Reports fault some procedure in SD economic agency

PIERRE, S.D. (AP) — Reports released Thursday from two accounting firms found flaws in some procedures used by the state economic development agency but no misconduct beyond earlier reports that a former official had double-billed the state for travel and part of a grant had been improperly diverted.

Gov. Dennis Daugaard ordered the reviews after finding out about alleged misconduct in the Governor’s Office of Economic Development before he took office in 2011. He announced the investigations in late October, shortly after the suicide of former economic development director Richard Benda. Subsequent investigations found that Benda had sought reimbursement twice for some flights and was apparently involved in diverting money from a grant to a failed beef plant in Aberdeen.

The two reviews were compiled by Eide Bailly and another firm, Stulken, Petersen, Lingle, Walti and Jones. One review found problems in financial control procedures, including those used by employees to claim reimbursements for travel expenses. The second found flaws in the handling of documents, noting that some supporting documents had not been placed in files involving development grants to companies.

However, the two reviews did not deal specifically with the details of alleged misconduct involving the financing of the failed Aberdeen beef packing plant.

“We were somewhat relieved there were no additional wrongdoings that were uncovered,” Economic Development Commissioner Pat Costello said, adding that many of the problems dealing with procedures and document handling identified in the reviews have already been corrected.

A detailed state audit of the Governor’s Office of Economic Development — which could shed light on issues surrounding the beef plant’s financing — is expected to be released within the next few weeks. South Dakota Attorney General Marty Jackley said earlier this month that he was releasing state criminal investigative and grand jury information to the Department of Legislative Audit to help.

The U.S. Attorney’s office and the U.S. Department of Justice also are investigating.

Benda left his government post and accepted a loan monitor job with SDRC Inc., a privately held Aberdeen company that for years contracted with GOED. The company recruited foreign investors for the failed Northern Beef Packers plant and other ventures in the state. While contracting with GOED, SDRC administered the federal EB-5 program, in which foreign investors can secure permanent residency for investing at least $500,000. South Dakota has since canceled the contract.

Jackley’s investigation last fall found that $550,000 of a $1 million state Future Fund grant given to Northern Beef for construction and equipment costs was improperly diverted to SDRC to pay EB-5 loan monitoring fees. He also found that Benda had double-billed the state for three airline flights.

The Eide Bailly report issued Thursday looked at the GOED’s internal controls, which are procedures used to reduce fraud. It found flaws in some procedures, including the way employees are reimbursed for travel expenses.

No check is apparently done to make sure employees don’t claim reimbursements for travel expenses that the agency has already paid directly, the report said. Employees also should be required to submit requests for reimbursements within a set time period so mistakes or fraud could more easily be detected, it said.

Tony Venhuizen, the governor’s communications director, said a deadline for submitting reimbursement requests would have applied to Benda, who submitted different vouchers several months apart seeking reimbursement for the same travel.

Eide Bailly also said state government’s employee handbook does not adequately discuss fraud and its consequences or make employees aware of how to report theft and fraud by others. The state Human Resources Department said it will update the handbook to include those issues.

The report also recommended that background checks be done on people being hired by GOED.

The second report, done by the accounting firm of Stulken, Petersen, Lingle, Walti and Jones, looked at procedures for handling documents in the Future Fund and two smaller economic development programs.

In the Future Fund, which uses $12 million to $14 million a year to support research and economic development, the report found that from January 2009 through September 2013, 19 of 302 files were missing some kind of supporting document required in the state’s agreement with companies receiving the grants. For example, one request for an expense reimbursement included an invoice done by the grant recipient without providing copies of receipts.

In cases where documents were missing, the GOED in nearly every case has been able to verify that the expense was correct, Costello said.

The Eide Bailly report also noted that the sale of shirts and hats for the annual pheasant hunt hosted by the governor failed to reconcile the sales with money received. That means someone could take a shirt, hat or money without being discovered, the report said.