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Audit: More than $100,000 misused at Sanford Center: Report details improper use of funds by former executive director

BEMIDJI—A new report from the Minnesota State Auditor's Office shows a misuse of funds of more than $100,000 by the former executive director of the city-owned Sanford Center.

In report sent to the city on Friday, May 11, the state said Curtis Webb, who helmed the Bemidji event center from late 2012 until April 2016, made a misuse of public funds in the amount of $110,681. That misuse included improper payments made directly to Webb; Webb using city funds for non-business items, and payments made by Webb that had little to no documentation.

Webb was an employee of VenuWorks, the Ames, Iowa-based company that manages the Sanford Center for the city.

After Webb left the Sanford Center in April 2016, he took a similar position at another VenuWorks facility in Bloomington, Ill. However, he was fired there in October 2016 after issues of misuse of a company debit card came to light, which triggered an internal audit of Webb's spending there and in Bemidji by VenuWorks, as well as the city of Bemidji working with the state to also have an audit completed.

Curtis Webb

During the audit period, which started in December 2016, the city withheld its usual management fees it paid to VenuWorks.

The state looked at financial data from Jan. 1, 2013 to Dec. 31, 2016, the report said.

According to the letter sent to Bemidji Mayor Rita Albrecht, enclosed to the rest of the City Council, as well as to city and county attorneys, the state focused its report on Webb's misuse of "public funds."

The report states that payments were made to Webb in the amount of $5,616 in advances for Sanford Center expenses that didn't occur. Additionally, the report found an improper use of city funds equal to $37,751.

Also in the report were numerous examples of non-business related purchases made by Webb were detailed, including:

• A debit card purchase on Sept. 5, 2014, for $409.61 at YMCA of the Rockies Estes Park Center in Colorado.

• Three debit card transactions from Dec. 9, 2014, to Jan. 6, 2015, for travel expenses in Honolulu, totaling $718.28

• A check issued to Webb for $1,398.84 on April 9, 2015. The report states that the check was intended to pay for the cost of a car, hotel and flight from Omaha to Dallas.

• Several debit card transactions from Oct. 9-Oct. 21, 2015 were made by Webb to pay for flights, change fees, a hotel and expenses for a trip from Bemidji to Seattle for himself and two other individuals at a cost of $5,938.14.

Additionally, payments made by Webb found to be unsupported came to $22,734 and the report notes questionable payments of $44,580 that had inadequate support and/or documentation.

VenuWorks also conducted an internal review, which is attached to the state report, and the company found a net reimbursement of $134,385.31 was owed to the city of Bemidji, when including both direct payments to Webb and debit card purchases made by Webb.

According to the State Auditor's Office, the amounts owed are based on the contractual relationship between the city and VenuWorks. As a result, the office is expressing no opinion on the amount owed to the city.

However, Tim Sullivan, VenuWorks senior vice president and chief financial officer, said that when taking the state's report into account, the new reimbursement total to the city actually is bit higher, at $135,863.77.

That's because there were some transactions that the state auditors didn't review, but that VenuWorks conceded weren't supported by proper documentation, Sullivan said.

Because of the audit, Sullivan said the city withheld management fee payments to VenuWorks, including reimbursed expenses, from fall 2016 through April 2017. The total amount of the withheld payments comes to $141,012.25. The city and VenuWorks will negotiate what amount, if any, will be paid back to the city, or that the withheld management fees will suffice for reimbursement.

"We've been working with the city to determine what their response will be to the audit recommendations," Sullivan said. "Once they officially approve our proposed payback amount, we will issue a credit memo for those outstanding invoices."

Recommendations

In its report, the state highlighted several problem areas on how VenuWorks managed the Sanford Center financially and how the city could address those issues.

According to the report, two commercial bank accounts were established in the name of the city for the deposit of revenues and payment of expenses for the Sanford Center.

An agreement between the company and the city authorized VenuWorks to pay "budgeting operating expenses from the city operating account." From 2013 to 2016, various VenuWorks of Bemidji personnel were listed as authorized signers of these two accounts, including Webb. As a result, company staff were able to, and did, disburse public money from the bank accounts.

According to the state's findings, there is no legal authority for a city to give employees of a private company the power to disburse public money from the city's bank account.

City records and the internal review from VenuWorks also documented the use of a debit card by Webb, providing him and potentially others with direct access to the city accounts. The auditor's office states that while home charter cities have the statutory authority to make purchases using credit cards, they lack similar authority to use debit cards.

In another section of the report, the auditor's office states that while the city may have relied on VenuWorks to implement controls over Sanford Center purchases, the purchases were still made with city funds from a city bank account. "Stewardship of these public funds is ultimately the responsibility of the city," the office stated.

In reference to these procedures, the auditor's office is recommending the city discontinue the practice of "allowing any vendor, contractor or other external entity authority over any city bank accounts."

Additionally, it recommends the city permanently discontinue the use of debit cards and if credit cards are used, they should be restricted to appropriate city employees.

In April, the City Council approved a new five-year contract with VenuWorks that will run through Dec. 31, 2024.

The Sanford Center broke ground in April 2009 and opened its doors in October 2010. The structure includes a 4,373-seat arena and attached conference space. On an annual basis, the city budgets $400,000 for the facility to cover operating losses and uses the remaining funds to re-invest in the building. Local officials say the center has an estimated economic impact of $19 million on the Greater Bemidji region.

In the Illinois case, authorities ultimately charged Webb with theft of government money.

In December, the Pantagraph, a Bloomington newspaper, reported that Webb's attorney said a plea agreement is possible, but the "extensive amount of records related to the case" must be reviewed by the court first. Webb entered a not guilty plea in November.

It is unclear if any criminal charges will result from Webb's time in Bemidji.

Matthew Liedke

Matthew Liedke is the city, county and state government reporter for the Bemidji Pioneer. He also covers business, politics and financial news.

(218) 333-9791
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