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Auditor: PLJ misused city funds

Promote La Jolla double-billed the city and misused city funds, states a city auditor’s report issued late Monday.

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As a result the Village business improvement district must repay $112,070 and faces possible legal action by the City Attorney’s Office, which is now examining the case to determine whether it involves “criminal or civil matters or ethical issues,” said Assistant City Attorney Andrew Jones.

In addition, the auditor called for new procedures to prevent duplicate payments and increase oversight of the city’s business improvement districts (BID).

Kyle Elser, audit manager for the City Auditor’s Office, said Tuesday that they investigated allegations about accounting irregularities and possible misuse of funds raised in a call to the city’s Fraud Hotline.

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“We got the call and sent an investigator to look at the records from January 2007 to February 2009,” he said. He would not say who made the call.

Their analysis “concluded the allegations are substantiated,” the report states, adding that the organization “used city funds for purposes outside the scope of its agreements.”

PLJ President Rick Wildman said Tuesday morning, “The report confirmed that there were accounting problems.”

He added that “there may have been mistakes made, but I didn’t see anything that had been done intentionally wrong or that anyone profited … All of these funds were used for the community. That’s the bottom line.”

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After their installation in February, the new executive board reviewed the financial records and learned that they were about to default on a line of credit with First Republic Bank. That was the first indication of the financial situation, which has continued to mount as the investigation was conducted.

Last month, the PLJ board learned the city was withholding reimbursements until the auditor issued his report and the city council has not voted on extending the BID agreement, meaning PLJ likely won’t get any money until September, Wildman said. The council does not meet in August.

Because of the shortage of funds, PLJ has not replaced Tiffany Sherer, who was executive director during the period covered by the investigation. She resigned her PLJ post in April to take over as the top executive in the San Diego Business Improvement Council, which oversees the city’s 18 merchant associations. She did not return a phone call seeking comment.

Wildman said he would meet next week with the city’s small business manager “to figure out how this works” and attempt to come up with a way to repay the money.

One key element in the investigation was the First Republic line of credit with Promote La Jolla as the borrower and the Promote La Jolla Foundation as the guarantor. The other was reimbursement requests that were submitted to “multiple city offices as well as duplicates submitted to the city and to the County of San Diego,” states the report from Auditor Eduardo Luna.

Promote La Jolla receives funds from assessments on businesses in the 30-block Village area, as well as from transient occupancy tax, the Small Business Enhancement Program, and parking and transportation money under arrangements with the city’s planning department.

The “duplicate and prohibited expenditures” totaled $46,747. In some cases PLJ submitted the same invoices to more than one program, Elser said.

They also “inappropriately asked for reimbursement” for expenses of the Promote La Jolla Foundation, an allied organization with the same board members as PLJ when it was formed that is now known as the La Jolla Destination Marketing Alliance. They also included interest paid on the line of credit.

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“Inappropriate” expenditures outlined in the auditor’s report included:

  • $3,764 in foundation expenditures,
  • $5,413 in interest expense,
  • $17,099 in duplicate bills to the county,
  • $20,471 in duplicate bills to the city,
  • $5,000 in foundation expenses submitted but not paid, and
  • $2,415 in a city duplicate bill that was caught and not paid.

Specifics on the expenditures were not released but were provided to City Planning Director William Anderson, whose department oversees the business improvement districts.
Wildman said his anxious to see that information because it will help them understand how the city arrived at its numbers.

Deborah Marengo, who was president of PLJ and the foundation during most of the period covered by the investigation agreed that without seeing the backup documents that led to the conclusions it was difficult to comment on the situation.

In addition, the investigation concluded that PLJ, the Coastal Access and Parking Board, and the Promote La Jolla Foundation used the line of credit,

At the time the funds were spent, the same board members signed on behalf of both PLJ and the foundation, the report notes, adding “by mid-2007 the principal balance was over $60,000, primarily from a large draw made by the foundation for an advertising campaign.”

When the account went into default in March, First Republic seized $65,323 in a Coastal Access certificate of deposit to pay off the debt.

“The CD monies were City Parking & Transportation funds specifically earmarked for parking and traffic related uses and cannot be used to pay a debt incurred by the foundation,” the auditor noted.

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PLJ and the community parking board had notified the bank that the money was the city’s and asked for it to be returned.

To date, the bank had not answered either group, Wildman said Tuesday morning.

A spokesman for First Republic Bank issued the following statement Tuesday afternoon:

“It is appropriate that the issues described in the City Auditor’s report be resolved between the City and Promote La Jolla. First Republic Bank paid off a defaulted loan to Promote La Jolla by applying the organization’s funds on deposit in accordance with the loan agreement ratified and signed by both parties. The bank will continue to work cooperatively with all parties to resolve this matter.”

This is the first time the auditor or city attorney’s offices have dealt with problems involving a business improvement district, Luna and Jones said.

Jones, the assistant city attorney, said they will “have to discuss with the council to determine what they want to do.” He said that could happen within 30 days.

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