By Jack Mayne
Donations collected by the Des Moines Legacy Foundation intended to aid in the support of the city’s Parks and Recreation Department were not always used to support city functions, and some city employees worked for Legacy while being paid for by city tax dollars, the city reported.
Investigations continue, but the close relationship with Legacy has been halted.
A forensic financial consultant told the Des Moines City Council at its Thursday (Nov. 15) session that not all of the money raised by the Legacy Foundation has been spent on support of city services and that city staff were at times working on taxpayer time to aid the foundation. The consultant study said a significant portion of the total donations collected have not directly been used for the benefit of the city’s Parks department.
“Over the past five months, our staff has been doing a concurrent review of internal operations to determine how these types of actions could take place and staff has identified a number of changes that need to be made,” said Des Moines City Attorney Tim George.
George told the Council Thursday night that in June of this year, “the city obtained credible evidence that donations and funds that were intended for the City of Des Moines may have been diverted by city employees to an outside, independent party.” The information that the city obtained at that time referred specifically to the potential of diversion of funds to the Des Moines Legacy Foundation.
George said that when the city discovered that money was being held by the Legacy Foundation, the state was notified. Washington state law requires that “whenever there is a known or suspected loss of public funds, the state auditor must be notified and an investigation must take place.” The city has remained in contact with the state auditor since, he said.
“The city also obtained the services of an independent party expert,” said George. That company is Alvarez and Marsal Valuation Services of Seattle and the actual report to the city was done by Arik K. Van Zandt and Benjamin P. Thomas of that company.
George said that in June, City Manager Michael Matthias said there would be an investigation by Alvarez and Marsal Valuation and “the findings of that investigation would made public. I am reporting tonight that the investigation is now complete and copies of the report has been given to the state auditor for whatever action the state may take.”
“The city is committed to work with the auditor and state agencies as necessary to ensure that funds are recovered and that the public trust in the city and the city’s Parks, Recreation and Senior Services Department can be assured,” George said before introducing Arik Van Zandt, managing director of Alvarez and Marsal Valuation.
Van Zandt said when the firm was hired to get a “potential forensic accounting and assessment of possible misappropriation of funds by a city employe to the Legacy Foundation. That foundation was established several years ago and bills itself to “promote interest in and opportunities for charitable giving,: and as “a positive force in providing tools to assist the changing needs of our community.”
Van Zandt said the Alvarez and Marsal reviewed and analyzed “operating information and financial documents related to the Legacy Foundation “to determine whether or not and to what extent funds intended for the city were misappropriated by city employees to the Legacy Foundation.”
City, Legacy worked together
The Senior Services department and the city’s Parks and Recreation departments “have historically have had a close relationship with the non-profit Legacy Foundation, “in some ways intertwined with city employees actually working on behalf of the Foundation and its board members.”
He said that both Patrice Thorell, now retired city Parks, Recreation and Senior Services director (see her statement below), and also now retired senior services manager, Sue Padden both served on the board of the Legacy Foundation.
The investigation involved notes from Padden “indicating that the misappropriation of funds by employees between the city and the Legacy Foundation was likely occurring.”
Documents deleted, removed
Besides the transfer of funds, there “was a lack of controls process regarding donations received and how they were ultimately deposited into the Legacy bank account.”
When the investigation began, Van Zandt said the firm requested information from Legacy for their probe, including such items as bank statements, and other financial records in order to trace funds from their source to their ultimate use.
“Despite our request,” Van Zandt told the Des Moines Council Thursday night, “we were not provided with much of the data we had requested,” including complete bank account records.
“The city confirmed shortly after we were retained, that Miss Padded deleted a large amount of response documents … from the city server and facilitated the removal of documents from city buildings,” he said.
“We consider this lack of documentation for our process to raise to the level of a scope restriction,” he said. “What that means is with proper documentation we can trace those funds from their original source to their ultimate use but with limited documents we are able to conclude finding within our report but reserve the right to supplement further when we receive additional information.
He said investigators were provided with the Legacy QuickBooks records “which provide a high level of detail for us to review.”
The researchers also located and reclaimed “a box of information of various types.”
Despite the limited information, “we identified opportunities where funds and/or resources designated for the city could have been and actually have been misappropriated to the Legacy Foundation,” Van Zandt told the Council.
“Specifically, we have identified instances where donations in the form of checks written to the city but deposited into the Legacy Foundation bank account.
“Having senior city staff on the board for the Legacy Foundation creates a conflict of interest. The staff, specifically Ms. Padden and Ms. Thorell had a clear preference for funds intended for the benefit of the city to actually go to the Legacy Foundation because, as board members, they could control the flow of those funds.”
Large amounts of funds the Foundation has received don’t support the city Parks Department, Van Zandt said.
He said the foundation has raised $1,675,600 from 1999 through June of 2018, and that Legacy has “only expended $941,000 or 56.2 percent of those total donations toward the city’s Parks and Recreation Department.
“This is contrary to the Legacy Foundation’s statement that 100 percent of funds received were for the benefit or the direct benefit of the city,” Van Zandt said, adding the Foundation has retained $375,200. This despite the fact that Alvarez and Marsal did not have specific records to audit.
“Therefore, a significant portion of the total donations collected have not directly been used for the benefit of the city’s Parks department.”
Other money also remains on the books of Legacy and not with the city, he said, with money spent for general operating costs for Legacy such as insurance, office supplies and other general administrative type items, Van Zandt said.
In addition, much of the work to support Legacy is by city-paid staff, and there were many places where Legacy paid for administrative actions that were done by city employees that could have been taken from Legacy donations.
Apart from Legacy
Susan Cezar is Des Moines’ chief strategic officer and acting Parks and Senior Services department director, and she told of remedial actions taking place in Parks, Recreation and Senior Services departments, and acknowledged efforts of the present department in “moving forward and exemplifying the best qualities of public employees, continually making that extra effort to serve our community.”
Cezar noted the retirement of Thorell and Padden has been stepped forward, along with an “important distinction” that the city and Legacy Foundation are “not legally affiliated.” She noted that there are independent investigations of “potential theft of funds,” of illegal record deletions and “additional issues identified.”
She also said that programs initiated and financed outside the city process is a violation of state law. Corrective action has been taken, Cezar said, and all new programs must be approved within city channels
Henceforth, the city staff will not be able to work with and for outside agencies without approval of the city state and Council. “Fund raised by the city will be retained for city programs” and “staff time and resources will be subject to administration approval…”
She also noted that the state auditor will “review the city’s investigation and recommend appropriate remedial actions.”
Here’s a link to the city’s page on this case.
Here’s the Legacy Foundation’s Initial Response to the City Investigation:
The Des Moines Legacy Foundation was created by a committed group of community volunteers, including several City employees, in 1999 as a 501(c)3 non-profit organization. The Legacy Foundation’s mission has always been to support our community’s youth, senior citizens and the arts.
The City recently completed an investigation into allegations that “funds intended for the City were misappropriated by City employees to the DMLF” (Investigation Report Page 3.)
We have reviewed the report and strongly disagree with many of the accusations, mischaracterizations and opinions expressed in the report. At a fundamental level the report fails to recognize that the efforts of the Legacy Foundation and the City employees involved in the Legacy Foundation were never intended to benefit “the City” or the Legacy Foundation but were intended to benefit the recipients of the funds raised. In that regard, we believe the report clearly documents that the funds raised by Legacy Foundation over the past 19 years have been used as intended to support our community’s youth and senior citizens by providing access for the disadvantaged to parks, recreation and senior services programs and in support of the arts.
While the report alleges that procedures apparent to city administrators over the past 19 years could have led to a misappropriation of funds, it offers no evidence that funds were diverted for any purpose other than what was intended. We stand by our volunteers and our donors and their commitment to having a positive impact on our community.
Here’s a statement from Patrice Thorell:
For the entirety of my career with the City I and other City Directors had the full encouragement and support of prior City Managers and City Councils to become involved with and active in community organizations including Rotary, the Chamber of Commerce, the Legacy Foundation and others. This is reflected in the Investigative Report which acknowledged that in 2002 City Manager Piasecki specifically authorized myself and Sue Padden to serve on the Legacy Foundation Board. All of my service to the City and the Legacy Foundation reflect an honest and open attempt to do the best for our community and were done with the full knowledge and authorization of prior City Mangers and City Councils. The report does not indicate or suggest that either myself or Sue Padden received any personal gain or benefit and in fact, we both spent countless hours of our personal time to make the Legacy Foundation successful. I am proud of my service to the community and I am proud that my actions have helped to generate substantially funding for children, senior services and the arts that the City could not have provided on its own. The current administration has the authority to change that tradition and disallow this practice as it sees fit. However, it can not change past practices after the fact by vilifying those that had administration approval to serve the community prior to recent changes to administrative policy.