by P.D. Lesko

THE EXECUTIVE Committee of the Ann Arbor Dems recently voted on a proposal put forward at the group’s most recent meeting to “close the books” on Chair Mike Henry’s $6,000 in cash withdrawls. The group voted to accept Treasurer Doug Scott’s December 2013 report—a report which is based in large part on Henry’s verbal accounting and handwritten vouchers explaining how he spent the funds.

The resolution was passed over the objections of former AA Dem Chair Anne Bannister as well as Council member Jack Eaton (D-Ward 4), according to Eaton, who attended the Executive Committee meeting.

Eaton said that his refusal to accept Mike Henry’s verbal accounting and handwritten vouchers is based in large part on three such expenditures which could not be verified. At the recent Executive Committee meeting Mike Henry was asked to explain why a number of his expenditure claims had turned out to be “bogus” and unverifiable. He offered up no explanation. Mike Henry did not respond to repeated requests for a comment.

Campaign finance forms submitted by the respective campaigns of Rep. Jeff Irwin and Sheriff Jerry Clayton disclose no cash donations from Mike Henry, though he purported to have used cash for donations to the campaigns.

“What about the other amounts he provided verbal explanations for?” asked Eaton. “You can’t just ‘close the books.’”

In August, after The Ann Arbor Independent began its investigation into the cash withdrawls, Mike Henry repaid the group $386 for three expenditures which had turned out to be unverified—months after he had been initially invited to do so.

Shortly after the newspaper’s Aug. 20 front page news story, the Executive Committee of the AA Dems met. Ward 3 Council member Chris Taylor and City Council Democratic primary election winner Julie Grand attended the meeting.  Both voted against a motion to open the group’s books and investigate the withdrawl of over $6,000 in cash.

[private]Instead, Taylor and Grand voted to “close the books,” a move critics claim is an attempt to cover up alleged financial improprieties, as well as protect Treasurer Doug Scott from further criticism that his oversight of the group’s finances was lax, at best.

In its Aug. 20 issue, The Ann Arbor Independent revealed that during a several month period in 2013 the Chair of the Ann Arbor City Democratic Party had withdrawn over $6,000 in cash from the group’s bank account. When the withdrawls were discovered, Henry could not produce original receipts for the money when requested to do so.

The article also revealed that Henry had run into accusations of financial impropriety during the year he served as the Exalted Ruler of the James L. Crawford Elks Lodge.

Federal income tax returns show that in 2009 the James L. Crawford Elks Lodge had gross receipts of $522,207, including $325,000 in investment income and a $300,965 profit. The 2010 federal tax return lists Mike Henry as Exalted Ruler and gross receipts of $112,125.  The tax return for that year shows the group lost $4,027. In 2011, the 990 tax return shows the James L. Crawford Elks Lodge declared gross receipts of $113,079 and a $78,123 loss.

While the James L. Crawford Elks Lodge leadership made members aware of the $78,123 loss, AA Dem Executive Board members say specifics concerning Mike Henry’s cash withdrawls were not shared with that group’s membership.  Neither was the fact that Henry could not produce original receipts to document his use of the group’s money.

Lou Glorie, a long-time member of the group and former long-time Executive Committee member was stunned when told that the Executive Committee had voted to “close the books.”

“That’s ridiculous,” said Glorie. “It’s an embarrassment. The books need to be opened and this issue resolved,” she told The Ann Arbor Independent.

While bylaws state the AA Dems Executive Committee shall include all elected Democrats serving in local office (City Council), in reality a small group controls the organization. That group includes Mike Henry, Jason Morgan, Brad O’Connor, Nora Wright, and Doug Scott.

Jason Morgan is the VP for Governmental Affairs at Washtenaw Community College. Morgan, who serves on the Board of the Jim Toy Community Center, participated in a candidate endorsement effort that triggered questions concerning whether the endorsements had been tainted by conflicts of interest on the part of some of the community center’s committee members who participated in the process.

Brad O’Connor is currently managing the campaign of judicial candidate Veronique Liem. He managed the 2014 mayoral campaign of Council member Chris Taylor.

Nora Wright is a lawyer who specializes in bankruptcy and attorney malpractice claims. In 2008, Wright received the Mary Foster Award from the Women Lawyers Association of Michigan. The award is given annually to a member of the organization whose “leadership, talent, and significant contributions to women provide a role model for women in the profession and women in general.”

Doug Scott, a retired executive, like Mike Henry, has refused to comment on his handling of the group’s money.

What is clear is that Scott and the rest of the AA Dem Board members did and still do not follow practices specifically designed to guard against fraud and embezzlement in the handling of money and the reimbursement of expenses as adhered to by numerous local and national non-profits and clubs.

The National Council of Nonprofits is located in New York. That group offers up best practices on a variety of topics including financial literacy and internal controls for groups such as the AA Dems.

One of most important practices, according to information from the NCN is that “all check and cash disbursements must be accompanied by an invoice showing that the payment is justified. Only pay from original invoices.”

Another best practice recommended by the National Council of Nonprofits is that “Board members must be prepared to take reports” of financial improprieties “seriously.”

That Christopher Taylor and Julie Grand voted to “close the books” is by no means the first time an Ann Arbor City Council member has refused to advocate transparency in the face of alleged financial improprieties.

Change the Policy

In 2006, city policy prohibited Ann Arbor employees from charging meals and travel expenses to city credit cards. The city paid for travel and meal expenses when the employee filed an expense report. This policy made it easier to ensure the city paid only for documented city business expenses.

During fiscal year 2006, then City Administrator Roger Fraser charged over $16,000 to his city credit card. Most of the charges were for travel and meals, including charges for travel to Denver, Boulder, Minneapolis and two Michigan resorts.

In the city’s 2006 audit, the auditors flagged the City for a number of items. Auditors recommended the implementation of a fraud risk management program to root out fraudulent City transactions. They also recommended adopting a policy of doing background checks on employees in sensitive departments like accounting and information technology (computers and computer networks). Auditors pointed out that the City was inappropriately spending monies in excess of budgeted amounts without formal approval or adjustment of the budgets involved. Most importantly, they found multiple irregularities involving the use of City credit cards.

Mayor Hieftje and City Council members that included now Judge Christopher Easthope, Rep. John D. Dingell, Jr.’s Chief of Staff Leigh Greden, current Downtown Development Authority Board member and attorney Joan Lowenstein, former Ward 2 Council member Stephen Rapundalo, Ward 3 Council member Stephen Kunselman and Ward 4 Council member Margie Teall,  changed city policy so that city employees were permitted to charge meals and travel expenses to city credit cards.

In 2006 and today, city policy authorizes reimbursement for mileage at the IRS rate but the total reimbursed for an out of town trip cannot exceed the cost of coach class airfare. Even though Mr. Fraser received a $400 per month car allowance from the city, records revealed he was reimbursed $1,009.95 for fiscal year 2006 business mileage, including $846.33 in mileage for a trip to Minneapolis. Records show another city employee, who attended the same Minneapolis conference, spent $218.40 for airfare.

Lobby the Auditor

As in 2006, 2008 and 2010, the city’s July 2012 audit uncovered instances of sloppy financial controls on the part of the city CFO Tom Crawford’s office. Among them were more instances of double-dipping by employees with car allowances, such as had been done by Roger Fraser and uncovered in the 2006 audit.

In 2012, it was revealed that one of the double-dippers was City Attorney, Stephen Postema who, until January 2013, received a $330 per month car allowance. Documents show he claimed $1,043.37 in mileage reimbursements for a trip taken on June 23, 2011.

City Administrator Steve Powers defended Postema and claimed in a January 2013 email to the AnnArborChronicle.com that a trip to Lansing to represent the city in a lawsuit was “beyond the daily job requirement of the city attorney.”

After the double-dipping was flagged by auditors in July, the terms of Postema’s employment contract were changed. In a November 8, 2012 resolution put forward by the Council’s Administrative Committee—Ward 4 Council members Marcia Higgins and Margie Teall, former Ward 2 Council member Tony Derezinski, Ward 3 Council member Christopher Taylor, and John Hieftje. Their resolution states, “Whereas the City Attorney has offered to eliminate his contractual car allowance of $330/month….”

In July Stephen Postema faced criticism triggered by double-dipping uncovered by the city’s auditor and by November the City Council’s Administrative Committee had helped gloss over the situation.

Emails turned over in response to a Freedom of Information Act request showed that Postema and Ann Arbor’s CFO Tom Crawford worked to persuade the auditor to change the wording of his findings—to remove the wording that found Postema was in a violation of city policy.

Board Cover Ups 

Between 2008 and 2012, more than 1,000 nonprofit organizations indicated on income tax forms that they had discovered a “significant diversion” of assets. These disclosures, analyzed and reported on by The Washington Post, totalled hundreds of millions of dollars during that five-year period. In 2009 alone, 285 diversions totaled more than $170 million.

Many of these incidents were not reported in the news media prior to an investigative report published in 2013—indicating that much more fraud happens behind the scenes.

One of the main reasons that board members choose to cover up fraud is a fear of negative publicity. According to The Washington Post report, “This bias can serve as an incentive to fraudsters.” And because there is no public record of the criminal act, the fraudster is free to commit fraud at other organizations.

For Christopher Taylor, then,  his vote against having the AA Dems’ finances examined by a third party was not the first time he chose obfuscation over transparency where alleged financial irregularities were concerned. Soon-to-be Ward 3 Council member Julie Grand, on the other hand,  was never faced with any such dilemma in her time as the Chair of the Parks Advisory Commission.

Grand became involved in the current AA Dems’ dispute via the Executive Committee’s email listserv. Emails provided to The Ann Arbor Independent show that in August she attempted to block an effort by an Executive Committee member  to add an item to the group’s meeting agenda dealing with Mike Henry’s cash withdrawls and the missing original receipts.

Taylor and Grand were joined in their votes to “close the books” by Executive Committee members Nora Wright, Mary Hall-Thiam, Erica Ackerman, Jason Morgan, Brad O’Connor, Doug Scott and Mike Henry.

Anne Bannister, the group’s former Chair, who has been advocating for an investigation since 2013 and a full explanation of exactly what happened to the thousands in cash withdrawn, cast the lone dissenting vote. Council member Jack Eaton told The Ann Arbor Independent he left the meeting prior to the vote to “close the books.”

“The outcome was predetermined,” said Eaton. “They were gonna do what they were gonna do.”

A source says Anne Bannister has come under intense pressure to remain silent on the subject. While she chose not to comment to this newspaper about the details of the situation, she did confirm that she is routinely excluded from email notifications about Executive Committee meeting times and locations. Jack Eaton confirmed that he, too, is frequently excluded from email notifications concerning the dates, times and locations of Executive Committee meetings.

Emails shared with The Ann Arbor Independent revealed Executive Committee members discussing the importance of being “on the same page,” in any discussions with The A2 Indy about the money and missing original receipts.

Jason Morgan confessed via the email listserv to speaking with a reporter, as did David Cahill, the group’s parliamentarian (and the husband of Council member Sabra Briere).

Melanie Payne is an investigative reporter for the Fort Meyers New-Press. In 2012, she uncovered the 2010 theft of $235,000 by the president of the local Rotary Club and the cover-up of that theft by the members of the group’s board.

She said this about board members who engage in such behavior: “I think that this type of slap-on-the-wrist, we-know-you-made-a-mistake, let’s-forgive-and-forget way of handling theft does a disservice to the community, makes nonprofits targets for crooks, and sends the message that if you steal from a nonprofit, you can get away with it.”

 

Choosing the Truth

The Independent newspaper of London named John Woodford the Businessperson of the Year, TIME magazine included him in the “People Who Mattered” section in its Person of the Year issue, and the Association of Certified Fraud Examiners (ACFE) honored him with the Cliff Robertson Sentinel Award. Why? Shortly after being named CEO of the Olympus company, Woodford confronted the company’s Board for allegedly covering up a $1.7 billion fraud.

Woodford commissioned PricewaterhouseCoopers to investigate, then delivered the PwC report to the Britain’s Serious Fraud Office, the FBI, the U.S. Department of Justice; the Japan Securities, Exchange and Surveillance Commission; the Tokyo Metropolitan Police; and the Tokyo Prosecutors Office.

“Olympus needs a complete and utter forensics accounting,” Woodford told The New York Times in the Oct. 17, 2011, article, “Ex-Chief Executive of Olympus Ties Ouster to His Claim of Fraud by the Company,” by Hiroko Tabuchi.

“I’d be delighted to return and put in a new management structure,” he said at the time. “But with or without me, the board should all go.”

Woodford, an Olympus employee for more than 30 years and a British citizen who had worked his way up the executive ranks, was subsequently fired. Olympus threatened to sue him. However, months later, the entire Olympus board resigned.

Woodford has said the toughest part was that some of his colleagues did distance themselves after he challenged the company.

“That traumatized my soul,” said Woodford in an article published in the ACFE’s official publication Fraud Magazine. “These are people I trusted who could have themselves exposed the fraud, but they were more worried about their personal positioning in the organization.”[/private]