Mayoral spin on Citifest audit - UPDATED

Mayor Carty Finkbeiner had requested an audit of Citifest, a non-profit agency charged with putting on various events in the downtown area and, for the last several years, with managing the city-owned Erie Street Market. (background on the issue is here)

Yesterday, he issued a press release on the outcome of the audit, saying "While there is no evidence of wrongdoing or misappropriation, it is clear that CitiFest did not meet their managerial or fiduciary responsibility to the City of Toledo in managing the Erie Street Market."

Now, there's no explanation of why the Mayor believes this and there's nothing in the audit report accompanying the press release to indicate such responsibility had not been met. Interestingly, the big question prior to beginning the audit was whether or not the expenses/losses at the Erie Street Market (ESM) are what caused Citifest to run out of money. That issue isn't even addressed.

What is addressed are the following with the auditor's comments in italics:

* were monies for electricity costs properly allocated to ESM? We noted no exceptions and electricity income appears to be properly allocated to ESM.

* was reimbursement for security services properly allocated to ESM? The amount of the security reimbursement income is $7,497 for the nine months ended September 30, 2007 which appears to be properly recorded and allocated to ESM.

* were payroll expenses for Erie Street Market personnel appropriately reflected in the books and records of Erie Street Market? All allocations were consistent and appear to be reasonable.

* were professional fees for services to or at ESM properly allocated to ESM? After review of all legal invoices by CitiFest representatives, the allocation of legal fees to ESM was increased by $2,559. ... Based on additional analysis by CitiFest representatives, professional fees allocated to ESM were increased by $5,276 from $13,897 to $19,173 for accounting and legal fees which had been previously allocated to CitiFest. After adjustments, all allocations appear to be reasonable and calculated consistently.

* were insurance expenses properly allocated? There were some adjustments to the liability/property insurance allocations, but it doesn't say if the adjustments were up or down. Under health/dental/vision insurance, "appropriate payroll deductions from one of the employees for this additional coverage had not been made and ESM was owed $355 which was not reflected in the September 30, 2007 financial statements. However, all amounts owed are expected to be ultimately collected."

* were advertising expenses properly allocated to ESM? One invoice was billed to ESM Catering and should have been billed to ESM. It appears that the advertising charges reviewed were related to ESM activities and properly allocated.

* were bank service charges appropriately and consistently allocated? Total bank service charges allocated to ESM, Antique Mall and ESM Catering were $8,637, of which approximately $6,750 resulted from bank overdraft fees. Bank service charges have been allocated consistently under this policy.

* determine the basis of the $2,500 per month general and administrative fee that Erie Street Market pays to CitiFest and determine what services Erie Street Market receives in consideration for this payment. ... we understand this charge was an administrative fee for the estimated time spent on ESM matters by the following employees of CitiFest: Executive Director, Executive Assistant and Special Events Coordinator. The monthly amount of $2,500 for the services of those individuals has remained the same since 2004, when it was approved by the Board of Trustees of CitiFest as part of the annual budget process. There is no written agreement between CitiFest and ESM to support this amount.

For the nine months ended September 30, 2007, the amount charged by CitiFest to ESM for these services was $22,500. This amount was approximately 19% of the total salary, payroll tax and employee benefit costs of the individuals who held these positions in 2007.

We examined the invoices from DTID (Downtown Toledo Improvement District) to ESM for September, October and November 2006 all of which were paid in 2007 and we noted no exceptions. These expenses were appropriately allocated to ESM.

So that's what the report said, but somehow I wonder if Carty actually read it. His press release also says:

"Due to the commingling of funds, it was impossible to determine if overdraft fees were charged to the Erie Street Market for expenses incurred by the Market or by Citifest."

Now, the audit says "Total bank service charges allocated to ESM, Antique Mall and ESM Catering were $8,637, of which approximately $6,750 resulted from bank overdraft fees." So how can Carty make the claim that it was impossible to determine? He can't.

Finally, his press release says:

"Finally, as managers of the Market, CitiFest leadership had an obligation to report operating losses so that staffing or other expenses could be adjusted. They made no such effort despite the fact that members of my administration and I met with CitiFest leadership regularly through 2007. CitiFest officials never indicated that there were financial difficulties until they ran out of funding in November, and had incurred in excess of $40,000 in bad check fees."

I'm not sure what Carty's expecting in this regard. Two representatives from the city sit on Citifest's board and both were present at the meetings over the last year where the financial issues/problems were discussed. One representative works for the City Auditor and appears to report to City Council. The other works for the Mayor.

So, Mayor, who's at fault for you not knowing about the financial difficulty - Citifest or your own employees who should have been sharing this information with you and their superiors on a regular basis? Personally, if I were to send a rep to sit on a board, I'd expect some kind of report monthly following each board meeting - and I'd read them. Perhaps Carty's employee did make regular reports but they never made it through the bureaucracy? Or maybe they did and were ignored until it was too late? Who knows?

But, the ESM has never made a profit and has traditionally required financial support from the city. Such monetary support was not provided in 2007, and, as a result, Citifest expended money to run the facility and is now closed. But ESM is still open.

Per the press release:

"The City of Toledo has assumed management of the Erie Street Market and is in the process of developing a business plan to ensure the Market’s su "

I believe the last word is supposed to be 'success,' but this is copied as received.

Unfortunately, Carty's actions have resulted in the closing of Citifest while a consistently failing ESM is going to get a new business plan from the city, despite the city's proven inability to provide a successful plan in the past.

Just a question, Mayor. When ESM continues to fail, who will you blame then?

UPDATE: Here is The Blade's take on the press release sent out (which, remember, included the letter from the auditors to the city). 13ABC had a blurb in their morning headlines section. NBC24 comments on the audit and not the Mayor's press release - they also have a copy of the audit report available. And here is the Fox 36 Toledo coverage. Also, here is WSPD's coverage and sound clips from Citifest Board Chairman Brian Epstein.