In “Tense” Meeting Ann Arbor SPARK Executive Board Votes To Make 2012 and 2013 Audit Statements Available to The Public For First Time

Please note: Kai Petainen is a member of The Ann Arbor Independent’s Editorial Board.

ON DECEMBER 4th Ann Arbor SPARK CEO and President Paul Krutko sent a letter to local elected officials, as well as the Ann Arbor City Administrator Steve Powers and Yousef Rabhi, Chair of the Washtenaw Board of County Commissioners. In that letter Krutko pledges to voluntarily release the non-profit’s audit statements. The one page letter (reproduced to the right), was sent to Ward 1 Council member Sumi Kailasapathy, Ward 2 Council member Jane Lumm and Tim Marshall, Chair of the Ann Arbor SPARK Executive Committee.

The letter may resolve tensions between elected officials and SPARK officials who have consistently refused to share audited financial statements with the public despite the fact that public money was used to pay for almost half of SPARK’s operating costs according to the organization’s most recent annual report.

On October 29, 2013 The Ann Arbor Independent reported that Ward 1 Council member Sumi Kailasapathy had asked Ann Arbor City Administrator Steve Powers for a copy of Ann Arbor SPARK’s audited financial statements.

In that piece, we reported, “Emails shared with The Ann Arbor Independent show Kailasapathy requested the documents from City Administrator Steve Powers, who serves on the Board of Directors of Ann Arbor SPARK. In his reply to her, Powers offers Kailasapathy annual reports and 990 income tax returns, among other materials. However, Powers writes he will not share SPARK’s annual audit statements with her.”

Kailasapathy did not mince words in October. She said this about SPARK’s refusal to release its audit statements to her: “It’s outrageous. Those people come to City Council for money, and yet they want to keep their financial documents a secret from the public. No, no, no.”

Then the Ward 1 Council member added: “I will never vote to approve another dollar of funding for SPARK. Each time I will read the email in which I was told I could not see the annual audit reports.”

Likewise, when Ward 2 Council member Jane Lumm emailed SPARK CEO Paul Krutko on behalf of one of Lumm’s constituents who’d tried to use the Freedom of Information Act to get the audit statements from the City of Ann Arbor, the Council member’s emails were not answered.

That Krutko did not answer the Council member’s emails further angered those on City Council who believe Ann Arbor SPARK is being run more like a private company than a public non-profit.

One of the bullet points in Krutko’s December 4th letter states, “As we have done in the past, we will continue to respond to specific questions from elected officials at any time.”

In order to get help in dealing with recalcitrant SPARK officials, Ann Arbor City Council members turned to the Chair of the Board of the Washtenaw Board of County Commissioners, Yousef Rabhi, who was recently recruited to sit on the Executive Committee of Ann Arbor SPARK. Rabhi, in turn, met with Krutko and pressed for a change in policy.

Rabhi reported telling Krutko at that meeting, “I don’t care what you do with the private money you get, but there has to be transparency around public money.”

In an email Commissioner Rabhi sent to The Ann Arbor Independent, along with a copy of Paul Krutko’s letter, Rabhi described as “tense” the Executive Board meeting at which calls for more transparency were discussed. Rabhi’s email said: “I have been hard at work over the last month or so working with SPARK for greater transparency. After a productive series of meetings between Mr. Krutko and myself, the topic of financial transparency was included as a discussion item on the SPARK Board’s November 25th agenda. In this communication, I would like to update you on how that meeting went and what you can expect to see moving forward.”

SPARK’s Executive Committee, in addition to Yousef Rabhi, includes several officials who work for public entities, including Verna McDaniels, the Washtenaw County Administrator, Dr. Rose Bellanca, President of Washtenaw Community College, Dr. Mary Sue Coleman, President of the University of Michigan, Steve Powers and Leigh Greden, who is the VP for Governmental Relations at Eastern Michigan University.

As Rabhi pointed out in his email, “As the next board meeting approaches I will continue to work with SPARK staff and board members to advocate for a more robust public transparency and outreach platform. In the meantime, SPARK has agreed to post its financial statements for 2012 on its website AND has pledged to post its 2013 financial statements once the auditors have completed their work. Again, this has never been done before and I am proud that we were able to move the needle enough to make this happen.”

Ann Arbor resident and Forbes.com writer Kai Petainen, after SPARK officials refused to share the organization’s audited financial statements, turned to the Michigan Attorney General’s office. That office turned over Ann Arbor SPARK’s audited financial statements filed with the state between 2006-2012.

Petainen teaches finance at the University of Michigan’s Ross School of Business, and writes about business ethics from a “quant perspective” for Forbes.com. He analyzed the audit statements and compared the information in the audits to SPARK’s 990 income returns filed with the federal government, as well as SPARK’s filings with the U.S. Securities and Exchange Commission.

SPARK’s SEC filings revealed what is known as a “related party transaction” between SPARK and SPARK Board member Roger S. Newton, President and CEO, Esperion Therapeutics, Inc.

The SEC document states: “During 2012 and 2011, an officer of the Company was a non-voting member of the Board of Directors of the not-for-profit entity, Ann Arbor SPARK, that owned the facility leased by the Company (see Note 7). In November 2012, the lease was assigned to the Michigan Land Bank Track Authority and as of December 31, 2012 was no longer considered a related party transaction to the Company.”

The Michigan Land Bank deals in blighted property, and the implication is that Newton’s company was located on or in property that was classified as blighted.

Newton’s company benefitted from the transaction. SPARK’s audit, which is presented to the organization’s Executive Committee and filed with the State of Michigan, however, did not mention the related party transaction.

This information that Petainen found and shared with elected officials, including Yousef Rabhi, prompted a barb from Krutko in his letter: “We know there has been confusion and misinformation about SPARK’s finances recently propagated by those who have misread our financial statements.”

This is not SPARK’s first problem related to an audit statement.

In 2008, when MEDC CEO Michael Finney still headed SPARK, and Governor Rick Snyder was a member of the Board of Directors, SPARK came under fire. An audit that revealed poor internal controls and unaddressed conflicts of interest was made public.

To the media, SPARK officials brushed off the problems identified by its auditor. This triggered an angry letter from the Treasurer of the Lower District Financing Authority (LDFA) Board charged with oversight of the no bid contract between Ann Arbor and SPARK to Ann Arbor City Council.

LDFA Treasurer Mike Reid then resigned, but not before the local media published his allegations that SPARK’s internal controls were so lax that there was the danger of undetected fraud and misuse of public money.

Meanwhile, then SPARK CEO Michael Finney assured the media and the public that the problems that had led to the issues identified by the auditor had been corrected and were the result of growing pains.

This 2008 event prompted Council member Kailasapathy, who is a Certified Public Accountant, to ask for copies of SPARK’s audited financial statements. Council member Kailasapathy told The Ann Arbor Independent, “In 2008, SPARK’s audit revealed several serious problems. I have had constituent questions about SPARK.”