Auditors Catch Ann Arbor City Attorney Double-Dipping & New Council Members Press For Full Details

by P.D. Lesko

Usually, employees get fired for filching money or abusing an employer-issued credit card. Except in Ann Arbor. Auditors past and present, in fact, have sent the city’s Audit Committee letters of warning about sloppy financial controls, employee misuse of expense claims for reimbursement, and abuse of city-issued P-cards (credit cards) for years. John Hieftje and his Council pals, however, have been very understanding when it comes to misuse of public funds by the high-level managers whom the City Charter tasks Council with directly supervising.

In 2006, city policy prohibited 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 makes it easier to ensure the city pays 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 state audit, the auditors dinged the City for a number of items. For example, they recommended the implementation of a fraud risk management program to root out fraudulent City transactions. The also recommended adopting a policy of doing background checks on employees in sensitive departments like accounting and information technology (computers and computer networks). They also 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.

Instead of firing Fraser and calling the city’s CFO Tom Crawford onto carpet, Hieftje and City Council members that included now Judge Christopher Easthope, former Ward 3 Council member and current EMU Government Relations Director 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, Ward 4 Council members Margie Teall and Marcia Higgins,  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 got a $400 per month car allowance from the city, it was revealed by local city government watchdog Karen Sidney that he was reimbursed $1,009.95 for fiscal year 2006 business mileage, including $846.33 in mileage for a trip to Minneapolis. It was later reported that another city employee, who attended the same Minneapolis conference, spent $218.40 for airfare.

In essence, Ann Arbor’s City Council, led by its Administrative Committee, circled the wagons and covered up the financial irregularities revealed in the 2006 audit. It happened again in 2008 and in 2010, when auditors found problems. In 2008, the state audit found inappropriate purchases of eleven flat screen televisions and associated equipment by Maintenance facility staff using City credit cards and in the 2010 audit irregularities were found in the use of City purchasing cards. In fact, they appeared to be in violation of the law.

That was business as usual. Until now. There have arisen new Pharoahs who know that misappropriating public money is a dischargeable offense. Not only are the new Council members unwilling to cover up financial irregularities, they are investigating a case of alleged fraud and a possible cover-up of that alleged fraud that occurred in 2012. The result? Long-time Ann Arbor City Attorney Stephen Postema (left) has been described as in a “full body panic.” Why?

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. Download a copy of the auditor’s letter here. Among them were more instances of double-dipping by employees with car allowances, such done by Roger Fraser and uncovered in the 2006 audit. This time, it was revealed that one of the double-dippers was the City Attorney, Stephen Postema who, until January 2013, received a $330 per month car allowance. Postema lives in Ann Arbor and frequently walks to work from his home on the West side. 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 uncovered 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 he’s Stephen Postema scammer, and by November he’s a hero. Had this been 2006, 2008 or 2010, the issue would have ended there, and like Roger Fraser’s misuse of his city-issued credit card and double-dipping, Postema’s offense would have been disappeared by Hieftje and his Council pals.

However, City Council members on the Administrative Committee who helped cover up Postema’s double-dipping by changing the terms of his employment contract in November 2012, and then bringing forth a resolution that stated he was giving up his car allowance voluntarily, are fielding questions about who did what, when and why. Stephen Postema is in a full body panic because several Council members are pointedly questioning why the City Attorney’s misuse of public funds was covered up, by whom and how.

Postema’s double-dipping alone is a dischargeable offense, according to a local attorney familiar with the situation. The hush-up of the auditor’s findings, coupled with the Administrative Committee’s disingenuous resolution to amend the City Attorney’s contract put forward without making clear the circumstances surrounding the proposed changes, suggest an attempt to keep Postema’s misuse of public funds secret. Margie Teall sits on both the Audit Committee, which was informed of Postema’s double-dipping in July 2012, as well as the Administrative Committee which put forward the November 8, 2012 resolution to change Postema’s contract. In fact, when new members of the Audit Committee recently asked for another sit-down with the auditor, Teall, Chair of the Audit Committee, worked to block that request. New members include Ward 2 Council member Sally Hart Petersen and Ward 1 Council member Sumi Kailasapathy, (pictured above, right) a CPA.

Stephen Postema is one of the most generously compensated municipal attorneys in the state of Michigan, with a base salary well over $140,000 per year, plus a monthly cell phone allowance, car allowance (until recently $330 per month) thousands of dollars in lump sum payments for unused vacation days cashed out, and paid travel to conferences held at luxury hotels and spas. Postema has not produced a single written opinion filed with the City Clerk for public perusal since he was hired in 2003. The City Attorney has been so sure of his place that he responded arrogantly in public to Ward 3 Council member Stephen Kunselman, who’d asked for a written opinion concerning the legality of the funding mechanism for the unpopular Percent for Art program; Postema said that a written opinion would be issued when a majority of Council directed him to do so.

Prior to November 2012, when the new Council members took office, it had been repeatedly murmured by unhappy members of Council that Postema doled out advice and did not stop Council deliberations in closed sessions. In 2010 the AnnArborChronicle.com sued the city over alleged violations of the Open Meetings Act. AnnArbor.com, on the other hand, posted a wet-kiss-of-a-story about the City Attorney in summer 2012, around the same time as the Audit Committee was learned of his misuse of public funds. Prominent local attorneys active in politics have openly criticized the City Attorney for a variety of reasons, including his interpretations of the city’s own ordinances and his overuse of “advice” and  privilege to gag certain Council members (including Kunselman) and keep his legal reasoning from public scrutiny.

Among his colleagues, Postema has a better reputation. In March 2012 he received an award from the Michigan Municipal League. The group honored Postema with an Outstanding Service Award. The honor recognizes those who support the league’s legislative efforts in Lansing on behalf of Michigan communities. Postema is the immediate past president of the Michigan Association of Municipal Attorneys and serves as chairman of its legislative committee.

It’s clear that the new Council members and their allies, including Ward 2 Council member Jane Lumm, Ward Five Council member Mike Anglin and Council member Stephen Kunselman, whose request for a written opinion Postema mocked in public, are prepared to do what is necessary to get to the bottom of how the City Attorney’s double-dipping was hidden from the public and Council by the Administrative Committee members. Postema could find himself out of a job, at worst fired, at best given the option to resign. If it is revealed that City Administrator Steve Powers knowingly participated in efforts to “disappear” Postema’s double-dipping and hide that information from certain Council members, he may find himself in a full body panic, as well. Certainly, Powers’s January 2013 email to the AnnArborChronicle.com suggests he may be looking for a way to take what the auditor’s 2012 letter identifies as a black and white instance of misuse of public funds by a man who should have known better, legally, at least, and paint it fifty shades of gray. That, of course, would be business as usual in Ann Arbor.

However, Kailasapthy, Kunselman, Petersen, Anglin and Lumm will continue to move forward with their questions and requests for information concerning the auditor’s 2012 findings. That’s very bad news for Stephen Postema, John Hieftje and the rest of the Council’s Administrative Committee members, but very, very good news for Ann Arbor taxpayers.