BROWARD OFFICE OF THE INSPECTOR GENERAL...2016/07/11 · The Broward Office of the Inspector General (OIG) has substantiated that the City of Margate engaged in gross mismanagement

BROWARD OFFICE OF THE INSPECTOR GENERAL

MEMORANDUM

To: Honorable Tommy Ruzzano, Mayor, City of Margate

From:

and Members, Margate City Com1/in

John W. Scott, Inspector General V /0 Date: July 11 , 2016

Subject: OIG Final Report Re: Gross Mismanagement by the City ofMargate in its Arrangement with the Alzheimer's Family Center, Inc., Ref. OIG 15-009

Attached please find the final report of the Broward Office of the Inspector General (OIG) regarding the above-captioned matter. The OIG investigation determined that, for nearly 20 years, the city maintained an informal agreement to provide bookkeeping services to the AFC and pay the AFC ' s debts from city funds, later to be reimbursed as the AFC obtained funding . In 2007, the agreement was formalized in a contract that incorporated only a single safeguard: a debt ceiling of $75 ,000 that would have entitled the city commission to determine ifthe arrangement would continue.

Subsequent to the written agreement, the AFC's debt to the city first exceeded $75 ,000 in 2009. However, city officials failed to notify the city commission that the AFC' s debt was in excess of the threshold specified in the contract. Not until August 2014, when a new city manager and finance director were overseeing the city, was the commission notified of the climbing debt. By March 2015 , the AFC owed the city $466,935 .

The city ' s new administration conducted a detailed review of the accounting in cooperation with the OIG investigation and has subsequently terminated its agreement with the AFC. In 2015 , the city entered into a settlement agreement valued at $176,295 , reducing the city 's losses to approximately $290,640.

The OIG has no recommendations to address the AFC ' s relationship with the city. However, more generally the OIG recommends that local governments reconsider the advisability of any agreements or arrangements of the nature detailed herein. Although the public policy of supporting families struggling with Alzheimer' s disease is noble, there are more fiscally responsible means of achieving that end. For example, grants of specified amounts allow local governments to control the extent of their investment and specify allowable uses.

Attachment

cc : Douglas Smith, City Manager Individuals previously provided a Preliminary Report (under separate cover)

John W. Scott, Inspector General

One North University Drive, Suite 111 •Plantation, Florida 33324 • (954) 357-7873 •Fax (954) 357-7857

www.browardig.org • (954) 357-TIPS

http:www.browardig.org

BROWARD OFFICE

OF THE INSPECTOR GENERAL

FINAL REPORT

===========================================================

OIG 15-009 July 11, 2016

Gross Mismanagement by the City of Margate in its Arrangement with the Alzheimer’s Family Center, Inc.

BROWARD OFFICE OF THE INSPECTOR GENERAL

FINAL REPORT RE: GROSS MISMANAGEMENT BY THE CITY OF MARGATE IN ITS ARRANGEMENT WITH THE ALZHEIMER’S FAMILY CENTER, INC.

SUMMARY

The Broward Office of the Inspector General (OIG) has substantiated that the City of Margate engaged in gross mismanagement as a result of its relationship with the Alzheimer’s Family Center, Inc. (AFC). For nearly 20 years, the city maintained an informal agreement to provide bookkeeping services to the AFC and pay the AFC’s debts from city funds, later to be reimbursed as the AFC obtained funding. In 2007, the agreement was formalized in a contract that incorporated only a single safeguard: a debt ceiling of $75,000 that would have entitled the city commission to determine if the arrangement would continue.

Subsequent to the written agreement, the AFC’s debt to the city first exceeded $75,000 in 2009. However, city officials failed to notify the city commission that the AFC’s debt was in excess of the threshold specified in the contract. Not until August 2014, when a new city manager and finance director were overseeing the city, was the commission notified of the climbing debt. By March 2015, the AFC owed the city $466,935.

Although the AFC’s debt to the city was substantial, the organization was not a vendor to the city and its operations do not fall within the jurisdiction of the OIG. The AFC elected not to cooperate with the OIG’s investigation. The OIG’s review of AFC bank statements did not reveal that the AFC was withholding contribution amounts it was otherwise required to remit to the city.

The city’s new administration conducted a detailed review of the accounting in cooperation with the OIG investigation and has subsequently terminated its agreement with the AFC. In 2015, the city entered into a settlement agreement valued at $176,295, reducing the city’s losses to approximately $290,640.

As a result of the actions taken by the city’s current administration, the OIG has no recommendations to address the AFC’s relationship with the city. However, more generally the OIG recommends that local governments reconsider the advisability of any agreements or arrangements of the nature detailed herein. Although the public policy of supporting families struggling with Alzheimer’s disease is noble, there are more fiscally responsible means of achieving that end. For example, grants of specified amounts allow local governments to control the extent of their investment and specify allowable uses.

In its response to the preliminary version of this report, the city noted that it took action to end the City’s relationship with the AFC as well as noted that this office had no recommendations considering the fact that its relationship with the AFC had been addressed. The city’s former finance director, Gail Gargano, also

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BROWARD OFFICE OF THE INSPECTOR GENERAL FINAL REPORT RE: GROSS MISMANAGEMENT BY THE CITY OF MARGATE

IN ITS ARRANGEMENT WITH THE ALZHEIMER’S FAMILY CENTER, INC.

responded to the preliminary version of this report. In her response, Ms. Gargano acknowledged the sequence of events which led to the AFC’s debt to the city but disagreed with our determination of gross mismanagement. Neither of the responses provided evidence that would require the OIG to amend its findings.

OIG CHARTER AUTHORITY

Section 12.01 of the Charter of Broward County empowers the Broward Office of the Inspector General to investigate misconduct and gross mismanagement within the Charter Government of Broward County and all of its municipalities. This authority extends to all elected and appointed officials, employees and all providers of goods and services to the County and the municipalities. On his own initiative, or based on a signed complaint, the Inspector General shall commence an investigation upon a finding of good cause. As part of any investigation, the Inspector General shall have the power to subpoena witnesses, administer oaths, require the production of documents and records, and audit any program, contract, and the operations of any division of the County, its municipalities and any providers.

The Broward Office of the Inspector General is also empowered to issue reports, including recommendations, and to require officials to provide reports regarding the implementation of those recommendations.

ENTITIES AND INDIVIDUALS COVERED IN THIS REPORT

Gail Gargano, Former Finance Director, City of Margate

Ms. Gargano is the former finance director for the City of Margate. After serving in many capacities in the city’s finance department since November 1979, Ms. Gargano was promoted to finance director in 1991. During her tenure with the city, she served under five city managers: Tom Hisson (19861988); Sam Moschella (1988-1991); Len Golub (1991-June 2006); Frank Porcella (2006-2012); and Jerry Blough (2012- May 2014). She retired on May 31, 2014 and was replaced by Mary Beazley.

Alzheimer’s Family Center

The AFC is a Florida nonprofit corporation incorporated in 1986. It provides services to Alzheimer’s patients and their caregivers. These services include: volunteer/companions, case management, in-home counseling, education, support groups, information and referral, crisis respite, and intergenerational programming.

The AFC is governed by a board consisting of a president and 12 directors. Joyce Karney has been the AFC’s executive director for over 15 years. Until recently, the AFC website indicated it is primarily funded by charges for services, donations, and government programs.1 Many of the city’s elected

1 As of this writing the AFC website is no longer accessible.

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officials, as well as elected officials from surrounding cities, have, in the past, served on the AFC Board of Directors. The OIG does not have jurisdiction over the activities of the AFC and did not verify or investigate its services or operations. The AFC elected not to cooperate with the OIG’s investigation of this matter.

RELEVANT GOVERNING AND ADMINISTRATIVE AUTHORITIES

Resolution No. 11-018

Resolution No. 11-018 (Exhibit 1), dated July 11, 2007, approved an agreement between the city and the AFC wherein the city was to provide the AFC with accounting and bookkeeping services. The agreement states that the city will provide bookkeeping services to the AFC at the cost of $4,000 annually. The city also agreed to pay the debts of the AFC utilizing city funds. The AFC would in turn deposit monies collected by it, with some exceptions, with the city. The agreement contemplates a ceiling to the city’s potential financial liability. It provides:

…If the City has determined that it has paid more than SEVENTY-FIVE THOUSAND DOLLARS ($75,000) than it has received from Family Center, City may refuse to pay any additional funds for Family Center until additional funds from Family Center have been received as determined by the City Commission of City…

INVESTIGATION

Investigation Overview

This investigation is predicated on information that the City of Margate grossly mismanaged public resources by allowing the AFC to accumulate a significant debt to the city. The OIG’s investigation substantiated the allegation. The OIG learned that the city had a longstanding arrangement with the AFC which was formalized in a 2007 agreement. The city agreed to provide the AFC with bookkeeping services and pay the AFC’s bills from city funds. The AFC’s debt would be satisfied through the deposit of AFC revenue when received. The agreement further provided that should the AFC’s debt exceed $75,000, the commission could cease making payments on behalf of the AFC. Despite language directing the involvement of the commission, city officials failed to alert the commission of the AFC’s climbing debt. Although the finance director, Ms. Gargano, was aware that the AFC’s debt had exceeded $75,000, the commission was not notified until August 2014, after she had retired, when the debt was approximately $380,000. By March 18, 2015, the day the commission provided the AFC with 60 days’ notice of its intent to terminate the contract, the AFC’s debt had climbed to $466,935.

The investigation involved the review of substantial documentation including, but not limited to, the contract between the City of Margate and the AFC, minutes from relevant city commission meetings, memorandums drafted by city officials, financial records and reports provided by the City of Margate, bank account records, and relevant emails. OIG staff also conducted interviews of a number of the City of Margate’s current and former employees, as well as a current city commissioner who had served since

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2007. Although the OIG attempted to interview Ms. Karney, the AFC’s executive director, she declined to speak to the OIG.

A Brief History of the City’s Relationship with the AFC

The AFC and the City of Margate had a long-standing relationship dating back to the 1980s. As explained by Eugene Steinfeld, city attorney for the period at issue in this report,2 the city had always considered the AFC an arm of the city. City officials felt that the organization’s mission to provide services to those with Alzheimer’s and their caregivers fulfilled a public purpose. Indeed, many described the historical relationship between the AFC and the city as close. The entities were so close that many elected officials from the city and surrounding cities had, at one time or another, been on the AFC Board of Directors.

As explained by Ms. Gargano, in the late 1980s, the AFC and the city began a financial arrangement wherein the city would receive and pay the AFC’s bills with the expectation that the AFC would remit its revenue to the city to offset its debt to the city. Ms. Gargano believed that this arrangement was the result of the AFC’s cash flow issues due to the timing of contributions. Thus, the city, in its efforts to assist the AFC, decided to advance them money.

The Origins of the 2007 Contract

The AFC’s debt tended to fluctuate for a variety of reasons. According to Ms. Beazley, the new finance director who took over upon Ms. Gargano’s retirement, the AFC informed her that their revenue was seasonal in nature, in contrast to the ongoing expenditures requiring payment by the city. Ms. Gargano explained that arriving at an annual debt estimate was also complicated by the fact that there was a three-month difference between the end of the city’s fiscal year and the end of the AFC’s fiscal year. Nonetheless, the city always had sufficient data to produce monthly reports of the expenditures it had paid and any sums it had received from the AFC.

According to the city’s retrospective calculations, between 2000 and 2004, the AFC’s debt hovered consistently between $60,000 and $87,000. Then, in 2004, the debt suddenly doubled to $151,040. In 2006, it nearly doubled again to $280,003. Coincidentally, the city’s new auditing firm was conducting its initial audit for the fiscal year of 2006, and it noted the doubling of the debt. It also noted that there was no written agreement or resolution approving the advances made on behalf of the AFC. Subsequent to the audit findings the city undertook some corrective action. It utilized funds it had invested on the AFC’s behalf to settle the existing debt and it began the process of documenting the agreement.

Mr. Steinfeld told the OIG that the city commission directed him to draft what he described as a “simple” agreement formalizing the long-standing financial relationship between the AFC and the city. According to him, Ms. Gargano and other staff informed him of the details of the financial relationship with the AFC so that he could memorialize them in the agreement. He stated that, while he originally

2 Mr. Steinfeld retired in April 2016 and is no longer the city attorney for Margate.

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contemplated crafting language similar to grant language,3 he was told by one of the commissioners that the commission wanted to keep the agreement with the AFC simple and did not want to change their financial, political, and cooperative relationship. As a result of these instructions, detailed provisions for breach of the agreement were not included. However, in an effort to limit the city’s potential loss, the agreement included a debt ceiling of $75,000.

The Commission was Not Timely Notified of the AFC’s Debt

According to records provided by the city’s finance department, the AFC’s debt began to exceed the contractual $75,000 threshold in 2009. (Exhibit 2) Despite the debt ceiling, the commission was not made aware of the debt until August 2014 when it had exceeded $380,000. The OIG determined that city finance staff and director were aware of the amount of debt years before the commission was notified. Ms. Gargano admitted to specifically noting the debt when it exceeded $150,000 in 2012. Despite having knowledge that the AFC’s debt had exceeded the threshold set by the 2007 agreement—an agreement of which she was fully aware—Ms. Gargano did not cause the commission to be notified. Instead, Ms. Gargano waited until the debt was approximately $300,000 before advising former City Manager Jerry Blough of the issue.4 Notwithstanding, this debt was not brought to the commission’s attention until August 2014 when the debt had exceeded $380,000.5 The AFC ultimately accumulated $466,935 in debt to the city before the contract was terminated in March 2015.

Ms. Gargano did not dispute her knowledge of the AFC’s climbing debt to the city. She explained that she reviewed some of the monthly reports that were generated for all funds, including the AFC. She also acknowledged that using figures provided in these monthly reports, debt could easily be determined using a simple calculation. Ms. Gargano further explained that she began to look at the monthly reports more carefully after 2012 when she noticed that the AFC’s debt was over $150,000. Toward the end of 2013, Ms. Gargano noticed that the city’s books showed the AFC’s debt at approximately $300,000. She believed she brought the debt to Mr. Blough’s attention at that time. She did not believe Mr. Blough was even aware that an agreement existed between the city and the AFC until she advised him of the debt.

Ms. Gargano admitted that she did not notify the commissioners of the AFC’s debt. She explained that she did not believe it was her responsibility to track the AFC’s debt. The OIG observes that as finance director, she was the managerial level official with access to the accounting reports that documented the problem. On the other hand, we also note that neither the contract nor the city’s policies explicitly assigned oversight of this agreement to any individual.

Regardless of whether Ms. Gargano notified City Manager Jerry Blough in 2013, it is apparent that finance personnel had discussions with the AFC about controlling the level of debt and expenditures. The city’s files included a December 23, 2013 letter to the city’s account supervisor from the AFC’s

3 Presumably, Mr. Steinfeld was referring to the controls and restrictions commonly contained in grants. 4 While Ms. Gargano believed she brought the debt to Mr. Blough’s attention in December 2013, Mr. Blough indicated that he found out about the debt in late April or early May 2014, shortly before his retirement.

5 After Ms. Gargano retired, the new finance director notified the commissioners of the $380,015 debt in August 2014.

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executive director. The letter was in response to an earlier conversation and reported steps the AFC was taking to reduce the debt, including enclosing a $75,000 check to the city.

Mr. Blough explained that, from what he remembered, he first found out that a service and financial relationship existed between the city and the AFC in late April or early May 2014 after a discussion he had with Ms. Gargano. Ms. Gargano told him that, pursuant to an agreement, the city had been providing accounting and bookkeeping services to the AFC and had been advancing it money. However, the debt had significantly exceeded the $75,000 cap noted in the agreement. Mr. Blough advised that he researched the matter and prepared an email to document it for the incoming administration. (Exhibit 3)

In the email, Mr. Blough detailed a May 14, 2014 meeting with Gale Fontaine, AFC Board President, and Ms. Karney. At the meeting, they discussed that there was a technical breach of the agreement and options to resolve the debt, including the liquidation of the AFC’s certificates of deposit, sale of the AFC’s property, and consolidation with other non-profit organizations. Ms. Fontaine was to bring the issue to the AFC board and to increase its fundraising activities. Mr. Blough concluded the email by suggesting that if no financial resolution was reached by the end of June 2014, the matter should be revisited by the city manager’s office, city attorney, and the city commission.

Mr. Blough advised that, as the city manager, his job was to find solutions to issues. He considered the AFC’s debt one of those issues needing a remedy and began the process with the May meeting that he described in the email. Mr. Blough did not believe there was cause at that time to notify the commission given the AFC’s agreement to remediate the debt.

However, the AFC did not remediate the debt. When notified, the commission, believing that terminating the contract would lead to the closure of the AFC, sought to find a way to keep the AFC open. Ms. Beazley conducted a detailed review of the city’s accounting and bookkeeping with respect to the AFC—which she provided to the OIG in cooperation with the investigation—including a full accounting of the debt.6 Ultimately, in March 2015, the commission voted to terminate the contract. By that time, the debt had climbed to approximately $466,935.7

Following the termination of the agreement, Mr. Steinfeld presented various options to the commission to mitigate the loss, including litigation and acquiring the AFC’s building. (Exhibit 5) He advised the commission that the AFC had few available cash assets, and he did not believe litigation would result in any greater benefit to the city than would the acquisition of the equity in the AFC’s building. The OIG investigated to ensure that all funds available to settle the debt were disclosed to the city. Our review of AFC bank statements identified only one account with undisclosed funds. However, an AFC attorney explained that the funds were “restricted” and available only for specified uses, a common practice in charitable contributions and contemplated in the contract with the city. No other funds appear to have been withheld from the city.

6 Her notes are attached as Exhibit 4. 7 While the AFC’s debt was a little over $500,000, an unemployment reserve balance of $33,179.03 was deducted leaving a final debt amount of $466,934.70.

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On September 16, 2015, the commission voted to approve an agreement with the AFC to settle its $466,935 debt and waive all claims against the city, contingent on the purchase of the AFC’s building by the Margate Community Redevelopment Agency (MCRA) for $312,061.74,8 which was the approximate amount of an outstanding loan on the property. The property was appraised at $492,000, which resulted in a gain of approximately $176,295 in equity value to the MCRA after the MCRA’s payments for taxes and closing costs. The commission minutes noted that the MCRA intended to use the property for MCRA business, and it was discussed that once the MCRA sunsets in 2027, the MCRA’s assets, including the AFC building, would become assets of the city. The MCRA agreed to permit the AFC to rent the building through December 31, 2015 for $200 per month.

INTERVIEW SUMMARIES

As a part of the investigation, OIG Special Agents conducted numerous witness interviews. Significant interviews are summarized below:9

1. Interview of Gail Gargano

Ms. Gargano is the former finance director for the City of Margate. After serving in many capacities in the city’s finance department since November 1979, Ms. Gargano was promoted to finance director in 1991. She retired on May 31, 2014. By the time of her retirement, Ms. Gargano had served under five city managers. She retired from the city when the current city manager began his tenure in June 2014.

Ms. Gargano advised that sometime between 1986 and 1988, while she was an accountant with the city, then Finance Director Sam Moschella instructed her to set up accounts in the city’s accounting software to reflect the department’s provision of bookkeeping services to the AFC. It was her understanding that the AFC was having cash flow issues, and in efforts to assist the AFC, the city would advance it money. Specifically, the city would receive and pay the AFC’s bills and the AFC would, in turn, remit its revenue to the city to offset the city’s advances. Ms. Gargano recalled that this arrangement was contemporaneous with the AFC’s pending receipt of a $75,000 state grant. This informal relationship with the AFC continued after she was promoted to finance director in 1991. However, at that time, she delegated the bookkeeping duties to an accountant who had then been with the city for a couple of years.10

Ms. Gargano explained that, from its earliest days, the relationship between the city and the AFC was close and politically aligned. She advised that Jack Tobin, who was a commissioner and state representative, took a personal interest in the AFC. She believed that Mr. Tobin had been involved in the acquisition of the previously mentioned $75,000 grant. Ms. Gargano advised that other than her city obligations, she had no direct or indirect relationships with the AFC, its executive director,

8 After adjustments for taxes and closing costs, the MCRA paid approximately $315,705 for the property. 9 Ms. Joyce Karney declined our request to interview. 10 The current accounting supervisor whose interview is summarized below.

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Joyce Karney, or any of its board members or officers. Further, her job-related contact with Ms. Karney was minimal.

Ms. Gargano explained that the duties of the finance department with regard to the arrangement with the AFC were to receive AFC’s check requests, make its payments, receive revenue, and post the transactions in the accounting software. She stressed that the finance department did not provide the AFC with accounting services. The city relied on and recorded only the transactions provided by the AFC.

Ms. Gargano advised that the city did not have access to the AFC’s bank or investment accounts (or any other financial information) other than what the AFC disclosed. Further, she was not advised to track the AFC’s debt balance. At that time, she knew of no restriction on the amount of money the city could advance the AFC. She never questioned Mr. Moschella about the propriety of keeping the AFC books.

Ms. Gargano explained that she was generally aware of the AFC’s debt from the onset of the financial relationship with the AFC. At least through the early 2000s, the AFC’s debt averaged under $100,000. However, Ms. Gargano was clear that the amount was not representative of the AFC’s actual debt as it did not account for unposted revenue and expenditures. In fact, the AFC debt had always fluctuated due, in part, to the timing of the AFC’s revenue flow compared to when the city received payment requests from the AFC. The fact that there was a three-month difference between the end of the city’s fiscal year (September 30) and the end of the AFC’s fiscal year (June 30) also contributed to the fluctuation. Notwithstanding, since the city had never expressed any limitations on the AFC debt, Ms. Gargano had no concerns.

Ms. Gargano went on to recount that, in 2006, the city commission replaced its long-time auditing firm, who were also the AFC’s auditors, with a new firm, BKR Garcia & Co. 11 While getting ready to prepare the new firm’s first audit, she and the new auditors noted that, for an unknown reason, between 2005 and 2006 the AFC’s debt had almost doubled to approximately $280,000 from $145,000 the previous year. Ms. Gargano brought the debt to the attention of then City Manager Frank Porcella. It was determined that while that debt was owed, the city was in possession of approximately $240,000 of AFC revenue. Accordingly, with the agreement of the AFC, the city settled all but approximately $47,000 of the debt through a book entry.12

In 2007, the city attorney and Mr. Porcella, with perhaps the assistance of other staff, drafted a written agreement with the AFC. The written agreement did not alter the manner in which the finance department handled the AFC’s books. In fact, the only material change to its operation was the agreement’s reference to a $75,000 cap on the money that the city would be able to advance. Ms. Gargano did not know why the agreement specified $75,000. She speculated it was based on discussions she had with staff while the agreement was being drafted. At the time, she may have informed staff that the city’s relationship with the AFC was precipitated on a $75,000

11 This firm has since merged with GLSC & Company, PLLC. 12 The city was actually in possession of $280,680 worth of the AFC’s investments, which was used to pay off the entire

then-existing debt.

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state grant the AFC received in the 1980’s. Ms. Gargano went on to offer that, in her opinion, $75,000 was an unreasonably low figure based on the historical fluctuation of the AFC’s debt. Because of the regularly occurring fluctuation of the debt being over $75,000, such a bar would have had the city continuously stopping AFC’s payments, rendering the relationship nonfunctional.

Moreover, the agreement did not provide the city with any access to AFC’s financial records. The city was dependent on the AFC to provide them with revenue and invoices in a timely manner, which it did not do. Near or after the end of every AFC fiscal year, the AFC would “dump” invoices on the city that it had been holding for payment. While the AFC had other accounts, the city had no way of knowing where the accounts were or how much money they contained. The AFC was not required to provide the city with its annual audits.

Ms. Gargano never believed that, as the finance director, it was her responsibility to track the AFC’s debt. She reviewed some, but not all, of the monthly reports that were generated for all funds, including the AFC’s, and those reports included the fund balance sheet and the expenditures and revenues. Using these figures, the debt could be determined using a simple calculation. However, after 2012 when the debt was over $150,000, she began to look at the monthly reports more carefully.

Toward the end of calendar year 2013, Ms. Gargano noticed that the city’s books showed the AFC’s debt at approximately $300,000. She believed she brought it to the attention of Mr. Blough. Thereafter, there were discussions with city staff and the AFC concerning the debt. Ms. Gargano advised that during one of the meetings with the AFC, Ms. Karney represented that the AFC would be receiving money to reduce its debt. She told the city that the AFC was expecting at least a $100,000 contribution. However, if the AFC received that contribution, it was never remitted to the city.

After the 2007 agreement was executed, Ms. Gargano did not believe that she ever brought the AFC’s debt to Mr. Porcella’s attention. It was not until late 2013 that she brought it to Mr. Blough’s attention. In fact, she did not believe that he knew about the agreement with the AFC until she advised him of the debt. Ms. Gargano never advised the commission of the AFC’s debt.

2. Interview of Eugene Steinfeld

Mr. Steinfeld served in the capacity of city attorney since 1978 and retired on April 30, 2016. He explained that the city had always considered the AFC an arm of the city as the organization fulfilled a public purpose—to provide services to those with Alzheimer’s and their caregivers. Since at least the late 1980s, the city advanced money for the AFC’s bills in anticipation of the AFC’s receipt of grants, contributions and other revenue throughout the year. As those funds were received by the AFC, it would repay the city.

Until 2007, Mr. Steinfeld had only been aware that the city regularly donated to the AFC as it did to other non-profit organizations. Mr. Steinfeld recounted that, in 2007, the city commission

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directed him to draft a “simple” agreement formalizing the long-standing financial relationship between the city and the AFC. It was at that point that Margate’s former finance director, Ms. Gargano, and other staff informed him about the actual details of the financial relationship with the AFC—details that were to be included in the agreement. Specifically, he learned that the city handled the AFC’s bookkeeping, advanced funds to the AFC, and received some of the AFC’s revenue to repay the advanced funds. Mr. Steinfeld advised that because his direction was to keep the agreement simple, detailed provisions for breach of the agreement were not included. While he originally contemplated crafting language similar to grant language, he was told by one of the commissioners that the commission wanted to keep the agreement with the AFC simple and did not want to change their financial, political and cooperative relationship.13 However, the agreement included a provision enabling the city to stop advancing the AFC money if the money owed to the city exceeded $75,000. He did not know the origin of the $75,000 threshold but included it at the direction of city staff—most likely Ms. Gargano. Mr. Steinfeld further advised that the city did not have any similar agreements with any other entity.

According to his interpretation of the agreement, either party could terminate the agreement with a 60-day notice. However, the city could stop advancing money, with commission approval, to the AFC anytime its debt exceeded $75,000. He further believed that the agreement required the city to continue to provide AFC with bookkeeping services only during the 60-day winding down period.

Mr. Steinfeld explained that, in the 2000s, Jack Tobin, a politically influential former city mayor, state representative, and later the contracted city lobbyist, was a principal fundraiser for the AFC. Mr. Tobin’s political and financial influence enabled him to raise a significant amount of money for the AFC. From what he remembered, during that time, one or more elected city officials were either on the AFC board or were corporate officers. Mr. Tobin died in 2011, which contributed to the decline in the AFC’s revenue.

Mr. Steinfeld went on to advise that he was not responsible for monitoring the ongoing financial relationship between the city and the AFC. As such, it was not until January or February 2015 that he learned that the AFC’s debt to the city was over $300,000. Before then, he never recalled the AFC’s finances or the AFC’s agreement with the city being discussed with him or by the commission. He has since learned that in mid-2014, Mr. Blough met with the AFC regarding the debt and that the AFC was given an opportunity to address the deficit.

After learning of the debt, the commission directed him and the city manager to attempt to negotiate a resolution to the matter. Mr. Steinfeld believed that the commissioners were concerned about the effects of closing the AFC on the AFC’s clients. However, the AFC did not proffer an acceptable repayment plan. In March 2015, the city commission voted to notify the AFC that it would be terminating the agreement.

13 Mr. Steinfeld explained that had he drafted the agreement today, it would have been more detailed and would have afforded the city more protection.

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Mr. Steinfeld explained that the commission also directed him and the city manager to pursue efforts to recover the debt from the AFC. He presented options to the commission, including litigation and acquiring the AFC’s building. Mr. Steinfeld advised the commission that he did not believe litigation would result in any greater benefit to the city than would the acquisition of the AFC’s building. The commission was generally not supportive of a lawsuit. Therefore, to settle the city’s claim, the AFC tentatively agreed to sell its building to the MCRA for approximately $312,000, which at closing would settle AFC’s outstanding $310,000 loan on the property. The property was appraised at $492,000, which resulted in approximately $182,000 in equity value to the MCRA. The MCRA intended to use the property for MCRA business. Once the MCRA sunsets in 2027, the MCRA’s assets, including the AFC building, will become assets of the city. In the meantime, the proposed agreement permitted the AFC to rent the building through December 31, 2015 for $200 per month. Finally, the agreement included the AFC’s waiver of any claims against the city.

On September 16, 2015, the proposed agreement was discussed and voted on at a regular commission meeting and a MCRA special meeting. Mr. Steinfeld provided a background

memorandum to the commission in anticipation of the vote. (Exhibit 5)

During a subsequent interview, Mr. Steinfeld was questioned about bank records that the OIG had obtained in response to a subpoena. These records showed that, as of September 30, 2015, the AFC had an account there with a balance of $205,962.96. Mr. Steinfeld advised the OIG that the city was unaware of the funds in this account. He subsequently forwarded an email from the AFC’s attorney providing an explanation for those funds. In the email, the AFC attorney explained that the funds were “restricted funds,” the segregation of which was provided for in the 2007 agreement between the city and the AFC.14

3. Interview of Mary Beazley

Ms. Beazley was hired in May 2014 to replace Ms. Gargano as finance director. Through research, the finance director learned that, since at least 2007, the city had a written agreement with the AFC wherein the city contracted to provide them with bookkeeping services. The agreement also provided that the city could advance up to $75,000 from the general fund to the AFC to pay its bills. In turn, the AFC was to provide the city with the revenue and contributions it received to offset the money the city had advanced. The account was to be reconciled twice annually—once on June 30, which is the end of the AFC’s fiscal year, and again on September 30, which is end of the city’s fiscal year. She advised that as the reconciliations were conducted as required, the city and the AFC should have been aware of the AFC’s increasing debt to the city.

Ms. Beazley advised that, because of the different fiscal years, the city recorded the AFC’s finances under two separate special revenue funds maintained in the city’s accounting system. Annually, the AFC’s auditors provided the city with the AFC’s end-of-year financials, including

14 It was confirmed that a substantial amount of the funds were restricted—funds which were specifically excluded as revenue by the contract.

OIG 15-009 July 11, 2016 Page 11 of 16

http:205,962.96



account balances, financial and physical assets and other information from their annual financial report. The city only entered that information into the AFC’s account records. It was not reflected in the city’s comprehensive annual financial report (CAFR). As the debt was entirely the AFC’s, Ms. Beazley included a note with the 2014 CAFR specifically identifying the AFC as the entity responsible for the receivables amount, which at the time was $389,211. While previous CAFRs identified the debt, they did not identify the AFC as the source of the debt.

Ms. Beazley explained that the city only provided the AFC with bookkeeping services. In order to do so, it relied on the records and information provided to it by the AFC. The city did not manage the AFC’s outside investments, real estate, or bank and credit card accounts. In fact, the city had no personal or online access to the transactions or balances in those accounts. Only in the AFC’s preparation of its financial statement and audit did the AFC’s auditors provide the city with such information for purposes of reconciling the accounts. The city prepared and submitted the AFC payroll to ADP Payroll Services based on personnel information provided by AFC. The city paid the AFC’s other bills based on invoices received from the AFC. Contributions received by the AFC were supposed to be forwarded to the city for credit to AFC’s account.

Ms. Beazley advised she became aware of the AFC’s debt to the city around June 2014.15 At that time, she was not aware of the extent of the debt or the particulars of the relationship between the city and the AFC. Shortly thereafter, city staff, including Mr. Smith and herself, met with Ms. Karney and Gail Fontaine, the AFC president, to discuss the AFC’s debt and options to repay it, including selling the AFC’s building. However, the city could not get an accurate depiction of the AFC’s finances because the AFC’s 2013 audit report had yet to be issued. Ms. Karney informed the group that the AFC held most of their fundraising events, which generated most of its contributions, in the autumn months, and expected offsetting revenue from those events.

In August 2014, during budget preparation meetings, Ms. Beazley and the city manager met with the commissioners individually and informed them of the AFC’s debt, which by then was approximately $380,000. The general concern among the commissioners was the AFC’s ability to remain operational.

On March 18, 2015, because of what the city calculated as an estimated $500,000 debt, the city commission voted to invoke the 60-day notice requirement, as required by the agreement, to terminate the relationship with the AFC. Contemporaneous with the commission’s action, the city ceased paying new AFC bills, other than payroll, which ended on March 30.

During a subsequent interview, Ms. Beazley verified that when the city entered into its written agreement in 2007 with the AFC, the AFC reduced what had become a significant debt to the city by transferring two investments totaling $288,419 to the city. Ms. Beazley speculated that since the AFC owed the city $380,015 by the end of July 2014, that figure would likely have been the figure presented to the commissioners during the August 2014 budget meetings where the commissioners were made aware of the debt.

15 The finance director was copied on the May 23, 2014 email from Mr. Blough, attached as Exhibit 3.

OIG 15-009 July 11, 2016 Page 12 of 16



4. Interview of Accounting Supervisor

The accounting supervisor has been with the city’s finance department since 1989. During most of her employment, she worked under the former finance director, Gail Gargano, and now works under the current finance director and assistant finance director. She supervises three employees.

The accounting supervisor explained that she knew the city had a bookkeeping relationship with the AFC. However, it was not until discussions with the AFC’s auditors, during their audit of the AFC’s finances in November 2013, that she first became aware that the city and the AFC had actually entered into a written agreement wherein the city agreed to provide the AFC with bookkeeping services and advance up to $75,000 of the AFC’s expenses. By that time, the city’s records showed that the AFC owed the city approximately $300,000.

The accounting supervisor explained that, in practice, the AFC would hand deliver check requests to the city on a weekly basis. Each check request would consist of a standard city check request form approved by Ms. Karney, the AFC executive director, along with accompanying supporting documents, such as an invoice. The information would then be entered into the city’s accounting system under fund 186 or 187, which had accounts specifically set up for the AFC, and city checks were issued. One finance department employee was charged with processing the AFC payroll and another finance department employee was charged with processing revenue and cash receipts received from the AFC. The city stopped paying the AFC’s bills in March 2015.

While the city was indeed conducting bookkeeping services for the AFC, the city had no control over any of the AFC’s financial affairs. In fact, the city had no access to any of the AFC’s bank accounts, and the city had no way to know if the AFC had been remitting all the revenue as required by the agreement.

A hard copy of the city’s financial report was generated on a monthly basis and provided to the city manager, Ms. Gargano, and Ms. Karney. While Ms. Karney only received the portion which detailed the AFC’s debt to the city, Ms. Gargano and the city manager received the entire city’s financial report, including the AFC’s debt. She described the financial report as a large stack of green bar computer paper that included over 40 pages of revenue figures and over 100 pages of expenditures. She advised that the AFC’s two fund accounts, referred to in the financials as due to and due from, were included in the various fund reports.

The accounting supervisor went on to report that the AFC’s accounts were reconciled twice a year: in June, which was the end of the AFC’s fiscal year, and in September, which was the end of the city’s fiscal year. After the close of the AFC’s fiscal year, the AFC’s auditors would conduct their audits and provide the city with information to amend the city’s journal entries for the AFC accounts.

According to the accounting supervisor, Ms. Gargano and Ms. Karney were always aware of the AFC’s debt, as they had the monthly reports and Ms. Gargano had online access to the AFC entries. However, the accounting supervisor first became aware of the agreement between the

OIG 15-009 July 11, 2016 Page 13 of 16



AFC and the city in November 2013 during audit discussions with the AFC’s auditors. At that time, she believed the city’s records showed that the AFC owed the city approximately $300,000. While uncertain of the date, the accounting supervisor recalled a meeting and discussion about the AFC’s debt with Ms. Gargano and Mr. Blough where Mr. Blough indicated that he was going to advise the city commission about the AFC debt. The accounting supervisor never communicated directly with the city commission regarding the AFC.

5. Interview with Jerry Blough

Mr. Blough was the city manager from June 2012 through May 2014. Mr. Blough explained that, to the best of his recollection, he first learned that a service and financial relationship existed between the city and the AFC in late April or early May 2014 after a discussion with Ms. Gargano. Ms. Gargano told him that, pursuant to an agreement, the city had been providing accounting services to the AFC and had been advancing it money. However, the debt had significantly exceeded the $75,000 cap noted in the agreement. While Mr. Blough did not recall how much the AFC owed at the time, he did not believe it exceeded $300,000. Mr. Blough advised the OIG that, a week before his retirement, he prepared an email memorandum summarizing what he knew about the AFC agreement and their debt to the city (Exhibit 3). Copies of this memorandum were provided to city staff.

In the email, Mr. Blough detailed a May 14, 2014 meeting with Ms. Fontaine, the AFC board president, and Ms. Karney, the AFC’s executive director. At the meeting, they discussed the fact that there was a technical breach of the agreement, as well as options to resolve the debt, including the liquidation of certificates of deposit, sale of the AFC’s property and its consolidation with other non-profit organizations. Ms. Fontaine was to bring the issue to the AFC board and increase its fundraising activities. Mr. Blough concluded the email by suggesting that if no financial resolution was reached by the end of June 2014, the matter should be revisited by the city manager’s office, city attorney and the city commission.

Mr. Blough advised that as the city manager, his job was to find solutions to issues. He considered the AFC’s debt one of those issues needing a remedy and began the process with the May meeting that he described in the email. Mr. Blough did not believe that the current city manager was previously aware of the agreement or the debt. Mr. Blough did not believe there was cause at that time to notify the commission given the AFC’s agreement to remediate the debt. Mr. Blough advised that he could not unilaterally decide to terminate the agreement. Mr. Blough advised that other than what is included in his email, he could not recall any other significant details of the agreement or the AFC debt.

6. Interview of the Current City Manager

The current city manager was appointed to the position in June 2014. He had been the city’s assistant city manager since August 2013 under then-City Manager Blough. The current city manager advised that he had no first-hand knowledge of the historical relationship between the city and the AFC. Instead, all the knowledge that he obtained about this relationship stemmed from the

OIG 15-009 July 11, 2016 Page 14 of 16



email created by Mr. Blough to Ms. Gargano and city staff. Soon thereafter, Mr. Blough explained to him that an agreement existed between the city and the AFC where the city was to provide the AFC with bookkeeping services and advance the AFC money for expenses. Further, Mr. Blough informed him that the AFC was substantially in arrears to the city. He did not know if Mr. Blough had informed the commission.

The current city manager went on to advise that in January 2015, city staff met with the Areawide Council on Aging to determine if they could either fund the AFC or take over AFC’s clients. The council could do neither at that time. On February 12, 2015, Mr. Steinfeld and he met with Ms. Karney and the AFC Board to discuss ending the agreement and to discuss the fact that the city was going to seek payment of money owed—which they calculated at the time was in excess of $400,000. The AFC asked for a three-week time extension to offer a payment plan.

On March 18, 2015, the matter was discussed at length during a regular city commission meeting. Mr. Steinfeld made a presentation concluding with a recommendation that the commission vote to terminate the agreement with AFC. The AFC attorney made an offer to pay the city $75,000 to resolve the debt. The AFC’s offer was rejected and the commission voted unanimously to continue negotiations for repayment, but to invoke the 60-day termination notice.

RESPONSES TO THE PRELIMINARY REPORT AND OIG COMMENT

In accordance with Section 12.01(D)(2)(a) of the Charter of Broward County, a preliminary version of this report was provided to the individuals implicated in the report and the county for their discretionary written responses. The OIG received responses from the city (through the city manager) and Ms. Gargano, both of which are attached and incorporated herein as Appendix A and B, respectively. Ms. Karney did not respond. We appreciate receiving the responses.

After careful review, the OIG has determined that the responses contain no evidence or information that alter our findings.

1. Response of the City

In its response, the city does not dispute this office’s findings. Instead, it acknowledges that it ended its relationship with the AFC and also notes that, as a result of the actions taken by the city’s current administration, the OIG has no recommendations to address the AFC’s relationship with the city.

2. Response of Gail Gargano

In her response, Ms. Gargano does not dispute the sequence of events that led to the AFC’s ultimate debt to the city. Ms. Gargano also acknowledges that she did not notify the city manager once the AFC’s debt exceeded $75,000. However, Ms. Gargano does dispute this office’s finding of gross mismanagement.

OIG 15-009 July 11, 2016 Page 15 of 16



CONCLUSIONS

The OIG’s investigation determined that city officials engaged in gross mismanagement in the city’s longstanding arrangement with the AFC. For over 20 years, the city left itself vulnerable to significant financial losses without instituting any controls. After the arrangement was finally memorialized, the finance director, Ms. Gargano—who had regular access to information documenting the debt—failed to inform any party that the single financial control contained in the arrangement, a $75,000 debt ceiling, was regularly violated.

Although the AFC’s debt to the city was substantial, the organization was not a vendor to the city and its operations do not fall within the jurisdiction of the OIG. The AFC elected not to cooperate with the OIG’s investigation. The OIG’s review of AFC bank statements did not reveal that the AFC was withholding contribution amounts it was otherwise required to remit to the city.

The city’s new administration conducted a detailed review of the accounting, which it provided to the OIG in cooperation with the investigation, and has subsequently terminated its agreement with the AFC. In 2015, the city entered into a settlement agreement valued at $176,295, reducing the city’s losses to an estimated $290,640.

While the OIG has no specific recommendations for the city, it does, more generally, recommend that local governments reconsider the advisability of any agreements or arrangements of the nature detailed herein. Although the public policy of supporting families struggling with Alzheimer’s disease is noble, there are more fiscally responsible means of achieving that end. For example, grants of specified amounts allow local governments to control the amount of their investment and specify allowable uses. In the alternative, any agreement utilizing public funds should incorporate oversight and accountability controls that will limit an entity’s vulnerability to financial losses.

OIG 15-009 July 11, 2016 Page 16 of 16

OIG 15-009

EXHIBIT 1

Exhibit 3

CITY OF MARGATE, FLORIDA

RESOLUTION NO. 11-018

A RESOLUTION OF THE CITY OF MARGATE,FLORIDA, APPROVING AGREEMENT FOR CITY OFMARGATE TO PROVIDE ACCOUNTING ANDBOOKKEEPING FAMILY

INC. SERVICES TO ALZHEIMER'S

CENTER I

BE IT RESOLVED BY THE CITY COMMlSSION OF THE CITY OF MARGATE, FLORIDA:

SECTION 1: That the City Commission of the City of Margate,Florida, hereby approves an Agreement for the City of Margate to provide accounting and bookkeeping services for the Alzheimer I sFamily Center.

SECTION 2: That the Mayor and City Manager are herebyauthorized and directed to execute said agreement on behalf of the City of Margate, a copy of which is attached and made a part of this Resolution.

SECTION 3: That this Resolution shall become effectiveimmediately upon its passage.

ATTEST:

JUDIˁLGORE

RECORD OF VOTE:

TalericoVarsalloneBrossDonovanMcLean

AYE

ABSENT

AYE

AYE

AYE

AGREEMENT

fr This Agreement made on this -:l( day of , 2007, by and between

the City of Margate, a municipal corporation, oryanl d and existing under the laws of the State of Florida, hereinafter referred to as "City", an the Alzheimer's Family Center, Inc., a Florida Non-Profit Corporation, hereinafter known as "Family Center'',

WHEREAS, Family Center is a respite center providing for respite services to caregivers for those who provide care to individuals stricken with Alzheimer's disease; and

WHEREAS, Family Center further provides counseling to caregivers and related counseling services to individuals responsible for the care and custody of those stricken with Alzheimer's disease; and

WHEREAS, Family Center has provided exemplary service for Alzheimer's caregivers throughout northwest Broward County for at least twenty (20) years; and

WHEREAS, Family Center has been of great benefit to the residents of all of northwest Broward County in general, and specifically to the City of Margate during its operation; and

WHEREAS, for approximately 20 years, City has provided accounting services for Family Center and fronted monies for operational expenses.

NOW, THEREFORE, for good and valuable consideration, the parties agree as follows:

1. City shall provide all bookkeeping services for Family Center at the cost of FOUR THOUSAND DOLLARS ($4,000.00) annually.

2. All monies collected by Family Center, excluding the Family Center's Mastercard and VISA accounts, and excluding donations restricted by donors where separate bank accounts must be set up pursuant to donation Instructions, shall be deposited with City.

3. Ail monies deposited with the City shall be credited to Family Center but otherwise treated and Invested as municipal funds.

4. Monies deposited by Family Center, and monies paid out on behalf of Family Center, shall be reconciled twice annually on June 30 and on September 30.

5. In the event that City believes that it has paid out more than SEVENTY-FIVE THOUSAND DOLLARS ($75,000.00) than it has received from Family Center, City may reconcile deposits and payments at any time during the year. If the City has determined that it has paid more than SEVENTY-FIVE THOUSAND DOLLARS ($75,000.00) than it has received from Family Center, City may refuse to pay any additional funds for Family Center until additional funds from Family Center have been received as determined by the City Commission of City. The aforesaid monetary limit shall not be in effect in the event of a hurricane, tornado or related emergency and In that event, the parties will negotiate any emergency amounts that may need to be paid.

http:75,000.00http:75,000.00http:4,000.00

/ '".

6. It is understood and agreed between the parties that the Family Center is an independent non-profit corporation, and Is not a subdivision, agency or part of the City of Margate, and the City of Margate is not in any way a part of the Family Center.

7. This Agreement may be terminated by either party upon sixty (60) days written notice to the opposite party. Notices shall be as follows:

For City: City Manager

5790 Margate Boulevard

Margate, Florida 33063

For Family Center: Executive Director

Alzheimer's Family Center, Inc.

6280 West Atlantic Boulevard

Margate, Florida 33063

8. Venue: This agreement shall have been deemed to have been executed within the State of Florida. The validity, construction, and effect of this Agreement shall be governed by the laws of the State of Florida. Any claim, objection or dispute arising out of this Agreement shall be litigated in the Seventeenth Judicial Circuit in and for Broward County, Florida.

9. Waiver of Jury Trial: The parties to this agreement hereby knowingly, irrevocably, voluntarily and intentionally waive any right either may have to a trial by jury in respect to any action, proceeding, lawsuit or counterclaim based upon the contract, arising out of, under, or in connection with the matters to be accomplished In this Agreement, or any course of conduct, course of dealing, statements (whether verbal or written) or the actions or inactions of any party.

ALZHEIMER'S FAMILY CENTER, INC.

BY:

ATTEST:

''.

APPROVED AS TO FORM:

~~--EUE~TEINF CITY ATTORNEY

OIG 15-009

EXHIBIT 2

Due From Alzheimer's Family Center Exhibit 1

30-Sep

186 187 DTOF DFOF-AFC

2000 80,317.63 80,317.63 2001 81,992.30 81,992.30 2002 64,725.37 64,725.37

2003 86,894.23 86,894.23 2004 151,039.84 151,039.84

2005 145,940.26 145,940.26

2006 280,002.91 280,002.91

2007 63,846.48 (16, 708.56) 47,137.92

2008 142,295.53 (73,845.35) 68,450.18 2009 88,545.06 2,974.99 91,520.05

2010 86,395.66 86,395.66

2011 109,318.76 94,391.25 (99,364.70) 104,345.31

2012 4,758.15 151,565.50 156,323.65 2013 64,130.76 254,426.56 318,557.32

2014 65,956.51 323,254.66 389,211.17

http:389,211.17http:323,254.66http:65,956.51http:318,557.32http:254,426.56http:64,130.76http:156,323.65http:151,565.50http:4,758.15http:104,345.31http:99,364.70http:94,391.25http:109,318.76http:86,395.66http:86,395.66http:91,520.05http:2,974.99http:88,545.06http:68,450.18http:73,845.35http:142,295.53http:47,137.92http:63,846.48http:280,002.91http:280,002.91http:145,940.26http:145,940.26http:151,039.84http:151,039.84http:86,894.23http:86,894.23http:64,725.37http:64,725.37http:81,992.30http:81,992.30http:80,317.63http:80,317.63

OIG 15-009

EXHIBIT 3

Exhibit 24

From:. Jerry Blough

seiiti Friday, May 23, 2014 1:15 PM

To: Gail Gargano

Cc: Kelly Diaz; Mary Beazley; CityManager; CityAttorney

Subjed: Alzheimer's Family Center

On May 14, 2014, I met with Ms. Gale Fontaine, President of the Board of Directors (954-444-8645 & 954-465-3400) for the Alzheimer's Family Center, and Ms. Joyce Karney, Executive Director. As you will recall, within the last month your brought to my attention the problem associated with this non-profit which is technically in breach of the Agreement with the City, which provides accounting and bookkeeping services to the Alzheimer's Family Center in Margate, adopted by Resolution 11-018 dated 11 July 2007.

I discussed many ideas with both of these representatives, to include potential consolidation with another non-profit, fund raising activities, sale of their existing property and relocation to another area in the City (possibly MCRA), as well as liquidation of a certificate of deposit (approximately $10,000) as a show of good faith. In addition, we discussed that although the services provided are in great need, due to a lack of funding opportunities they may need to realize they can no longer keep the center open. As a point of information the building's fair market value is $560,000, and was refinanced several years ago with a balloon payment in 2022. The outstanding loan amount is unknown at this time. The center's monthly loan payment is in excess of $3100 per month.

I was assured by Ms. Fontaine that they would bring back to the Board the ideas discussed and it was her intent to have a major fund raising event to hopefully raise sufficient revenue so the non-profit is not in breach of the agreement.

Since I will not be here to see this through· to some final resolution, I thought it only appropriate to document my findings and actions thus far. I would suggest that if we have not heard from a representative of this non-profit by June 15th, that a Finance representative contact them to get a progress report. If by the end of June there has not been significant changes in the financial condition of the non-profit, at the very least this matter should be revisited by the City Attorney and City Manager's Office, and ultimately the City Commission.

Jerry A. Blough, City Manager City of Margate 5790 Margate Boulevard Margate, FL 33063 ( 954 )935-5300 Fax (954)935-5304 citvma nage [email protected]

mailto:[email protected]

OIG 15-009

EXHIBIT 4

Alzheimer’s Family Center (AFC or Center) Notes

Agreement

The City of Margate (City) and AFC have had a relationship for approximately 28 years. Monies have been owed to the City at least as far back as 2000. At 9/30/06 the balance outstanding owed to the City by AFC was $280,002.91. At this time, AFC was turning over funds to the City and had investments. The previous City Finance Director re-assigned ownership of monies in April 2007 totaling $288,420 from AFC to pay down the debt. The current contract was put into place shortly after this occurred.

An agreement was made on 6/28/07 between the City and AFC. The agreement provided the following:

1. City would perform all bookkeeping services to the Center for $4,000 annually. While some people believe that bookkeeping and accounting is the same thing, this is simply not the case. Bookkeeping is limited to recording transactions and posting same in the general ledger. After amounts are posted, bookkeeping has ended and a degreed accountant would perform any adjusting entries and prepare financial reports. This step would have been completed by AFC external auditors. The City would have only recorded information received from AFC or its external auditors.

2. All monies collected by AFC excluding MasterCard and Visa accounts and excluding donations restricted by donors where separate bank accounts must be set up pursuant to donation instructions shall be deposited with the City. The City did not have access to AFC’s separate bank accounts nor would any information have been provided to detail cash deposits. The only time this information would have been available would have been through the adjusting entries provided by the external auditor for AFC.

3. All monies deposited with the City shall be credited to the Center but otherwise treated and invested as municipal funds. Monies received from AFC were posted in the appropriate AFC fund to record the deposit. When cash was received from AFC a due from the City was created and when cash was expended a due to the City was created.

5790 Margate Boulevard, Margate, FL 33063 • Phone: (954) 972-6454 • www.margatefl.com

http:www.margatefl.comhttp:280,002.91

4. Monies deposited by AFC would be reconciled twice annually on 6/30 (AFC year-end) and 9/30 (City year-end). This would have been completed every year for these dates to facilitate both the Center’s audit as of 6/30 and the City’s audit as of 9/30. In addition, AFC was provided on a monthly basis a balance sheet, detail budget report, and an account activity report. When check runs were completed, a bank transfer list detailing checks cut was provided. Most months these reports were hand delivered to an AFC employee when they would bring invoices to be paid or monies to be deposited. The balance sheet contains 2 accounts that if netted would be the amount owed to the City from the Due From Account and the Due To Account. These amounts are continuously updated in the system every time invoices are paid and revenues are received. Payroll information was also provided each time the payroll was run and copies of quarterly payroll reports required to be filed were provided to the Center.

5. In the event that the City believes it has paid out more than $75,000 than it has received, City may reconcile deposits and payments at any time during the year. If the City has determined that it has paid out more than $75,000 than it has received, City MAY refuse to pay any additional funds until additional funds have been received from AFC. The City had the option to refuse to pay any monies over $75,000. The only way this could be exercised is if the Commission approved this. As previously stated, monies have been owed in excess of this amount dating back to 2000. This deficit was brought forward by current administration at a Commission meeting in March 2015 and the notice to terminate was sent on March 19, 2015.

June 30, 2013 AFC Financial Statements

1. AFC Financial Statements for June 30, 2013 were not released until January 14, 2015. However, adjusting audit entries provided to the City are dated 01/21/14 indicating that all audit fieldwork would have been completed at this time and the audit would have just needed AFC approval for release. The Center would have been aware of any financial issues at this time. Board members approve the annual audits and would have received a copy of same. Financial statements as of 6/30/13 showed a net deficit of $189,909. An audit confirmation dated 11/18/13 was completed by the City during the audit fieldwork for June 30, 2013 indicating that fieldwork would have been completed shortly after receipt of this. Although the City received the audit entries directly from the auditors, the AFC Director verbally communicated to Finance staff that the AFC was not in agreement with some of the audit entries and the financials were not yet accepted.

2. These same financial statements opinion indicated a going concern issue in Note 13 detailing the Center has suffered recurring significant reductions in net assets and has a net deficiency in net assets that raises substantial doubt about its ability to continue as a going concern.

3. Audit entries would not be recorded on City books until after completion of the audit. The City could only record data received either from the Center or the auditors upon completion of audit fieldwork.

2

4. Audit findings and comments from the audit included seven prior year comments and recommendations with four dating back to 2007, two from 2008, and one from 2011. It was noted in the audit that all these audit comments remain applicable and were communicated in the context of 3 findings for 2013. The Center which is the audit client was told back in 2007 to complete a monthly reconciliation of the financial position accounts, improve monthly closing procedures, and improve segregations of duties over cash. Center management was instructed to create a process to ensure proper periodic financial reporting including performing monthly reconciliations of financial position, implement formal monthly closing procedures, and maintain detail subsidiary ledgers. It also addressed that because several parties have the ability to process cash disbursements and cash receipts at different locations (Center and City) in separate records which are not combined – it could result in significant transactions being omitted from or being duplicated in the Center’s financial statements.

5. Audit comments also indicated issues with vendor balances and there were large balances due to several vendors at year end and that some vendors had not been paid for a significant amount of time. Additionally, the auditors noted that vendor invoices are not entered into the Center’s general ledger when they are received which could lead to material items being omitted from the financial statements. Also, auditors noted that there was not an adequate segregation of duties so that no one person should have access to both the physical assets and the underlying accounting records.

6. Recent events highlighted in the June 2013 audit indicated receipt of approximately $160,000 from a trust. Subsequent to 2013 calendar year-end, AFC received the majority of the monies and remitted $75,000 from a check drawn on the Center’s Bank Atlantic bank account to the City to reduce the outstanding liability. It is unknown by the City what the remainder of the money was used for at AFC or what was done with it.

Accounting Issues

1. Accounts payable transactions at September 2013 that were signed by the AFC director totaled approximately $146,650. This consisted of invoices as far back as February 2012 which is over a year and a half old. Invoices submitted for payment in March 2015 contained invoices dated as far back as April 2014. Invoices contain date stamps from AFC.

2. Correspondence to the City from the AFC Director dated 12/23/13 contained a $75,000 check to the City (same as check detailed in #6 above), letter to Aetna terminating healthcare, letter to City Human Resources to remove payroll deductions for health care, and audited financial statements for June 30, 2012. In addition, the memo indicated that the Center was in discussions with the bank to re-finance the current mortgage and that based on the building appraisal value, the Center might be able to obtain some of the equity from the re-finance. In addition, the AFC Director indicated a Center Board meeting had been scheduled and the main

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topic on the agenda will be finances for the Center and that the Director would make every attempt to reduce the debt to the City.

3. Supporting Budget Schedule by Program Activity submitted by AFC for state grant funding for contract period 07/01/14 to 06/30/15 indicated that in order to meet the Center’s budget, $308,963.32 would need to be provided in non-matching cash.

4. AFC purchased the building on October 26, 2004. The City never made the mortgage payments as this was handled directly by AFC from an AFC separate bank account.

5. It appears that a Uniform Commercial Code Financing Statement is on file for AFC with Bank Atlantic from 10/30/07 and amended on 5/8/12.

6. One of the major fundraisers for the Center is the Gala held in the spring each year. In fiscal year 2006, the gala showed net revenues of $38,446, while in fiscal year 2015, the gala showed a net loss of $12,728 in spite of paying for meals/drinks for approximately 150 people at $175 each. It does not appear that the City received either the majority of ticket or raffle sales.

7. Former City Manager met with AFC Director and Board President in May 2014 to discuss the problem and different options to address the situation. AFC representatives assured the former City Manager that they would bring back ideas to the City the following month so that AFC would no longer be in breach of contract.

8. City Staff met with AFC Director and Board President in June 2014. The Center presented a plan indicating that cutbacks and changes had already been made resulting in $70,027 in savings including providing no health benefits, elimination/reduction of various staff, and the re-negotiation of rates with home health agency agreements. Pending cutbacks and changes which included modification of a mortgage loan, opening of a thrift shop, renting out a portion of the building, structuring a private pay respite program, and consolidation of office positions was estimated to result in potential savings or potential revenues of $61,828 to $71,828. AFC also indicated that they had a likely possibility of two large foundation grants, additional fundraisers planned, state advancing money for new contract, direct mail solicitation campaign, and AARP providing office staff (to be paid by AARP). At this meeting, City staff requested AFC check into selling the building which contained an outstanding mortgage, but which also contained several hundred thousand dollars in equity. City staff also inquired about using high school or college students to perform office tasks at no cost to the Center.

9. City staff met with the Areawide Council on Aging in January 2015 and discussed if their Agency would be able to provide any financial assistance to the Center or if any other entities would be able to provide services to the public. They indicated that they would not be able to provide additional funds at this time and that they would request the City to continue the program until

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http:308,963.32

AFC’s year-end on June 30 which is the end of AFC’s fiscal year. After this date, the Agency indicated that there was potential for the services to be turned over to Broward County.

10. City staff again met with AFC Director and board members in February 2015 asking for a final opportunity to discuss a payback plan of the debt owed to the City. The Center was given three weeks to provide a plan. After this meeting, the amount outstanding went from $425,000 to $500,000. AFC did not provide a plan and instead hired an attorney to present a payment arrangement to re-pay the City only $75,000 over a period of time. The City did not accept the offer and instead choose to terminate the agreement.

11. As of February 12, 2015, information was provided that the 2014 audit fieldwork and draft report had been completed and was waiting for the AFC Director review and comments. The AFC Director informed City staff at a meeting on this same date that audit fieldwork had not been completed and that there was an issue with the audit. To date, the City has not been provided with a copy of the June 30, 2014 audit or the 2014 audit entries.

12. Previous audit reports for AFC that were located from 2008, 2011, 2012, and 2013 disclosed in the notes to the financial statements that a significant portion of the Center’s activities is dependent upon the continued involvement of the City, the loss of which would have a materially adverse effect on the Center’s operations.

13. The 2013 Annual Monitoring Report sent with a cover letter to the AFC Director and AFC Board President dated September 2, 2014 from the Aging and Disability Resource Center of Broward County (Administered by the Areawide Council on Aging) was completed to determine compliance with Federal and/or State Guidelines. The date of the visit was November 6 and 7, 2013. The report indicated the following:

a. 2013 OA3B and OA3E contracts were not fulfilled before the Center expanded in December 31, 2013. Case management ended at 58.77% of the milestone goal. Project Director was unable to provide explanation. Respite and Gerontological Counseling (GECI) under OA3B met the goal within 1% +/- variance. Caregiver Training and Support Individual under the OA3E was underspent by 13.28%. Project Director did not provide an explanation. None of the year to date unduplicated client count goals were met.

b. A review of board minutes indicated that all new policies, budgets, and fiscal reports have been reviewed and adopted by the board.

c. Selected general ledger postings and their supporting documentation and/or reconciliation schedules adequately show contract revenue and expenditures.

d. Supporting documentation for the payment requests selected for review were complete, allowable, and fairly allocated.

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e. The Project Director continues to be concerned about funding. The need for services is increasing as the aging population grows. Funding for ADI is not keeping up with the need for services.

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OIG 15-009

EXHIBIT 5

TO: Mayor and City Commission

FROM: Eugene M. Steinfeld, City Attorney

DATE: September 16, 2015

..Title APPROVING AN AGREEMENT FOR SETILEMENT OF ALL CLAIMS BETWEEN THE CITY OF MARGATE AND ALZHEIMER'S FAMILY CENTER, INC. CONDITIONED UPON PURCHASE BY THE MARGATE COMMUNITY REDEVELOPMENT AGENCY (MCRA) OF THE PROPERTY LOCATED AT 6280 WEST ATLANTIC BOULEVARD FOR $312,061.74 . ..Body

BACKGROUND: The City of Margate and the Alzheimer's Family Center (the Center) have had a close relationship for many years. The City has paid expenses up front for the Center as provided for in the Agreement between the City and the Center dated June 28, 2007. At this time, the City's records indicate that the City has paid out $500, 118.04 more in expenses that it has received from the Center.

At the March 18, 2015 City Commission meeting, the City Commission voted to terminate the Agreement with Center and authorized the administration to negotiate a settlement, if possible, with the Center to recoup the above monies. After discussions with the representatives of the Center, requests for financial records, and research of same, the following general terms were negotiated for settlement of all claims of the City against Center.

1. The Margate Community Redevelopment Agency (MCRA) will purchase the prope1ty of the Center, located at 6280 W. Atlantic Boulevard for $312,061.74.

2. The MCRA will pay all closing costs related to the transaction( with the exception of payment of up to $2,000 by the Center for Seller closing costs).

3. The Center will be allowed to occupy the property until December 31, 2015 upon payment only of maintenance, utilities, etc. and $200 per month.

4. The Center will provide for insurance for their operation during the time of occupancy by the Center, indemnifying the MCRA for any claims related to the property.

Monies presently held by the City in the amount of $33, 179.03 as an unemployment compensation reserve by the Center, would be applied against the amounts owed by the Center to the City.

Based upon the research that has been done, the City Administration believes that a suit would generally be successful against the Center for breach of contract and unjust enrichment; however, it is also believed that this suit would cause the Center to cease operations and that the only viable asset would be the prope1ty of the Center and that the City would be among one of the creditors of same.

(In the most recently approved audit of the Center, which was 2013, it was shown that monies owed to the City were in excess of$300,000. No audit has been approved subsequent to 2013.)

RECOMMENDATION: To approve

http:312,061.74http:312,061.74

FISCAL IMP ACT: There is no fiscal impact to the City. However, the fiscal impact to the MCRA will be $312,061.74 plus closing and other associated costs.

CONTACT PERSON: Eugene M. Steinfeld, City Attorney

http:312,061.74

OIG 15-009

APPENDIX A

-.

CITY O F

MARGATE

Together We Make It Great

City Commission Mayor Tommy Ruzzano

Vice Mayor Joyce W. Bryan

Lesa Peerman

Joanne Simone

Frank B. Talerico

City Manager Douglas E. Smith

City Attorney Douglas R. Gonzales

City Clerk Joseph J. Kavanagh

June 13, 2016

John W. Scott, Inspector General Broward Office of the Inspector General One North University Drive, Suite 111 Plantation, FL 33324

Sent via email: [email protected]

Dear Mr. Scott:

The City of Margate is in receipt of the Office of Inspector General ("OIG") Preliminary Report, Ref. No. 15-009 regarding the Alzheimer's Family Center ("AFC"). City staff contacted staff from the Office of Inspector General to review comments on the report text; OIG staff had the opportunity to consider these comments for inclusion in the report.

City staff and the City Commission took action to end the City's relationship with the AFC. The City takes note of the statement in the OIG Preliminary Report that, as a result of the actions taken by current administration, the OIG has no recommendations to address the AFC's relationship with the City.

Thank you for the opportunity to review and submit a statement regarding the OIG Preliminary Report.

Sincerely,

DES/np

Cc: City Commission City Attorney City Clerk Finance Director

City Manager's Office 5790 Margate Boulevard, Margate, Fl 33063 • Phone: (954) 935-5300 • Fax: (954) 935-5304

www.margatefl.com • [email protected]

mailto:[email protected]:www.margatefl.commailto:[email protected]

OIG 15-009

APPENDIX B

May 31, 2016

John W. Scott

Inspector General

One North University Drive, Suite 111

Plantation, Florida 33324

Re: OIG Preliminary Report, Ref. No. OIG 15-009, Gross Mismanagement by the City of Margate in its

Arrangement with the Alzheimer's Family Center, Inc.

Dear Mr. Scott:

In accordance with Section 12.0l(D)(2){a) of the Charter of Broward County, I am in receipt of the above

report; this is my written response to those findings.

As the former Finance Director of the City of Margate (the City), I was responsible for the oversight of

all City financial matters, including the City's financial relationship with the Alzheimer's Family

Center, Inc. (the Center) as it related to the City. I did not have fiscal oversight over the Center.

The Center and the City have had a financial relationship for approximately 3Cl years. The City's

involvement with the Center began with the award of a $75,000 state grant to the Center in the

mid 1980's. Such grant was procured by a former City Commissioner (and ultimately State

Representative). Because the grant was "reimbursable" in nature, the City's assistance was

instrumental in order for the Center to receive said grant dollars, and to continue its operations.

And, thus, the relationship between the two entities was born.

Because the Center's cash flow issues continued (due to the timing of additional grant dollars

and donations), the arrangement between the two entities continued. Therefore, monies were

always owed to the City, with no limit, do the informal nature of the relationship.

During the City's annual audit for fiscal year ended September 30, 2006, it was noted that the Center

owed the City $280,003. Through re-allocation of investment dollars held in the Center's name,

the City recouped the majority of monies owed, leaving a balance of approximately $47,000.

In order to formall.y document the financial arrangement between the City and the Center,

Resolution 11-018 was passed by the City Commission in July of 2007; such resolution provided for

a $75,000 level of Center debt. The City and the Center have been operating under this formal

agreement since 2007. Per resolution 11-018, if the City has determined that it has paid out more than

$75,000 than it has received from the Center, the City MAY refuse to pay any additional funds for the

Center until additional funds have been received from the Center as determined by the City Commission.

Page 1 OIG - May 31 2016

It is important to note that the resolution does not contain language that mandates the notification

to the City Commission if the Center'

Documents

BROWARD OFFICE OF THE INSPECTOR GENERAL...2016/07/11 · The Broward Office of the Inspector General (OIG) has substantiated that the City of Margate engaged in gross mismanagement