Audit: Mich. programs allowed 'inappropriate expenses'

Chad Livengood
Detroit News Lansing Bureau

Lansing — Two state programs designed to attract housing and foreign investment to Michigan failed to consistently competitively bid projects, paid vendors before work was executed and allowed "inappropriate expenses" that inflated costs, according a new audit released Thursday.

The state's Office of Internal Audit Services uncovered $18,500 in "inappropriate payments" in its audit of seven consulting contracts authorized by the Michigan Mezzanine Investment Fund and the Michigan Community Development Corp.

"These inappropriate payments included expenses related to first-class or upgraded airline flights, insufficient documentation, currency exchange or currency not converted, and expenses that were either not necessary to state business or excessive," state auditors wrote.

Both programs were entities with the Michigan State Housing Development Authority, which was rocked by a leadership shakeup last year when then-executive director Scott Woosley stepped down after coming under fire for lavish international travel expenses.

Woosley racked up more than $100,000 in global travel, lodging and gourmet meal expenses in less than two years as Gov. Rick Snyder's appointee in charge of the state's housing and urban development agency.

Both the Michigan Mezzanine Investment Fund (MMIF) and Michigan Community Development Corp. (MCDC) have been dissolved following a reorganization of the state's economic development programs. The MCDC's EB5 visa program for foreign investment was shifted to the Michigan Economic Development Corp.

But the new audit shines a light on the management and procurement practices under Woosley's watch.

State auditors looked at nearly $1.3 million in expenses by the community development corporation — which was set up to attract foreign investors to Michigan — and $245,750 spent by the Michigan Mezzanine Investment Fund, which was used to solicit housing development for the state.

The auditors found two instances in which contractors were paid twice and another case in which a contractor was paid an hourly rate of $250, while an invoice said the company's hourly rate was $140.

"MCDC staff were not able to provide any documentation explaining the difference in hourly rate or to demonstrate the appropriate use of business analyst services, which seemed outside of the established contract," state auditors wrote.

New MSHDA Executive Director Kevin Elsenheimer said Thursday the agency will attempt to recoup the $18,500 from Cedar Bey International Group, a company the low-income housing agency hired to recruit business investors from the Middle East.

The Office of Internal Audit Services' report did not identify the names of the consulting firms whose contracts were scrutinized in the audit.

But at Elsenheimer's direction Thursday, MSHDA released the names of the firms and how much they were paid.

They include:

■ Airfoil Public Relations, Inc., $37,408 for public relations and marketing

■ Cedar Bey International Group, $54,214 for consulting services

■ Dickinson Wright PLLC, $364,223 for legal services

■ Force by Design, Inc./, $21,138 for tech support

■ Miller Mayer, LLP, $5,625 for immigration law advice

■ Pace & Partners, $229,611 for media and advertising services

■ Wright Johnson LTD, $108,500 for preparation and compliance of immigration documents

Woosley did not return a message Thursday seeking comment about the audit.

Elsenheimer, who began running MSHDA in April, said he will establish a procurement office at the agency within 30 days and adopt the same contract bidding requirements that other state agencies have to adhere to.

"One of the things I think is pretty clear we need to do is create a standard policy and process for procurements," said Elsenheimer, a former state representative who previously worked in other state agencies. "There really isn't one in place here."

MSHDA did not dispute the audit's findings, which was written by Jeffrey Bankowski, the state's chief internal auditor.

"We agree with the audit, and we're going to go ahead and implement a single entity here at MSHDA that will review all contracts that's in line with state procurement policy," Elsenheimer said. "We think that there's something to learn from this audit."

Elsenheimer, a Republican who represented the Traverse City area from 2005 to 2010 in the state House, was previously chief deputy director of the Department of Licensing and Regulatory Affairs and director of the state's Workers' Compensation Agency.

He said MSDHA's involvement in trying to attract foreign investors to Michigan under Woosley steered away from the quasi-governmental agency's primary mission of financing the development of low-income housing and loan to first-time home buyers.

"I think the desire at the time … was that there was a period of declining revenues and fund balance here at MSHDA and there was a desire to find some new revenue sources," Elsenheimer said.

Only a small fraction of MSHDA's funding comes from tax dollars. The agency is primarily funded by the interest earnings on money it loans to low-income housing developers and home buyers, Elsenheimer said.

The Michigan Mezzanine Investment Fund (MMIF) and Michigan Community Development Corp., which were both created in the fall of 2013, received no direct taxpayer funds for their programs, MSHDA spokeswoman Katie Bach said.

(517) 371-3660