Report shows misuse of city funds

ENCINITAS — The Chamber of Commerce released the results of a long-awaited financial review late Wednesday afternoon to the City Manager’s office. Among the findings are a pattern of co-mingling of funds, diversion of specific-use funds and providing financial benefit to a board member.
Specifically, former CEO Gary Tucker and Marketing Director Mike Andreen were accused of mismanaging funds. Andreen also served on the board of directors.
The document was prepared by a certified public accountant hired by the chamber at the behest of the City Council as a condition of its continued support of the Visitor Center. In 2005, the city entered into a three-year agreement with the chamber to operate the Visitor Center in the amount of $91,500 per year. A month-to-month extension was granted in June 2008.
A subsequent one-year contract was signed May 1 of this year in the amount of $80,500.
In a move that surprised many, Tucker resigned effective Feb. 6. After three years as the top staff member at the chamber, Tucker said at the time that it was time to pursue other opportunities in the private sector.
According to Tucker’s resignation letter sent to the board Jan. 23, he cited declining revenue from returning members, loss of faith in the board’s leadership and the executive committee’s refusal to follow the bylaws of the organization as reasons for his departure.
However, some former board members suspect that Tucker, along with Andreen who resigned from the board in March, violated fiduciary responsibilities. Andreen continued to work for the chamber as an independent contractor until May 23.
Andreen subsequently organized what he describes in newsletters and other publications as a “Chamber of Commerce,” representing businesses in the El Camino Real corridor. No documents show 501(c)(6) status has been granted or is pending by the Internal Revenue Service.
Neither Tucker nor Andreen returned repeated calls for an interview.
The financial review covers the period from July 1, 2005, to June 30, 2009. Neither an audit nor a full scope review, the document nevertheless contains evidence of financial irregularities. For instance, $18,500 received in September 2008 from a copier company as a buyout on an existing lease was not used for its intended purpose. Rather than pay off the old copier lease, Tucker used the funds as cash flow during the last four months of his tenure according to the document.
Also, the report indicates that city funds designated for the Visitor Center were co-mingled with the chamber’s revenues and expenses. According to the expense report, 50 percent of the chamber staff costs were charged to the city under the guise of Visitor Center operations. “This is clearly a misrepresentation of the use of staff,” the report sates. In fact, during 2008, $44,777 of Tucker’s salary was billed to the city and $23,190 in 2007. The city was also charged 100 percent of a Visitor Center manager’s salary during both fiscal years.
Former board member Michelle Johnston said financial inconsistencies became apparent in mid-2007 after then-Treasurer Craig Fortin resigned. Tucker took over providing the financial statements during the monthly board meetings according to Johnston. “We had questions that were never really answered by the CEO,” she said.
“When we had 120 people at an event, we asked why it wasn’t evident in the financial statement.” Johnston said the responses varied but were along the lines of “I’ll bring it next month.” Yet, the statements were not provided. “The biggest disconnect is that there was no follow-up at meetings,” she said. “Each month brought new issues.”
Other board members claim that both Tucker and Andreen acted more like a two-man show in operating the organization and consistently disregarded the concerns and directives of the board. “They were bullies,” one former member said, speaking on the condition of anonymity. “It was a good ol’ boy system and you didn’t want to get in their way.”
The financial review calls into question the financial benefit Andreen received from the board. From January 1, 2007, through May 29 of this year, Andreen received $78,584 for “various business-related transactions.” This amount includes $1,500 per month to publish the chamber’s newsletter; regular payments of $1,200 a month on “draw against commission,” although no evidence exists to reconcile this amount with actual revenue from membership revenues; $1,500 per editorial written on three occasions; and miscellaneous items. The report concludes that Andreen was paid 53 percent of all membership commissions during this time period.
There is no contract between Andreen or any of his business entities and the chamber for the work that was paid according to the report.
Especially troubling to some members was the appearance of impropriety and noncompliance with certain bylaws. The rules governing tax-exempt organizations such as the chamber require board members who receive an economic benefit from the organization to be closely scrutinized. “We could have done a better job at oversight but every time we tried to get answers we were made out to be the bad guys,” a former member who spoke on the condition of anonymity said.
When asked why the board did not call for Tucker or Andreen to resign, one member cited fear of retribution. Another former member, also speaking on the condition of anonymity, said the board took its lead from Ken Gross, the chamber’s board president. “We would have loved to see him (Tucker) leave but every time Ken talked to him about the concerns of the board, he made up more excuses and that was apparently acceptable.”
Mayor Maggie Houlihan said she was glad to have a more complete financial picture of the organization. She said it confirmed some of her suspicions. “What was presented to us for reimbursement did not seem to match the Visitor Center expenditures. “
Houlihan cited chamber violations of the contract with the city to operate the Visitor Center including failure to operate on weekends without prior authorization, failure to maintain an updated Web site, not revealing staff turnover and distributing outdated promotional materials. Operating hours during the week were also diminished. “The taxpayers were being ripped off and the visitors were being underserved,” she said.
Based on the financial review documents, Houlihan said it was obvious that the contract was breached. “Public funds were misappropriated and the public trust was violated.”
In an opinion of the financial review submitted to city hall, the board proposed several corrective actions. While it places much of the blame for the previous financial egregiousness on Tucker and Andreen, the board recognized that the freedom it allowed the CEO negatively impacted the organization and the Visitor Center.
With the hiring of new CEO Marshall Weinreb and increased oversight, Gross said in his statement the board is “committed to improving operations and service to the community … ”
Johnston, who is still a member of the chamber, said she expects improvement within the organization. “It will be nice to have it settled,” she said. “We can learn from it and move forward.”
To read the report in its entirety and other related items, visit coastnewsgroup.com.