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.”
 

7 replies on “State Auditor says Des Moines formerly lacked financial controls; Legacy Foundation responds”

  1. Des Moines Legacy Foundation Disputes
    City Version of State Auditor’s Report

    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.

    Since 1999, the Des Moines Legacy Foundation and the City of Des Moines enjoyed an almost 17-year history of working cooperatively to serve people in need in our community. The Legacy Foundation is, and always has been, an independent 501c3 non-profit organization governed by a board of community volunteers with a mission of supporting our community’s youth, seniors, parks, and the arts by providing tools to assist the changing needs of our community.

    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.
      
    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.

    Regardless, the results of those investigations remain the same: All investigations have documented that funds raised by the Legacy Foundation have been used or remain available to use for the purposes intended by the donors. The State Auditor, we note, only investigated the City and its findings are against the City, not the Legacy Foundation.

    Instead of working with the Legacy Foundation — a group of community volunteers — to identify and address any of the City’s issues identified by the Auditor, the City Manager, with the collaboration of the City Council, has chosen to continue its efforts to defame the Legacy Foundation and its board members while ignoring some simple facts:

    1) All of the contributions Mr. Matthias claims should have gone to the City were monies donated to fund specific needs. Legacy has either already spent or earmarked those particular funds in a manner consistent with the donors’ intent. And when the donors’ intent requires payment of funds to the City, we have paid and will pay those funds once the City submits the proper documentation.

    2) Instead of acknowledging that Legacy had correctly used the funds per the donors’ intent, Mr. Matthias decided it would be in the taxpayers’ best interest to spend more than $100,000 to attempt to seize direct control of Legacy Foundation assets. He did this to avoid continuing to have to comply with the Legacy Foundation funding process.

    3) The investigations and actions of the City Manager have created divisions in this community and have damaged the Legacy Foundation’s reputation and those of its volunteer board members but have provided no benefit to the donors or the City’s taxpayers

    4) The Legacy Foundation remains open and transparent about all of its financial affairs, and we are proud to continue serving our community with or without the support of the current City administration.

    The City’s press release also included the following misleading statements, which we respond to as follows:

    The City claims that “negotiations with the DMLF for the return of funds that should have originally been received by the City have been unsuccessful.” 
     
    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.

    Legacy has been negotiating to resolve whether the Foundation should continue to hold monies designated for the City’s Bench Program. The same is true regarding certain funds designated to fund Arts Commission programs. These negotiations only became necessary when the City chose to deviate from past practice in applying for funds and instead threatened civil and criminal prosecution. As a result of these threats, an Agreement was necessary prior to the release of funds.
     
    The negotiations in drafting an Agreement are delayed due to the City’s efforts to misconstrue the facts and its attempt to receive the funds in an unrestricted manner contrary to the donors’ wishes. Legacy’s donation of these funds requires that the City use the funds consistent with the donors’ intent before Legacy will transfer the monies.

    The City states a “third-party investigation identified that ‘funds and resources designated for the City …. have been misappropriated to the DMLF’.”
     
    As the City has previously admitted, it does not have any legal basis to support this third-party conclusion, which was made without providing the Legacy Foundation any meaningful input or ability to respond. The inclusion of this reference in the City’s press release only further defames the Legacy Foundation’s reputation and its Board members. There was not and never has been a “misappropriation of funds.”

    Legacy Foundation records document that all funds questioned by the City and all funds identified in the Auditor Report have been used or are earmarked for use consistent with the donors’ intent. Unfortunately, this fact is not compatible with the City Manager’s narrative.

    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.

    The City’s refusal to be fair, objective, and truthful in reporting on this matter demonstrate that Mr. Matthias’s intent in initiating and conducting this investigation was never about the City’s claimed intention to “safeguard the public trust.” If the City had genuinely cared about the public, it would have worked with the Legacy Foundation cooperatively and productively to address any issues.

    The Legacy Foundation remains committed to acting as a conduit for neighbors to help neighbors, particularly in light of situations such as the current pandemic.

  2. So, the state auditor is going to charge Des Moines $67,000 for chasing down $8,140, which isn’t actually missing, just went a more direct route to their intended destination?

    When’s the next election…?

    1. unfortunate that this is a city staff/manager issue as they can’t be voted out and the restrictive contract with city manager makes it so the city is bound to him until he wants to leave – which is a council issue as they approved the contract. But why would he leave with the favorable compensation and escalator sweetheart deal?

  3. Thank you, Gene…
    This city manager is so out of control. I voted for council members who would hold him responsible… and will vote against future candidates that are not willing to question him and hold him accountable.

    It saddened me that the council chose to reinstate a member, whom I liked, but felt did not sufficiently over see and question our inappropriate city manager.

    He has made so .any bad decisions for our community. He needs to go.

  4. For some reason, the City chose to put this dispute as their press release on the auditors reports. I think the real story is that the City passed the audit and that the finance team was commended for doing a great job under very trying circumstances. Kudos to our Finance team.

    HOWEVER: If you watched the video you know that Council received that information packet five minutes AFTER the meeting began. We had no time to review the information and thus had no way to prepare and ask any serious questions about the above question—or any portion of the audit for that matter. And -that- is disappointing because this audit is one of the most serious tasks the Council undertakes every year. My hope is that our administration (and the Auditor’s Office) will take steps to rectify that for next year.

    1. Thank you Councilmember Harris for doing your job, not being complicit, and having the backbone to tell the truth.

  5. How is spending $67,000, and I’m sure 100’s if not 1000’s or city worker hours, on an audit that determined $8000 wasn’t accounted for properly protecting tax dollars and safeguarding public trust? Was the 3rd party audit required? I’m assuming Michael Matthias approved this spending and if so is this terminable offense? Asking as the city is already bound to a terrible poison pill contract with the city manager. Seems like a waste of time and resources to me. It there was a conflict of interest, either real or perceived, with city employees being on a board of a non-profit then that is a management issue that should have been handled as such to save this years long process and spending.

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