Margate Found Guilty of Gross Mismanagement by OIG
The Broward Office of the Inspector General (OIG) has issued a final report finding that Margate city officials engaged in gross mismanagement in its longstanding arrangement with the Alzehimer’s Family Center (AFC). The city’s gross mismanagement resulted in a $466,935 loss to the city. The OIG determined that city finance staff and director were aware of the runaway debt years before elected officials were notified. ____________
In sum, this office’s investigation revealed 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. As this arrangement left the city vulnerable to significant financial losses without the institution of any controls, it was memorialized in 2007 with one control – a $75,000 debt ceiling. Notwithstanding, the finance director, Ms. Gail Gargano—who had regular access to information documenting the AFC’s debt and who since has retired from the City—failed to inform any party that the single financial control contained in the memorialized arrangement, the $75,000 debt ceiling, was regularly violated. In fact, by the time the city commission was advised that the AFC had exceeded the $75,000 debt ceiling, the debt had climbed to over $380,000. The AFC ultimately accumulated $466,935 in debt to the city before the contract was terminated in March 2015, Broward Inspector General, John Scott, announced Monday.
MargateNews.net first reported on the mismanagement in March 2015 in "Margate Loses Half Million Cash. Commingles Funds."
In that Gargano did not dispute her knowledge of the AFC’s rising debt to the city, Margate resident, John Hall, one oftwo Margate residents known to file a complaint against the City of Margate with the OIG, believes elected officials should find a way to refund taxpayers as a result of OIG findings. He disagreed with the city's decision to sell the Alzheimer's Family Center building to the city's Community Redevelopment Agency, which ultimately was throwing good tax money after bad when attempting to reconcile misappropriated funds. According to the OIG, the debt was reduced to approximately $290,640 after entering into a settlement agreement with the AFC in September 2015, so money is still owed to taxpayers.
"Too many times, commissioners don't protect and watch over public money. If there is a way to get this money back to the taxpayers I am all for it," Hall told MargateNews.net.
While elected officials in Margate were surprised when told about the AFC debt last year, none took action to find out who in the city was responsible for turning a blind eye to a debt that quickly escalated during their time in office.
The other OIG complainant was Margate resident, Rich Popovic, who alleged that the purchase of the Alzheimer’s Center by the CRA was a conflict of interest. The debt is owed to the City, not to the CRA, he said, and using TIF (Tax Increment Financing) revenues to pay for lost tax dollars is not a bona-fide part of the CRA’s plan for redevelopment. Moreover, TIF funds are not designed by nature to balance city coffers.
“They would have never even considered buying the property if the City didn’t need the bailout. It’s nowhere in their plan,” he told MargateNews.net.
The OIG had no specific recommendations for the city in their report, but generally recommended that local governments refrain from engaging loosely-knit, unenforceable agreements. Although the public policy of supporting families struggling with Alzheimer’s disease is noble, "there are more fiscally responsible means of achieving that end," wrote Scott. For instance writing a grant to better define responsibilities of parties.
Margate City Attorney, Eugene Steinfeld - the city attorney for the 20-year duration of the debt - told the OIG that he considered crafting an agreement with the AFC with language similar to a grant, but was told by an elected official in 2007 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, detailed provisions for breach of the agreement were not included in the agreement.
Gargano explained to the OIG that she did not believe it was her responsibility to track the AFC’s debt and that when she saw the debt escalate to around $300,000 in 2013 she notified then city manager, Jerry Blough. At this point, neither Gargano nor Blough notified elected officials. Blough told the OIG he didn't think it was necessary because he had already attempted to reconcile the debt with the AFC in 2014.
"Blough concluded 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," reported the OIG.
Through Gargano's testimony it was learned that while working under then Finance Director, Sam Moschella in 1986-88, she was instructed to set up accounts in the city’s accounting software to reflect the department’s provision of bookkeeping services to the AFC. 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.
Contracted as a lobbyist for the City of Margate, Tobin’s political and financial influence enabled him to raise a significant amount of money for the AFC. At the time, one or more Margate elected officials were either on the AFC board or were corporate officers, Steinfeld told the OIG.
When Gargano notified Margate City Manager, Frank Porcella in 2006, Porcella and Steinfeld drafted an agreement with the AFC in 2007 that did not require the AFC to produce financial records. The city had no control over AFC financial affairs and no access to AFC bank accounts. Moreover, city had no way of knowing if the AFC had been remitting all the revenue as required by the agreement, reported the OIG.
With the city since 1989, accounting supervisor for Margate, Jackie Chin-Kidd, told the OIG that Gargano and the Executive Director for the AFC, Joyce Karney, were always aware of the AFC’s debt, as they received monthly reports and Gargano had online access to AFC entries. Chin-Kidd said she first became aware of the agreement between the AFC and the City in November 2013 during audit discussions with AFC auditors.
Karney was not interviewed by the OIG and told commissioners in 2015 that she was shocked to hear about the amount of monies owed the city. She said the city had been her only bookkeepers over the years and trusted them with the balance.
Finance Director, Mary Beazley, who replaced Gargano when she retired in 2014 and brought the sizeable debt to the attention of the city manager, told the OIG that the city and the AFC should have been aware of the AFC’s increasing debt to the city, in particular as twice-yearly account reconciliations of the debt were conducted as scheduled.
In August 2014, during budget preparation meetings, Beazley told the OIG that she and the city manager met with the commissioners individually and informed them of the AFC’s debt, which by then was approximately $380,000. In contrast, elected officials said they were not made aware of the debt until March 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. As a result, the city ceased paying new AFC bills, other than payroll, which ended on March 30.
Present day City Manager, Douglas Smith, told the OIG that he had no first-hand knowledge of the historical relationship between the City and the AFC when he served under Blough as Assistant City Manager since 2013. He was told by Blough in 2014 that the AFC was substantially in arrears to the city. He did not know at the time if Blough informed commissioners.
The city did not dispute findings by the OIG, but was not specific regarding corrective measures taken to prevent similar from happening in the future.
Gargano did not dispute the sequence of events that led to the AFC’s ultimate debt to the city. She admitted she did not notify the city manager once the AFC’s debt exceeded $75,000, but disputed OIG findings of gross mismanagement.
Click here to read final report
Notably, the city's Community Redevelopment Agency was found mismanaging funds in a 2014 OIG report. Read with interest: Misconduct at Margate CRA, says Broward Inspector General