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Duggan’s Motor City Match program had excessive spending, lack of oversight: report

Christine Ferretti
The Detroit News

Detroit — A nearly 18-month investigation into a grant-funded program designed to support entrepreneurs in Detroit uncovered excessive spending, a lack of oversight, weak controls for issuing payments and ultimately nearly 77% of the businesses the program assisted failed. 

Detroit's Office of Inspector General laid out the findings for Detroit Mayor Mike Duggan's Motor City Match program in a report released late Monday. The investigation stemmed from a May 2019 complaint over the administration of the program from now ex-employee Kennedy Shannon, who argued practices for the federal grant-funded program didn't comply with U.S. Department of Housing and Urban Development rules.

"We looked at a particular time period based on the complaint and we realized that it appeared there were really not enough checks and balances and perhaps someone who oversees these particular programs should pay more attention," Detroit Inspector General Ellen Ha told The News. “We don’t take a report lightly. We try to get to the bottom of what actually happened so that we can report out the facts."

Ha's office noted concerns raised over expenditures "that did not line up with the number of businesses opened" were valid. Consultants were getting the bulk of the money, rather than the businesses, according to the report.

About $21 million has been allocated for the program since 2015, including $9.1 million from federal block grants, $6.2 million from Detroit's General Fund and about $6 million from philanthropic partners.

The report notes that "The city disagreed with this assessment," arguing payment requests were properly reviewed and that Shannon did not raise any concerns about them until after an audit was conducted by HUD in the fall of 2018.

But the inspector general's office said it substantiated Shannon's allegation that her concerns about the program were ignored by managers. Shannon also brought her concerns to HUD, resulting in a federal review of the program, it notes. 

Motor City Match launched in the spring of 2015 with the aim of lending federally funded cash grants and other resources to help start small businesses. The program is administered through the Detroit Economic Growth Corporation on behalf of the city. 

Donald Rencher, director of the city's Housing and Revitalization Department, in a statement late Monday rejected Ha's claim that nearly 77% of the businesses involved in the program failed as "Flat out wrong."

"Because it is a snap shot" from June 2019, he said, the report "does not reflect businesses that are working their way through the pipeline. Many of those businesses are still working to open."

Rencher further noted that 119 commercial storefront small businesses started in the city because of Motor City Match. Of that number, 111 remain open, he said.

Major concerns identified in the report have been addressed, added Rencher, noting policies and procedures have been adapted and HUD has provided technical assistance to support the program's next phase. 

“Motor City Match was created with the active support of HUD," he said. "It’s an approach that has never been tried in the country, and we are confident we will successfully work out the outstanding issues with HUD. An OIG report in the middle of that HUD process is based on incomplete information and reached inaccurate conclusions."

Shannon was fired and has since filed a whistle-blower lawsuit against the city. The city, in its response to the lawsuit, characterized Shannon as a "disgruntled former at-will employee" with "erratic" performance and attendance.

The inspector general's office said it partially substantiated claims that resources were wasted and that accounting records for the program were inadequate. 

"While waste is open to interpretation, it is clear that more money was spent on advertising, implementing and administering the programs than on direct assistance to the businesses," the report reads.

The city, the Office of Inspector General said, requested the final report be put on hold until the HUD audit is complete. Ha stressed Monday that her office and HUD each investigate for different reasons and said "We don't believe what we've reported interferes or would interfere with HUD's ongoing audit."

“We received a complaint, we followed up on the complaint, decided it was worthy of investigation and we have our own internal clock of administrative hearing rules to abide by,” Ha said. “We can’t bend the rules for ourselves and not for other parties.”

The investigation included the review of thousands of pages of documents from the Detroit Economic Growth Corp. between October 2014 and April 2018. The OIG is an independent agency empowered under Detroit's City Charter to investigate allegations of waste, fraud, corruption and abuse.

Motor City Match is one of two programs lauded by Duggan that are under investigation by the Michigan Attorney General's Office.

Attorney General Dana Nessel's Public Integrity Unit has reviewed claims tied to Motor City Match as well as allegations of preferential treatment by the city to the nonprofit Make Your Date, an effort to combat premature births. 

On Monday, Courtney Covington Watkins, a spokeswoman for the AG's office, said the Make Your Date and Motor City Match investigations remain ongoing. The Motor City Match probe, she added, has been referred to the Office of Inspector General for the U.S. Department of Homeland Security because that program is funded with federal dollars.

Motor City Match has been under watch by HUD over record keeping and whether funds were used appropriately.

HUD asked the city to suspend the use of federal funding for the program in May 2019 until Detroit addressed findings from the federal agency that suggested the program was not adequately targeting low- to moderate-income areas. 

The September 2018 report from HUD came after the agency's May 2018 monitoring of the city's federal Community Development Block Grand records, which fund Motor City Match. 

Ha in her Monday report noted while meeting the national objectives was a primary concern of the 2018 HUD Monitoring Report, her office did not review the programs to determine whether they complied with HUD's objectives.

HUD conducted a May 2018 review of city block grant funding — including Motor City Match — to ensure the city was complying with eligibility and national objective requirements. Prior to that, the last monitoring was in 2015, according to HUD. 

HUD later issued a report showing there were insufficient records to show whether the program met some of its objectives. HUD also found that the city provided the federal grand funds directly to for-profits without performing required financial underwriting.

The city has said the Motor City Match assistance was exempt from the requirements because for-profits qualified under the Community Development Block Grant regulations as "microenterprise" businesses.

HUD, in a third finding, said the city did not maintain sufficient oversight to ensure costs complied with block grant-eligible activity.

Also under review was a March 2017 payment for $153,000. HUD said only $20,000 of the total was directly tied to assisting 10 businesses. The rest went to administration, project assessment and outreach and engagement.

HUD in June told the city it no longer had to suspend the use of federal block grant funds for the program, but the federal review is continuing, Marta Juaniza, a HUD spokeswoman, said in a Monday email.

"HUD is still working with the City of Detroit to resolve any outstanding issues pertaining to the Motor City Match program," Juaniza said. "HUD has agreed to allow the City to continue to use Community Development Block Grant funds for the program as we work towards a resolution."

Rencher said the city's modification to its procedures for Motor City Match resulted in HUD authorizing the spending of federal block grants again. 

"For many Detroiters and many entrepreneurs of color, Motor City Match has been a godsend, allowing them to achieve their dream," he said. "The city of Detroit will continue to work to improve the program to make certain Detroit has the best possible climate for entrepreneurs to start the companies.”

Shannon filed a whistle-blower lawsuit in July 2019, claiming she'd been terminated in the spring of that year for flagging the federal government about her concerns over the city's administration of the program.

Shannon was first suspended without pay and ultimately fired, she contends, after making noise about the "major compliance and HUD regulation issues" with Motor City Match. 

The suit contends Shannon informed Katerli Bounds, the city's director of grants, and Ryan Friedrichs, Detroit's former chief development officer, of her concerns and that the city "should not make any more payments to this organization."

Shannon, in the filing, said she also alerted the city's Inspector General's Office about the concerns as well as others tied to Make Your Date.

Shannon said in an email Monday that the inspector general's findings affirm her claims of waste and abuse in the grant programs. She reiterated allegations that her dismissal was tied to her communications with HUD and the media about the problems with the program and that she was pressured by the city to disregard federal rule violations. 

"The reality is this program is and has always been a failure," Shannon said, noting the percentage of businesses assisted that the OIG contends have failed. "There was so much potential to do great things for the small businesses of Detroit, but instead that opportunity was squandered by ego, and greed."

Shannon, who was employed as an associate director in the office of grants management, alleged in her complaint that she informed her bosses of the need for an audit. She ultimately contacted HUD and "informed them that plaintiff did not think that the Motor City Match program was compliant" on a "variety of issues." HUD agreed, the complaint notes. 

The worries prompted Shannon to stop reviewing and processing all grant packets for the program.

Shannon said she sent an email to the Detroit Economic Growth Corp., the quasi-public development agency that manages the program with oversight by the city's Economic Development Corp., outlining why she would no longer be approving any more requests from the DEGC for the program until an audit was conducted.

Shannon was suspended for 30 days, without pay, on May 1, 2019. Just over a week later, she turned over documentation on Motor City Match as well as claims regarding Duggan's "false statements about the Make Your Date program" to Ha's office. 

Shannon was fired on May 23. 

Detroit Corporation Counsel Lawrence Garcia has countered Shannon's claims, arguing she had "a chronic history of disciplinary action" and that she was suspended on May 1, with a recommendation for termination, based on concerns over her time cards. Shannon abandoned a grievance over her termination on July 2, 2019. 

Shannon, Garcia has said, did raise concerns over a "mistake in the administration of the (Motor City Match) program." Her recommendations were welcomed and used to improve the system, he said.

The program operates on two separate tracks. One allows eligible commercial building owners to have their property listed as available on the Motor City Match website. The second track is for entrepreneurs looking to start or expand in Detroit. 

cferretti@detroitnews.com