NWAEDD: An agency that was out of control

A state audit report shows mishandling of funds, tampering with documents and accounting errors, among other problems, at the Northwest Arkansas Economic Development District. It currently is under review by the 14th Judicial District prosecutor to determine if criminal charges should be filed.

“We have been provided a copy of the audit report,” Prosecutor David Ethredge told The Bulletin. “We are reviewing that report, and we’ll be meeting to determine what direction we’ll determine to take, if we will take further action.”

Ethredge said he will meet with the NWAEDD board of directors, “and law enforcement also.”

Does that mean criminal charges are possible?

“At this time, until we make a decision whether or not we will pursue further action, I’d rather not make a comment on that,” said Ethredge.

“We can’t make that decision,” said Kim Williams, assistant legislative auditor, referring to criminal charges. “But if we see something that might be questionable, we refer it.”

Joe Willis, NWAEDD’s new executive director, said steps recommended by auditors have been taken to correct the deficiencies. There is more accountability and tighter control of the agency’s finances, he said.

According to Willis, now every piece of correspondence is read, he signs every check that is written, there is more oversight of activities, access to funds has been restricted, and overall there is more accountability since he took the job in October.

Willis was named interim director, then permanent director, after the board asked former NWAEDD director Mike Norton to resign last September. In addition, Fiscal Director Debbie Davidson subsequently left her position, and Willis said they are looking for someone to fill that post.

One of the findings of the audit was that Norton owes the district almost $14,000 after receiving a vehicle allowance and being reimbursed for mileage as well.

As of March 18, based on the Arkansas Legislative Audit analysis of district records, it appears NWAEDD owes $1,168,258 to other agencies, and $104,227 is potentially due to the Area Agency on Aging of Northwest Arkansas Inc.

Because of improper use of restricted grant funds, $83,181 is due to Van Matre Senior Center in Mountain Home, according to the audit report.

NWAEDD covers a nine-county area that includes Baxter, Marion, Boone, Searcy, Newton, Madison, Carroll, Benton and Washington counties. It oversees several programs and assists local governments with such things as grant writing. It’s governed by a 28-member board that includes county judges and mayors, or their representatives, and private sector members.

‘It’s pretty eye-opening’

It was when water was cut off at the Van Matre Senior Center for non-payment last year, and board members learned more than a half-million dollars was owed to a grocery supplier, that a demand for an accounting was made. Baxter County Judge Mickey Pendergrass asked State Rep. Karen Hopper to request a state audit of NWAEDD. Previously, there had been private audits of the district but no discrepancies were reported.

Pendergrass said he asked for the audit, because whenever he tried to get answers about financial situations, it was like “beating your head against the wall” and no one could explain anything.

“It’s pretty eye-opening about what was happening over there,” Pendergrass said. “It’s amazing how everything hit a dead end at 2005.”

The Arkansas Legislative Audit conducted an audit for Jan. 1, 2005 through Dec. 31, 2014.

“It’s a very complicated report,” said Williams.

According to her report, state and federal funds along with donations were commingled as a single entity “without regard to contractual restrictions.” Davidson, without authorization, “made routine transfers between funds to compensate for inadequate cash flow,” according to auditors.

“Transfers were repeatedly made from multiple programs/funds to the Economic Development Administration Fund to cover payroll expenses,” said the report.

Receivables and payables exceeding $1 million that had been recorded by the district were eliminated through an adjusting journal entry on Dec. 31, 2010, but according to the report, Davidson “did not recall why she did so or who authorized the entry,” later saying it was an attempt to clean up errors in the accounts.

“During ALA interviews with current and former district staff, no one took responsibility for preparing or authorizing the entry,” said auditors.

Aging Program problems

One of the biggest problem areas was in the Senior Services Contracts Program. The Area Agency on Aging of Northwest Arkansas Inc. contracted with NWAEDD to manage its Aging Program in Baxter, Marion, Boone, Searcy, Newton and Washington counties.

“The Aging Program operated under financial strain for most of the years reviewed,” according to the audit. “As of Dec. 31, 2009, the Aging Program owed $1,059,077 to other programs in the district as a result of ‘borrowing’ from those funds through unauthorized transfers to support increased Aging Program expenditures.”

An adjusting journal entry was posted on Feb. 5, 2011, with a Dec. 31, 2010 date, eliminating the interfund receivable and payable balances between all funds, including the $1,059,077 owed by the Aging Program, according to the audit.

According to the report, between 2010 and 2014, the Aging Program “paid back” into the district payroll account about $1 million more than the program’s payroll expenditures, leaving a book balance for interfund receivable of $801,213 at the end of 2014.

Senior centers’ main source of revenue were federal and state grants, Medicaid reimbursement for meals and projected income that included local grants, fundraisers and donations. Despite restrictions on the use of the money, the audit found the funds were commingled.

In January 2010, then-Aging Program Director Kaye Taylor required all local senior centers to open an Arvest bank account, which allowed daily deposits by the centers to go into the district’s consolidated Aging Program account. The account operated at times with a negative book balance and there were insufficient check fees, according to the report.

Taylor resigned in April 2014.

Van Matre Senior Center shorted

Restricted private funds for senior centers were mixed with all senior center funds and were not spent as specified. That included an $83,181 donation from the Jones Trust in May 2009 for capital improvements at the Van Matre Senior Center. Those funds were deposited in the blended account on May 11, 2009, and $40,000 was transferred from the Aging Program account to the district payroll.

A check for $46,400 was issued to open a “Van Matre Savings Account,” but the account was never set up on NWAEDD’s general ledger. That money was moved back into the Aging Program account through four transfers that occurred at the same time, then similar amounts were transferred from the Aging Program to the district’s payroll account.

The audit also found the Aging Program stopped paying into its accounts payable in a timely manner, and on March 19, 2014, Norton notified the board that the program owed Springfield Grocer Company $520,000 through February that year. The total grew to more than $600,000 by the end of March.

The board voted to use General Improvement Funds to pay the bill, but did not authorize a specific amount. On March 27, 2014, $636,900 was transferred from the GIF program to the Aging Program, and $620,818 was paid to Springfield Grocer Company.

NWAEDD stopped operating the Aging Program on March 31, 2014.

Another problem was the district did not request reimbursement it was eligible to receive for the North Arkansas Transportation Service. According to the audit report, NWAEDD did not request reimbursement from the Arkansas Highway and Transportation Department from 2008 through 2014, losing $858,488.

Double dipping by director

A specific instance of funds being misused was Norton’s travel expenses. He received both an automobile allowance and mileage reimbursement, which is not allowed. According to the audit, there was no record of the board approving a vehicle allowance.

However, the audit reported that the board chairman — who now is Wes Fowler of Madison County — indicated he was aware of the allowance, but didn’t know Norton also was receiving mileage reimbursement.

According to the audit, NWAEDD records from Jan. 1, 2012 through Norton’s resignation on Sept. 17, 2014 show he owes the district $13,695 for improper mileage reimbursements.

Williams said that’s an example of questionable activity and why the report was referred to the prosecutor. “Would that be criminal? Probably not, but it’s up to the prosecutor to decide,” she said.

Pendergrass said he has talked with the prosecutor and other board members, and that he will press for a criminal investigation. “Somebody owes us a lot of money,” he said.

Mountain Home Mayor Joe Dillard is a member of the NWAEDD board, having inherited the seat when he took office in January. “I think getting the audit was really important, to get it expedited, to know where they are at,” he said. “And the new director up there, Joe Willis, seems to be dotting every ‘i’ and crossing every ‘t’ and doing corrective action on everything that’s being called for.”

Board ‘trying to do what’s right’

The audit report faulted the NWAEDD board for not providing proper oversight of district operations, not ensuring adequate internal controls were established and monitored, not authorizing transfers between funds and programs, not always properly approving disbursement of GIF money and failing to approve, document or authorize individual employee salaries or raises.

Willis said the board is trying to do what’s right. “They didn’t ask for it,” he said, referring to members’ positions on the board. He said the board members may not always be on top of everything because they do have other duties. They depend on the professionals and tenured personnel running the day-to-day operations for information about what is happening, according to Willis, adding they are getting that now.

“My goal as a board member is to try and make sure that the board functions as a board, maybe looking a little deeper in the accounting ways and how they account for the money and making sure they don’t commingle it,” Dillard said. “The board has a responsibility, and the board needs to make sure they have good communication with the director and any of the department heads up there. I think that’s going to happen.”

“The Northwest Arkansas Economic Development District is an important entity to our area,” Dillard added. “They have a purpose, and I think things will run a lot cleaner and a lot better with the new people, and especially with the awareness of what’s went wrong, making sure we don’t get back in those areas.”