State Audit Finds Conflict of Interest Led to Diversion of Public Funds

State Audit Finds Conflict of Interest Led to Diversion of Public Funds
Posted on 12/03/2020

On December 3, 2020 the Washington State Auditor presented the results of their 2019 audit of the City of Des Moines to the City Council. Although the financial condition of the City remains solvent and sustainable, the Auditor issued a finding /DocumentCenter/View/5208/Exit-Conference-Packet-Updated that the City had a lack of adequate internal controls over cash receipting in the Parks, Recreation and Senior Services (PRSS) Department. This finding was based on the conflicts of interest that existed in 2018 and prior in the PRSS Department that failed to detect or prevent a diversion of public funds to a separate, independent entity.

In June of 2018, the City self-reported to the State Auditor's Office that there was a potential loss of public funds due to credible evidence that was discovered that donations and other funds that were intended for the City were being diverted to the Des Moines Legacy Foundation (DMLF). The DMLF is a separate organization that is not affiliated with the City of Des Moines.

The City retained a third party expert to investigate the matter The third party investigation identified that "funds and/or resources designated for the City .... have been misappropriated to the DMLF." Additionally, the report stated that "it is apparent that former City employees, who were also board members of DMLF, had the preference for funds intended for the benefit of the City go to the DMLF because they could control the use of the funds." These investigative findings are documented by emails between former City employees and DMLF Board members.

A finding is the most serious reporting level that the State Auditor can issue. The auditors generally issue one of three levels of reports, findings, management letter comments, or verbal recommendations.

The City has communicated our extreme disappointment to the State Auditor that this situation occurred and for the role former City employees played.

The City cooperated fully in the Auditor's investigation and has made substantial changes to the PRSS Department to ensure that these activities will never happen again. Since the initiation of the investigation in 2018, the City has implemented new controls, procedures and training to assure proper handling of funds in the PRSS Department, as well as increased oversight and accountability.

To date, negotiations with the DMLF for the return of funds that should have originally been received by the City have been unsuccessful.

­­When these actions were originally uncovered in June of 2018, the City stated that "as public servants, the most significant responsibility of City Council and City staff is to safeguard the public trust, protect your hard earned tax dollars, and assure that precious resources are spent in the most efficient and impactful manner as possible." The thorough investigations that have been conducted as well as the systemic changes that have been made throughout the PRSS department demonstrate the City's commitment to this statement.

Donations to support the City's Parks, Recreation, Senior Services, or other City programs can be made directly to the City and may be tax deductible. Prior to donating to any organization, it is advised to research the organization to ensure donations are used for their intended purpose.