It certainly wasn't good news.
The audit of the city of Dunkirk's Community Development Block Grant program performed by the state's Comptroller's Office cited many areas of the city's CDBG process as lacking. Lack of paperwork on loans, improper payments to city officials, failure to follow yearly plans and unauthorized travel were all alleged in the audit.
Comptroller Thomas DiNapoli's cover letter said the state's audits provide fiscal oversight and identify opportunities for improving operations and Common Council governance. DiNapoli also said the audit's results are resources for local government officials to use in effectively managing operations and in meeting the expectations of constituents.
The city's DLDC setup seems to be part of the problem as some officials serve as board members due to their positions in city government while the rest are appointed by the mayor. The director of development and the CDBG coordinator performed the day-to-day operations of the DLDC, according to the audit.
"It appears that city officials who also held DLDC positions did not act as though they were working for two separate entities. As such, we found that city officials often managed the finances of the two entities as if they were one entity," the audit stated. "For example, the DLDC disbursed moneys for city-managed CDBG projects, while the city disbursed CDBG funds on behalf of the DLDC for loans and agreements negotiated by the DLDC."
The audit covered the period from April 1, 2008 through June 13, 2012 and stated council has the responsibility to initiate corrective action and report on their efforts within 90 days.
"A grant recipient must give priority to activities benefiting low and moderate income persons. The council and mayor have a shared responsibility to ensure grant activities are completed in a timely manner and in compliance with relevant laws and regulations. The council may authorize contracting with a private individual, not-for-profit agency, or consulting firm, as a "subrecipient," to receive CDBG funds and effectuate certain activities on the City's behalf. However, the ultimate responsibility for proper financial management of all CDBG funds rests with the council and mayor," the audit states. "We found that city officials have severely mismanaged the CDBG program and have put significant public funds at risk. City officials have disbursed CDBG funds without the most basic of documentation to support the expenses and have used the funds at times to pay for a variety of miscellaneous expenses that have no connection to the CDBG program. Most disturbing is that some of these transactions have been recorded in a manner to apparently hide the true nature of the transactions."
The audit found fault with both the mayor and council for not properly monitoring the program. The DLDC would get CDBG funds after a request from the development director, which was then approved by the city treasurer, mayor and fiscal affairs officer.
A lack of periodic status and expense reports was also cited with the audit stating council requested neither.
The audit found city officials provided the DLDC with over $888,000 in CDBG grant moneys to fund various economic development projects.
"In the absence of adequate agreements, city officials do not have an appropriate basis on which to adequately monitor the use of its CDBG grant funding by the DLDC. As a result, the city's CDBG grant funding is at risk of waste or misuse, and the council and mayor cannot properly monitor the progress of development activities to ensure projects are completed on time and within approved funding parameters," the audit stated.
Ineligible activities that did not meet one of three national objectives: benefiting low and moderate income persons, preventing or eliminating slums or blight and meeting urgent community needs, were cited. Federal regulations specifically identify several activities as ineligible, such as general government operation expenses and political activities. Additionally, purchases of equipment and motor vehicles are generally considered ineligible activities.
According to the audit, city officials used $41,000 to purchase four pieces of equipment, including a dump truck, two utility vehicles, outdoor cinema equipment and an undercover police car.
It is alleged the payments were made in a manner to hide the fact they were going for non-eligible items.
A revolving loan fund to assist local business also came under fire.
"The city disbursed a total of $427,500: $103,800 to four local businesses under loan agreements negotiated by the DLDC and $323,700 to the DLDC, which the DLDC used to fund loans to 10 local businesses," the audit stated. "We reviewed the files and records for loans made to these 14 businesses and found that city and DLDC officials failed to maintain adequate documentation for loans totaling almost $396,000."
Loans made to the Clarion Hotel also were in the auditor's sights.
"In January 2010, the city transferred $103,520 to the DLDC to reimburse it for a portion of loans the DLDC provided to a hotel. The DLDC made two payments of $50,000 to the hotel, one in September 2009 and the other in December 2009. In addition, the DLDC paid a third party $27,400 on behalf of the hotel in June 2009, for a total loan of $127,400," the audit states. "A promissory note dated Sept. 21, 2009, indicated that the DLDC would loan the hotel $125,000 to be repaid over a 10-year period beginning Feb. 1, 2010. It is unclear why the promissory note is for $2,400 less than the amount actually loaned."
The loan terms were altered to provide the hotel a $175,000 loan over a 20-year repayment period with a $50,000 performance incentive if certain conditions were met.
"As of the end of our fieldwork, city officials have not initiated any action to collect repayments from the loan recipient. Without records adequately documenting the terms and conditions of these loans, city officials have not protected the community's interest and cannot help ensure that community development goals will be accomplished or that loan repayments will be collected," the audit stated. "The council did not fulfill its responsibility to oversee and ensure the appropriate use of CDBG funds. The council did not monitor the city's progress toward community development goals funded by the CDBG program or the manner in which city and DLDC officials used CDBG grant moneys.
"As a result, the city's development grant funding has been at risk of waste or misuse, disallowed costs, and potential grant reductions from HUD. Further, if the city is required to reimburse the CDBG grant moneys that have been used improperly for ineligible activities, the city's taxpayers could face a greater tax burden."
The audit included recommendations for council, including establishing formal procedures to monitor the performance and administration of the CDBG program and having a written agreement with the DLDC establishing responsibilities of both parties.
It was also recommended that council authorize all transfers of CDBG funds to the DLDC and to ensure that the DLDC has effective control procedures in place to adequately safeguard grant moneys.
Updating files, sufficient documentation, looking into the possibility of recovering funds alleged to have been improperly disbursed and establishing formal procedures for selecting grant recipients through an open process were also recommended.
The methods and standards used are also contained in the audit. In addition to examining appropriate and available documentation, auditors also "interviewed appropriate city and DLDC officials and personnel to determine how the council monitored the CDBG program and the DLDC's activities."
Brian Butry from the comptroller's office was asked if the auditors had spoken with former Mayor Richard Frey or former Development Director Kory Ahlstrom.
"They told me that they spoke with the former administrator but that they did not speak to the former mayor," he stated. "Depending on the issues or questions that come up during the audit, it's a determination that our folks make in the scope of the review, who they need to speak with."
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