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.

The report:
Cover
Financials
Final
Conclusion

Mike Andreen vs. the Encinitas Chamber of Commerce:
Chamber’s initial Cease and Desist
Andreen’s response
Chamber’s rejoinder

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  1. Jinny Jones says:

    At last the truth is told. Many of us saw this happening and are grateful that the audit was done. I think the new ceo will be beneficial in returning the Chamber to a creditable organization serving its members, as it should be.

  2. Responsible person says:

    The City should immediately stop sending taxpayer dollars to a self descibed inept and possible corrupt organization.

  3. Bruce 123 says:

    Maggie Houlihan and Teresa Barth attempted to stop the spending when it came up in April 2008. Maggie suspected foul play and asked that the Council withhold funding until the audit was completed and the chamber hired a new executive director. They lost a 3-2 vote to the three guys.

    Jerome Stocks, Danny Dalager and Jim Bond said they trusted the chamber and they were not interested in waiting for the audit or the new chamber director. Their majority approved continued funding to the chamber without the knowing the audit results.

    See it for yourself onthe City website. Review the April 15th City Council tape (Item 9) … http://www.ci.encinitas.ca.us

  4. ex-enc says:

    You people should be ashamed of yourselves. How’s this for “misappropriation of city funds” Ms. Houlihan…wasting tax payer dollars with this pointless crap. The City had access to these financials for YEARS and did nothing. So did the Chamber board. The only conclusion one can reach is that these “officials” are either illiterate morons incapable of reading documents put before them, or that they are complicit in any “wrong doing” they outline in these accusations.

  5. Marr says:

    To some degree I feel that Mike Andreen and Gary Tucker are being scapegoated. The problems existed before Tucker was at the helm. Tucker and Andreen incurred the wrath of some business owners who are heavily promoting roundabouts on North 101, and as part of this version of the Leucadia Streetscape, proposing to reduce northbound traffic to one lane only. This is opposed by many residents concerned about traffic overflow onto Vulcan and Neptune, and also many businesses, some of whom would be subjected to encroachments, according to Peder Norby, 101 Czar.

    Mike Andreen, through the Chamber, published an article that broke down the results of the public survey at the third workshop. Over 60% of those responding did not want roundabouts, and did not want to reduce the Historic 101 northbound to only one lane. “Coincidentally, in the same issue this “report” was reported in TCN, with no reply from Andreen or Tucker, Charley Marvin, in his Community Commentary, promotes his version of the Streetscape, which would give him and a few others commercial property owners more parking at public expense. Marvin does not mention the survey taken at City Hall, or the petitions with 1000 signatures against any version of the Streetscape with roundabouts and reduced traffic lanes.

    We have paid over $400,000 to consultants to hold workshops and to design the Streetscape from A St to North El Portal, only, in Leucadia. That is another “co-mingling” of taxpayer monies to private enterprise for meetings designed, essentially, to promote and lobby for roundabouts and to improve property values for a select few, raising rents, while causing more traffic congestion and overflow during rush hour.

  6. Concerned Taxpayer says:

    It’s good a report was made. It should have been a forensic audit done by a firm outside of the City of Encinitas, to avoid the appearance of impropriety, which now exists. “Walsh [now] serves on the chamber’s board and therefore can’t conduct an impartial analysis of its financial situation,” according to Andreen (quoted in the NCT).

    There probably was some mishandling of funds. I don’t think this is criminal, or our own City officers should be held accountable for mishandling funds, for approving budgets with gaping holes in them, for calling funds earmarked for Encinitas or Cardiff Sanitation District part of our “reserves.” I feel that the City “co-mingles” funds all the time.

    Right now we are paying over $100,000 a year for a 101 Czar, Peder Norby, for instance. His job, I guess, is to co-mingle with the business owners. City staff and elected officials should be able to have a relationship with the business owners without having to pay for what is essentially a lobbyist for commercial enterprises.

    Many have asked that the City of Encinitas should have a FORENSIC audit, by an outside CPA, so that we can figure out our budget, “line by line.” There is no true public accountability, and those in the know realize, that funds have before been shifted from “earmarked” accounts.

  7. Square One says:

    Since when does a reputable journalist site comments from anonymous sources? This is an obvious smear campaign from a paper that has heavy financial ties to the Chamber.

  8. Jack Garner says:

    Jinny Jones said: “At last the truth is told. Many of us saw this happening and are grateful that the audit was done.”

    The problem is that no audit was actually done. The Chamber did not produce an audit. The audit that was performed actually produced nothing, so rather than deliver that, they went on to create this “report” which deals in nothing but hearsay. Readers of this newspaper need to understand that the old boy network extends to the Coast News who is in bed with the Chamber, who in turn is in bed with the city. The Coast News is now publishing Encinitas First and has a financial interest in promoting the Chamber’s view of things. Further, it seems likely that a lot of past malfeasance has been swept under the rug probably because money that funneled to Tucker ended up in board member’s pockets and now they are trying to deflect attention. The money trail needs to be followed, and it needs to be done by a legitimate, outside auditor and not a false auditor who is now on the Chamber board.

    Tucker and Andreen may indeed be crooked, I don’t know. But what is clear is that this report provides little more than innuendo, particularly regarding Andreen. So he was paid $1500 to edit and print the newsletter – so what?

    This entire episode is shameful on ALL involved. The only solution is to completely disconnect the city and the newspaper from any association with the Chamber, which is supposed to be a privately run independent voice for business. It cannot live up to that billing by taking money from the city, and we cannot know the real truth when the press has a vested interest in providing a biased view.

    Shame on all of you. I think this is a case where there are no innocent parties, and it all stinks.

  9. Independent Observer says:

    I find it curious that The Coast News would print a scanned image of “Andreen’s Response”showing the pen markups of its own publisher, Jim Kydd.

    What is amusing is that Kydd indicates two things as “not true”. The first one is a denial that the Coast News sent materials to Andreen under the name Encinitas First, to his home. Presumably Andreen has proof otherwise, or would not be making the claim. However, this likelihood is further bolstered by the fact that online archives of the Encinitas Chamber web site associate the name Encinitas First with Andreen at his home address in the membership directory. This association was made for at least a two year period prior to Andreen’s resignation.

    The second instance is even more amusing. Andreen’s letter claimed that The Coast News registered a DBA for Encinitas First on June 3, 2009. Kydd hand wrote “Not True” next to this claim. Yet, the legal listings in Kydd’s own newspaper published on June 19, 2009, contains the following fictitious name filing:

    ficTITIOUS BUSINESS NAME
    STATement
    file # 2009-015774
    The name(s) of the business:
    A. Encinitas First B. Encinitas First ECC C. Encinitas Chamber of Commerce Newsletter D. Encinitas First News E. Encinitas First Newsletter F. Encinitas Chamber Newsletter G. Encinitas First ECC Newsletter. Located at: 828 N Coast Hwy 101 #C, Encinitas, CA San Diego 92024. Mailing Address: Same. This business is conducted by: A Corporation. The transaction of business began: 08/15/1987. This business is hereby registered by the following owner(s): 1. Coast News Inc., 828 N. Coast Hwy 101 #C, Encinitas, CA 92024. This statement was filed with the Recorder/County Clerk of San Diego on May 28, 2009. S/Rebecca Roland. June 5, 12, 19, 26, 2009. CN 8145

    Granted, this is not “Encinitas First Partners”, but rather five different variations on the name Encinitas First, the name clearly and specifically associated with Andreen for at least two years, and used for his Chamber newsletter, which The Coast News appropriated for use with its own publishing of a Chamber newsletter.

    Oh what a tangled web we weave, when first we practice to deceive.

  10. coasterpants says:

    Wow. If you read the article, you’d think somebody was stealing. Turns out this is all over a copy machine. Elected officals, Chamber…you are pathetic. Worst of all The Coast News…who is in bed with the Chamber. What’s great about Houlihan and the board pointing fingers is that it’s going to draw scrutiny upon themselves. I guarantee you these people are dirtier than the two they are obviously trying destroy.

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