An independent audit has brought up a number of questions with the finances and processes of the East Grand Forks Economic Development and Housing Authority.
The results of the audit, provided to the Herald by East Grand Forks City Administrator David Murphy Wednesday, noted the $510,000 unpaid loan from the EDHA that was recently revealed to have gone unpaid for more than a decade. The department’s executive director, Jim Richter, retired last week after being put on paid administrative leave.
The Boardwalk Enterprises loan, agreed to in 1999, was used to help construct the building that now houses the Drunken Noodle/Little Bangkok and the Boardwalk Bar and Grill restaurants. City staff revealed in late April that no payments have been made on the loan, though annual $30,000 payments were supposed to have begun in 2003.
“The Director claims he forgot about the file, but later stated he had had discussions with the individuals who own the building regarding when they would repay,” the Abdo Eick & Meyers audit report states.
Boardwalk Enterprises also received a $400,000 state grant and $90,000 land grant, the audit states. Murphy said the loan did not come from local property taxes but other non-city sources.
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The report notes that two other loans have been made to entities with partners “similar to the partners related to the Boardwalk Enterprises loan,” but payments for those loans have come on time.
A $136,489 loan was given to the Boardwalk Bar and Grill in 2009, and a $142,455 loan for Boardwalk Enterprises Entertainment Group came in 2011, according to Murphy.
One of the partners in Boardwalk Enterprises is Dan Stauss, the brother of East Grand Forks Mayor Lynn Stauss. The mayor has denied knowing about the outstanding loan.
City officials have met with Boardwalk Enterprises representatives about loan repayment, and are in the process of setting up another meeting.
Murphy said that Richter provided the file on the unpaid loan to city officials just before the audit was supposed to begin. Murphy, who was hired by the city last fall, said the audit was ordered in March.
“There were some areas … that I had some questions about,” Murphy said. City Council members have seen a version of the audit that includes “job performance notes” that Murphy said are confidential.
Other issues
The audit examined a number of EDHA funds and activities since the mid-1990s, including the department’s general fund. The city transferred money to the EDHA general fund between 1996 and 2010 to support operations, according to the audit, but did not do so in 2011 and 2012.
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“The fund does not have another consistent stream of revenue,” it states. “Without a steady stream of revenue, City Council will need to determine whether to include a funding source from other City funds to support the EDHA’s general operations.”
The audit states that the EDHA general fund had an $112,260 deficit by the end of 2012.
The report also brought up concerns with other “DRLF” loans, which are related to state-funded flood recovery and includes the Boardwalk Enterprises loan. For one loan to restaurant Tortilla Flats, the audit notes that “no file was able to be produced, this loan was fully written off with a remaining balance of about $49,000.”
The audit notes that for another loan to Way Cool 3D.com, a new repayment plan was reached in September 2013.
“The Commission minutes do not reflect approval of the new repayment agreement,” the audit states. It also notes that the agreement states that “all payments made in repayment will be treated as a tax deductible donation.”
Murphy said City Attorney Ron Galstad is reviewing “whether we can do it that way or if we’re going to need to restructure that.”
“I don’t have any experience with that kind of repayment,” Murphy said.
Another $25,000 loan was given to Surface Pride in early 2013, but the audit states the company went bankrupt by the end of the year. The audit notes that there was “no information in the file relating to a risk analysis or credit worthiness of the borrowers.”
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“This was a startup business, (Minnesota Investment Fund) funds are to be used to help existing businesses,” the report added.
Recommendations
The audit recommends “that the EDHA establish written procedures to review, approve, and monitor loans as outlined in the criteria above.”
Murphy said Wednesday that the EDHA is already implementing recommendations included in the audit report.
“That’s not a question,” Murphy said. “That will have to change, as far as the documentation of this, of the loan process and keeping track of that.”
Council member Mark Olstad, an EDHA board member, said the EDHA needs to do a better job with documentation.
Murphy said Tuesday he will research contracting out the housing duties of the EDHA, while the city keeps the economic development position in-house. He said the city may benefit from having an employee focused solely on economic development.
Chad Grassel, another council member who sits on the EDHA board, said while the focus is on the $510,000 loan, the audit brings up other issues that city officials need to address. He added that they’re trying to find out “where do we go from here so that the citizens of East Grand Forks feel comfortable with what’s going on in the EDHA office.”
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More info: Click here to read the audit report.
