"The plot has become much thicker," writes journalist Bob Mercer on reading the audit report on the Governor's Office of Economic Development. Indeed, the Department of Legislative Audit finds significantly more GOED/EB-5 mischief conducted under the Rounds administration (and carried over into the Daugaard era) than Attorney General Marty Jackley noticed or admitted following his "investigation."
The DLA's audit paints a Governor's Office of Economic Development that has allowed sloppy financial oversight and unchecked conflict of interest. The audit report confirms what we have suspected since the first announcement of a federal investigation into GOED's activities: that GOED's problems revolve around the EB-5 visa investment program run by Joop Bollen, promoted by Richard Benda, and launched to its greatest heights by Governor Mike Rounds.
The audit finds that GOED did not adequately monitor the EB-5 program as run by SDRC Inc., the private firm Joop Bollen spun out of his state job on the NSU campus:
- Bollen sent GOED monthly e-mails reporting balances in the indemnification funds and the expense fund his December 2009 contract established, but he provided no bank statements or other documentation to prove those balances were correct or that he was reporting all of the money he and Benda touched in the course of business.
- DLA couldn't find the documentation Bollen was supposed to submit to GOED to show that he was doing his contractual and legal duty to provide the EB-5 books, records, and reports to the U.S. Customs and Immigration Service.
- SDRC's expense fund was a bucket with big holes:
Inadequate internal controls existed over the payment of expenses from the Expense Fund. Five disbursements were made from the Expense Fund totaling $67,259.97. The invoices were signed by the former Secretary of the DTSD [Richard Benda] and the DSTD’s Administration Director [I believe that's Marty Davis]. The invoices identified the expenses as being for meals, lodging and transportation. Other than the information contained in the invoices, there was no supporting documentation retained to evidence that the expenses were incurred, who incurred the expenses, or the purpose of the expenses [Department of Legislative Audit, "Governmental Funds of the South Dakota Governor's Office of Economic Development: Audit Report," 2014.02.12].
- GOED left the state funds managed by SDRC off the books for three years, until FY 2013.
DLA says this lack of oversight created "a potential for the loss of assets." That's a brilliant euphemism for theft.
Governor Dennis Daugaard took the surest corrective action to these problems last September, when he terminated Bollen's SDRC contract. Bollen surrendered the $28,240 left in the expense fund to the state on January 30. Per the GOED-SDRC contract, Bollen hangs onto the $989,946 left in SDRC's Indemnification Fund One until November 2019. The audit report says GOED intends to audit that fund "if and when the funds were reverted to the State."
DLA mentions a second SDRC indemnification fund that reverts to the shareholders of SDRC, who from SDRC's 2014 annual report appear to be no one other than Joop Bollen and his mysterious pal from Georgia Pyush Patel. You know, I don't think SDRC is done fleecing us or the EB-5 investors yet.
Who allowed this mismanagement to take place? The man who wants to be your next Senator, Mike Rounds.
In its second finding, the audit report says that GOED allowed Richard Benda to use his state position to set himself up for personal enrichment:
On December 2, 2010 Secretary Benda discussed a draft employment contract between Secretary Benda and the SDRC Inc. or a related entity for providing loan monitoring services related to NBP. On December 23, 2010, Secretary Benda amended two Future Fund grant agreements with the South Dakota Development Corporation (SDDC) for the purpose of making loans to Northern Beef Packers LP (NBP) which increased the aggregate total of the two agreements by $600,000 (from $1,450,000 to $2,050,000). On February 1, 2011, $1,200,000 of these funds was disbursed to NBP by the SDDC. $850,000 was returned to the Future Fund.
Secretary Benda’s employment with the State of South Dakota ended on January 8, 2011. On January 13, 2011, subsequent to his employment by state government, Mr. Benda was notified by e-mail that he could pick up a check written by the State of South Dakota to NBP for payment of a $1,000,000 grant to NBP for reimbursement of construction costs. This check was deposited by NBP on January 26, 2011 [DLA, 2014.02.12].
Who wrote the checks to underwrite Benda's conflict of interest? Mike Rounds.
In its third finding, the DLA says Benda's $5,559.80 double dip on plane ticket reimbursements was not an isolated incident. DLA finds Benda submitted six invoices totaling $14,700 for "translation services." This money supposedly covered writing up EB-5 pitch materials in other languages. Ping, ping, ping goes the scam radar:
All six invoices indicated that the payment on the invoice was to be made in cash. Five of the payments totaling $13,500.00 were associated with invoices from an individual that had handwritten on them “only invoice available” and the instruction on the invoice was to “pay by cash when next trip”. One invoice for $1,200.00 was on the letterhead of a Philippine hotel and had handwritten on it four names, “USD Cash $1,200.00”, “translation and interpretation”, and “only invoice available”. No receipts were included with the travel vouchers to support that payment was tendered for the services provided on the invoices. As a result, $14,700.00 in expenditures paid from the General Fund was not properly supported [DLA, 2014.02.12].
Cash only, for services at a Philippine hotel, recorded only on a handwritten note... and wait: how many investors did SDRC and GOED recruit from the Philippines? My translation: Richard Benda is toast.
Who let those expenses fly? Mike Rounds.
In its fourth finding, DLA confirms what Rep. Peggy Gibson learned a year and a half ago: GOED does a poor job of following up on the Future Fund money it hands out to businesses. In its fifth finding, DLA says GOED has been violating state law by not depositing receipts greater than $500 within one day.
Who allowed this poor oversight to be the status quo? Mike Rounds.
The audit doesn't mention the $550,000 Benda and Bollen diverted from from Future Fund Grant #1434 to SDRC Inc. ($450,000 of which went to Richard Benda's pocket; the remainder has not yet been fully accounted for). Auditor General Marty Guindon says in his cover letter to the audit that the diversion did not violate state law. But Guindon's conclusion on this matter isn't exactly exonerative:
Based on the evidence gathered during our audit, we did not determine that there was any noncompliance with state law on the part of DTSD in the issuance of this grant or noncompliance on the part of DTSD or NBP with the terms of the grant. Our audit does not provide a legal determination regarding this matter. Any criminal findings that may be associated with this matter are the purview of the state and federal criminal investigations being conducted and are not within the scope of our audit responsibilities. We do report a material weakness in policies and procedures concerning potential conflict of interest related to this matter in the audit finding on page 35 of the report. Finally, we believe that the use of the $550,000 is a matter between private parties and consequently not within the scope of our audit [DLA, 2014.02.12].
These findings tie Richard Benda to more suspiciously used tax dollars. Add the bankruptcy of Northern Beef Packers and the failure of his gamble on the Hyperion refinery, and we start to see a much bigger picture about the stress that Governor Daugaard says drove Richard Benda to kill himself. We also see why Joop Bollen has taken the Fifth in the press since November.
But more importantly, we see a much larger picture of a state economic development program run like a lemonade stand, without rigorous control of state finances. We see mistakes and abuses that reflect more than two employees' machinations. They reflect an institutional sloppiness and corruption that lie at the feet of the man in charge.
The man in charge of the Governor's Office of Economic Development is the man with the apostrophe s, the Governor.
The DLA Audit report raises a lot more questions for Richard Benda's friend and Governor, Mike Rounds.