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Daugaard Orders Reviews, Audit of Governor’s Office of Economic Development

The South Dakota Legislature convenes briefly Tuesday to hear Governor Dennis Daugaard deliver his budget address. It will be the first chance our elected officials have the chance to gather and look the Governor in the eye since Richard Benda's death and the revelations of state and federal investigations into financial mischief in the economic development office Benda ran for former Governor Michael Rounds.

Ahead of this uncomfortable meeting, Governor Daugaard's ec-dev chief Pat Costello announced this week that Governor Daugaard has directed GOED to modify its travel policy and initiate some audits and external reviews. According to Costello's November 27 memo, we will see the following actions pertaining to GOED activities:

  1. External review of the Governor's Future Fund (from which $550K granted by Rounds went AWOL to Benda and Joop Bollen), Proof of Concept, and Dakota Seeds. CPA David J. Lingle of Pierre accounting firm Stulken, Petersen, Lingle, Walti, and Jones is in charge of that review. The state engaged Lingle and company to review the Future Fund in early October; GOED added Proof of Concept and Dakota Seeds to the review in early November. Lingle's report is expected mid-December.
  2. Audit of the Governor's Office of Economic Development for the last four complete fiscal years, FY 2010 to FY 2013. Auditor General Marty Guindon of the Department of Legislative Audit is conducting this investigation. He should be finished January 24, 2014, during the Legislative session. This audit will not include the Revolving Economic Initiative Fund (REDI), the Economic Development Finance Authority (EDFA), the SD Science and Technology Authority, or the SD Ellsworth Development Authority; Costello says those programs are already audited.
  3. Internal Control Examination of GOED to satisfy Government Auditing Standards. Jeremy G. Bendewald and Jason Olson of Eide Bailly are conducting this examination. Their report is expected January 3, in time for the opening of the Legislature on Janaury 14.
  4. Change of travel policy to prevent the double-billing that Attorney General Marty Jackley uncovered. Previous policy, says Costello, allowed the same person to approve and process travel reimbursements.

In announcing these reviews, Commissioner Costello is confirming that the misdeeds currently under investigation in GOED and South Dakota's EB-5 visa program are worth spending time and money on.

The only possible red flag—ah, let's just call it yellow for now—is the engagement of Eide Bailly for the GOED internal control examination. Eide Bailly does the books for a number of South Dakota Hutterite colonies. The colonies do lots of business with Prairieland Pork Producers and Dakota Provisions/Dakota Gobblers. Jeffrey Sveen, Hutterite attorney, is deeply involved in both businesses. And the FBI has been investigating meat-packing plants and the EB-5 program in South Dakota since March 2012 in at least significant part because of concerns about movements of money from EB-5 projects involving Sveen and the Hutterites to the EB-5 pool for Northern Beef Packers.

Now if Eide Bailly's review is restricted to GOED practices, they may not touch the convoluted money streams of the private loan funds Jeff Sveen helped Joop Bollen create to direct the EB-5 visa investments where they wanted. But if any GOED and EB-5 operations are intertwingled, it is conceivable (yes, rank blog speculation!) that in reviewing GOED practices, Eide Bailly could uncover information that indicates its accounting services for the Hutterites missed some improprieties. Commissioner Costello might want to review the American Institute of CPAs' Rule 102-2, on conflicts of interest, just to make sure everything is kosher.

It is encouraging that Governor Daugaard is taking these steps to investigate what went wrong in his and Mike Rounds's Office of Economic Development. But even these steps may not be enough to answer public calls for independent, bipartisan investigations into possible misconduct in the GOED and the state's EB-5 program. Legislators, use your time in Pierre Tuesday to ask the Governor and each other whether you are doing enough to investigate and root out corruption in South Dakota government.


  1. John 2013.11.30

    Who is "auditing" the AG's office? Having a governor's directive, principals (suspects?), and willfully not interviewing them for over 6 months (timed out only by a death of an apparent fall-guy) won't get one out of the law enforcement academy. Investigations 101 directs interviewing principals at the earliest to nail them down to a story, even if further investigation warrants follow-up interviews. It's too convenient. For whom was/is the AG working?

    Agree, Cory, that it likely would bring more openness and trust now by using auditors from out of state; auditors for whom a material share of their past and likely future proceeds are not this state government.

    Out of 105 state legislators why must we still wait for a second legislator to practice a tad of leadership in demanding proper audits, reviews, and systemic proposals to make economic development work for South Dakota instead of for the usual crony, government suspects? Can more evidence exist that by their near unanimous silence that the South Dakota legislature is irrelevant . . . or worse?

  2. Jim 2013.11.30

    ...but let's not get too excited. After all, what's a few travel vouchers and millions of fees among friends?

  3. wal 2013.11.30

    the only way to really get to the bottom of this is to look at finances going back to late 2004.

  4. Jim 2013.11.30

    ...and the changes mike made right after he was re-elected in 06.

  5. wal 2013.11.30

    Jim it certainly would be interesting, more importantly to understand why changes were made.

  6. Jana 2013.11.30

    So far the politically appointed board of the GOED has been notably absent from the discussion. As well as the board charged with oversight during Benda's tenure over the SDDT/GOED. Should they be involved or at least under investigation?

  7. caheidelberger Post author | 2013.11.30

    Good question, Jana! Does that board have any practical oversight power? Or do they simply rubber stamp whatever the Governor and/or Commissioner propose at their meetings and then leave substantial administration to staff?

  8. John 2013.12.01

    Jana's on it - the board has the legal duty of care. The board has a legal duty of fair dealing (as to to the taxpayers and other entities). This duty of care is evolving in the law as a fiduciary duty. The board by its actions and in-actions are worthy as a board and as individuals to weather the scrutiny of a formal investigation - except, of course, in this go-along-to-get-along twilight zone called South Dakota.

  9. Bob Mercer 2013.12.01

    Just as a matter of fact, the state Board of Economic Development doesn't have any control over Future Fund grants made by a governor. The board does have oversight of REDI loans and approved a loan for Northern Beef Packers in 2010, but NBP never met the loan conditions and didn't receive the money. Likewise another state board in 2010 made a loan intended to reach Northern Beef, but again NBP didn't meet the conditions and didn't get the money. The REDI board, as the Board of Economic Development is often called, routinely reviews the financial conditions of companies that received REDI loans and sometimes places those companies on watch lists.

  10. Bree S. 2013.12.01

    So Rounds can't blame the GOED for the money he threw away in Future Fund grants. Aww.

  11. Jana 2013.12.01

    Thanks Mr. Mercer!

  12. caheidelberger Post author | 2013.12.01

    Let me see if I read you, Bob. The Board of Economic Development (newly reconstituted by Gov. Daugaard in fall 2012) does not have control of Future Fund grants. But GOED does, right? How separate are the Board of Economic Development and the Governor's Office of Economic Development?

    You're telling us that the Board reviews financial performance of REDI loan recipients. But GOED told Peggy Gibson last year that GOED lacks the resources to do that kind of tracking on Future Fund recipients. Are Future Fund grants more numerous and complicated than REDI loans?

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