By Jack Mayne

The Washington state auditor has told the city of Des Moines what it says it has known for a long time – that it lacked full internal controls over cash received in the Parks, Recreation and Senior Services Department and it left the city dealing with conflicts of interest over taking in cash for services.

The finding (download PDF here) was based on the conflicts of interest that existed in 2018 and prior in the department “that failed to detect or prevent a diversion of public funds to a separate, independent entity,” the Des Moines Legacy Foundation.

The individuals involved were long ago retired or left their positions with the city.

The audit advises the city to recover the $8,140 of public funds deposited into the Legacy Foundation’s bank account.

The state audit
The state auditor presented their audit – which will cost around $67,000 – to the Des Moines City Council on Dec. 3.

The audit said that while the city “remains solvent and sustainable,” the finding was based on the conflicts of interest that existed in 2018 and prior in the Parks, Recreation and Senior Services Department that “failed to detect or prevent a diversion of public funds to a separate, independent entity” – the Des Moines Legacy Foundation – which is a “separate organization not affiliated with the city.”

After reporting to the state auditor, the city hired a third party expert to investigate the matter that identified that “funds and/or resources designated for the city … have been misappropriated” to the Legacy Foundation.

Additionally, the report stated that “it is apparent that former city employees, who were also board members of DMLF,” had the preference for funds intended for the benefit of the city go to the Legacy Foundation because they could control the use of the money” and the investigative findings are “documented by emails between former city employees and (Legacy Foundation) board members.”

Des Moines Legacy responds
“The city’s public response to the State Auditor’s Report reflects a continued failure by the city to accept responsibility for its own actions and be honest, truthful, and responsible,” the Des Moines Legacy Foundation said in a statement.  “Unfortunately, current City Manager Michael Matthias deliberately poisoned the relationship between the Foundation and the city by his misguided attempts to control the Legacy Foundation and confiscate its funds.”

Legacy also said that “at no time during the city’s multiple investigations, including the State Auditor investigation, has the Legacy Foundation been afforded a meaningful opportunity to respond to any of the city’s allegations.”

“Instead of working with Legacy to document the proper use of the questioned funds and instead of providing Legacy with any semblance of due process in the investigative process, City Manager Matthias chose instead to waste taxpayer money in his efforts to undermine the value that the Legacy Foundation has provided to this community for more than 20 years,” Legacy added.

Serious order
A finding is the most serious reporting level that the state auditor can issue. The auditor said it was told of the city’s “extreme disappointment” that this situation occurred and for the role former city employees played.” The city declined to name the individuals.

The city has “made substantial changes to the department to ensure that these activities will never happen again, implementing new controls, procedures and training.”

Negotiations with the Des Moines Legacy Foundation “for the return of funds that should have originally been received by the city have been unsuccessful.”

But Legacy disagrees, and calls this a “misleading statement.”

“The Legacy Foundation disagrees that we are negotiating over funds that ‘should have originally been received by the City.’ The funds were meant to be received by Legacy and were never to have been received directly by the City.”

What took so long?
When these actions were originally uncovered in June of 2018, Des Moines city officials stated that “as public servants, the most significant responsibility of City Council and city staff is to safeguard the public trust, protect your hard earned tax dollars, and assure that precious resources are spent in the most efficient and impactful manner as possible.”

The city says that “thorough investigations that have been conducted as well as the systemic changes that have been made throughout the city’s Parks, Recreation and Senior Services Department (that demonstrate the city’s commitment to this statement).”

Officials said that ongoing donations to support the “City’s Parks, Recreation, Senior Services, or other city programs can be made directly to the city and may be tax deductible. Prior to donating to any organization, it is advised to research the organization to ensure donations are used for their intended purpose.”