system after the financial fraud. This improvement process was conducted with the oversight by the city’s Office of Neighborhood Involvement (ONI).”
SWNI’s board officers allege the Marsh-Minick audit made “unsupported findings of financial mismanagement during the past decade.”
“We dispute these findings and will respond to the misinformation contained in the report,” the memo states. “Our preliminary review of Marsh-Minick’s report indicates it contains ungrounded allegations about SWNI’s financial management system, including assertions of misspending and claims about misused funds. Particularly troubling is the absence of documented information that indicated no issues with financial mismanagement, including ten years of financial reports submitted to ONI/Civic Life staff and a 2014 IRS audit of SWNI, which had no findings of mismanagement.”
Following financial doc assessment, and interviews with present workers and board members, auditors described “a culture problem” inside SWNI that went unresolved.
Inklings of such had been dropped at the forefront earlier this yr.
Employees at Civic Life turned alarmed again in April of this yr once they discovered some of SWNI’s personal board members had been denied data by SWNI workers and management referring to financial paperwork and different fiscal and coverage-associated issues. Civic Life workers warned Portland metropolis commissioners that even when the bureau—which gives the majority of SWNI’s funding—intervened to hunt those self same data, workers was met with indignation and requested to pay $31,885 in charges to provide the data.
Civic Life workers alerted the Portland City Council of its souring relationship with SWNI, noting a number of “issues of concern” throughout a July council assembly.
As a end result, the Council declined to resume SWNI’s $297,414 contract in July, opting as a substitute for the forensic audit. In response, SWNI’s board voted to rent an lawyer to assist them reply to the town’s requests for data.
While the audit was underway, two members of Southwest Portland neighborhood associations filed go well with towards SWNI over its refusal to offer data earlier this spring. That lawsuit, which seeks declaration that SWNI is certainly, at least a quasi-public physique topic to the principles of public data and conferences legal guidelines, is ongoing.
Audit results in tighter safeguards from metropolis
Many of the problems auditors discovered inside SWNI are pervasive amongst district coalitions and the neighborhood involvement system in Portland.
A 2016 metropolis audit famous “a lack of accountability for how community engagement funds are spent and an outdated City Code and funding model.”
The audit famous an absence of oversight that prevented the town from intervening if financial issues had been discovered.
Since then, Civic Life has carried out extra rigorous oversight measures and reporting necessities, whereas updating its contract phrases with district coalitions.
But even with these in place, organizations like SWNI are nonetheless susceptible to errors.
Suk Rhee, director of Civic Life, discovered pause within the audit’s point out that SWNI lacks “critical financial controls,” leading to “a 97% error rate for the month-end financial checklist used by the Finance Committee Treasurer and Executive Officers.”
“What’s important to underscore is that SWNI board members, community members and Civic Life noted a pattern of potential financial misconduct and lack of transparency within SWNI,” Rhee stated. “Civic Life has a fiduciary responsibility to safeguard taxpayer dollars and City Council determined that an independent forensic audit was necessary.”
Rhee famous that in gentle of the SWNI forensic audit, the bureau will now require unbiased financial assessment for any group receiving $300,000 or extra in metropolis funding.
It’s unclear when the Portland City Council will rethink SWNI’s contract, following the completion of the audit.
“We want Southwest neighborhoods to know that Civic Life will continue to support the SW neighborhood associations while Council offices arrive at their decision,” Rhee famous on behalf of Civic Life. “While the outcome of the audit results are unfortunate, what is important to highlight is that a fair and due process was provided. The results show that Civic Life team took the necessary and appropriate steps to uphold our role as fiduciary stewards for the community, neighborhood associations, and the coalition offices. Moving forward, Civic Life will begin implementing even more best practices to ensure that district coalition offices and grant recipients are successful.”