Federal Audit Exposes Stimulus Fund Abuse

Published August 7, 2013 at the Rock River Times

Congress passed the American Recovery and Reinvestment Act of 2009 in order to use Federal funds to stimulate the US economy, which had tumbled into severe recession. That February, the US unemployment rate hit 8.3 percent. The unemployment rate in Rockford was 14.1 percent in January 2009 and peaked at 20.3 percent in January 2010.

The Federal stimulus package provided $1 billion to the Community Services Black Grant Program for two years, ending on September 30, 2010. The stated purpose of this fund was to reduce poverty, revitalize low-income communities, and help low-income Americans. This would be done by providing services addressing employment education, better use of available income, housing, nutrition, and health.

The State of Illinois awarded Rockford’s Human Services Department $1,062,800 out of this fund. The Office of Inspector General of the US Health and Human Services Department later conducted an audit of how 56 percent (roughly $599,000) of that amount was spent in Rockford and determined that a hair more than one third of the audited funds were unallowable under the Recovery Act. A further $141,796 was deemed “potentially unallowable.” So the audit determined that fully 58 percent of the funds they examined were either unallowable or potentially unallowable.

The unallowable costs included $123,530 that was inadequately documented, $72,669 charged outside the award period, and $9,097 in entertainment expenses. The entertainment expenses included $8,717 for movie theater rental and $380 for paintballing. When the State of Illinois reviewed Rockford’s Recovery Act legers, it found that $6,615 in unused movie tickets was returned to the fund and therefore should have been allowable, but that information did not cause the Inspector General’s office to revise its findings.

What the Inspector General found when it came to inadequately documented costs was revealing. According to the report, “Rockford entered into an agreement to fund $100,000 for a local neighborhood development organization. Although the organization stated this amount went towards salaries, it did not provide personnel activity reports to support such costs.” According to the Rockford Register Star, the organization in question was the Rockford Area Economic Development Council (RAEDC).

RAEDC was created in 1980 and headed by Janyce Fadden from 2005 until her resignation in April of this year. Coincidentally, the heads of several economic development organizations, including Sue Mroz, Winnebago County Economic Development Director, and Robert Lamb, Rockford Industrial Development Manager, also retired earlier this year, a few months before the Inspector General’s report on Rockford’s Recovery Act funding went public.

The Inspector General’s report opens a window into the murky world of not-for-profits that receive public funding. If it had not been for this audit, the general public may never have known how Federal stimulus funds were spent in Rockford. It appears that very little money actually went where help was needed. Instead, Federal stimulus funds disappeared into nonprofit payrolls and office overhead.

The most embarrassing revelation from the report came from the section regarding $123,530 in inadequately documented costs. According to the Inspector General’s Office, “for $23,530 in costs occurred by subcontractors, neither Rockford nor its subcontractors were able to provide invoices or receipts to adequately support the costs.” It is incredible that a nonprofit would not save its invoices or receipts, or that the City of Rockford would not require these basic accounting practices prior to approving the release of Federal funds.

In one example provided by the Register Star, $15,000 in Federal funds was given to nFACTOR, part of a teen outreach center that was housed at the Salvation Army’s Millennium Center on Madison Street until 2009. The $15,000 was supposed to help keep the teen outreach center going for another year. Unfortunately, “The program director has left Rockford and couldn’t provide auditors with details about how the money was spent.”

Neither the report nor the Register Star provided the name of this program director, but in 2009 the Rockford Youth Initiative, led by Gerald Lott, took over operation of nFACTOR. nFACTOR was an offshoot of the Mayor’s Youth Advisory Council and its logo was trademarked by the City of Rockford.

Critics of the 2009 stimulus package characterized it as nothing more than a giant increase in pork barrel spending, and this audit seems to confirm their suspicions. If the purpose of the stimulus was to reduce poverty, revitalize low-income communities, and help low-income Americans, it was a miserable failure. Instead, local municipalities like Rockford rushed to shove money into the outstretched hands of nonprofits and community groups with little or no oversight, accountability, or measurable results.

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