Detroit Riverfront Conservancy embezzlement probe that might top $40 Million

[JBMcB]

I'm still trying to track down the actual criminal complaint [anybody here know how to do that?] but the Eastern DOJ Eastern District of Michigan's press release gives some hints of what to expect in the indictment. He had two schemes.

To pull a federal court filing you need a PACER account from here:
https://pacer.uscourts.gov/

It's free to search, but you need to register a credit card as pulling an actual filing costs money.

State and local circuit courts are generally free. Here's Wayne County Circuit Court:
https://www.3rdcc.org/odyssey-public-access-[[opa)

[13606Cedargrove]

Conspicuous consumption is one of the badges of fraud. When I worked at the IRS, on one of my first days I worked with a criminal investigation agent. He told me "any time there is a program that write checks to people there will be fraud". This has happened time and time again [tax refund anticipation loans, earned income credit, refundable tax credits, no-bid contracts etc.) A few years back a single residential address in Atlanta received over 400 tax refund checks. No one loses their job.

[swingline]

Article in Freep today explores in more detail how this could have happened. It includes helpful input from some non-profit governance experts. Some have pointed to the excessive size of the Conservancy's board as one problem. I disagree. Large boards often function in an advisory role just as much as they operate as actual fiduciaries and decision makers. With large boards the nitty gritty board work is performed at the committee level [executive, finance, personnel, audit]. The Conservancy's board failings [there were plenty] occurred at the committee level. But it's also pretty hard to understand how their auditor [George Johnson & Co.] got so hoodwinked for so long. Conservancy's Dishonest Employee insurance carrier is gonna take a long hard look at whether the auditor satisfied the applicable standard of care. And even if the loss caused by Mr. Smith is covered, the policy limits are probably too small. No doubt the auditor has put their malpractice carrier on notice. Resolution will take years and the lawyers will do well.

[mwilbert]

But it's also pretty hard to understand how their auditor [George Johnson & Co.] got so hoodwinked for so long.

This is the big question. This basic type of embezzlement and covering it up with false account statements/invoices is completely standard, and it's not surprising someone can get away with it for a while.

What seems like no one checking the actual bank balance for over a decade is kind of incomprehensible.

[stasu1213]

I wonder if the slow development of the Riverwalk and the Dequindre Cut over the past 10 years were partially due to the dipping into funds? I wonder how many others are involved in this

[13606Cedargrove]

"But it's also pretty hard to understand how their auditor [George Johnson & Co.] got so hoodwinked for so long."

As as a CPA, in their defense, audit procedures that follow AICPA audit standards are not necessarily designed to detect or prevent fraud. As a CFE [[Certified Fraud Examiner) I know this is true - completely different approaches and procedures. The entire inside baseball discussion of why this is so and the differences between the two is too long for this forum [Perhaps not for Richard) to explain.

The short version is that the public generally believes "auditors" look mainly for fraud which is a different from what an audit is meant to accomplish, which is to evaluate, through testing and inquiry, if the financial statements are presented fairly and are materially correct. If not, adjustments are recommended to management. In the end, the financial statements are the responsibility of management, not the auditor.

Regarding fraud, the audit team [from rookie staff to partners) are supposed to have a discussion, documented in their work papers, about the possibility of fraud and record management's responses to inquiry about the existence of fraud or illegal acts. Management also signs a representation letter that among many other things, attests that no material fraud exists or major illegal acts have been committed. [Stealing office supplies or robbing the vending machine does not count.) If nothing comes of that, [usually true, but sometimes the "hoodwink") additional procedures are not undertaken because efficiency is also one of the standards. This is a conundrum auditors face, but you are not supposed to chase something that looks like it is not there.

But, you make a fair point, and I am also asking that question because this had gone on for so long. I hope their CPA's work papers documenting the fraud and illegal acts discussion and inquiries are sufficiently up to professional standards. Even if they are, it can be extremely difficult to detect collusion among executives controlling the accounting system.

Auditing class dismissed.....

[Jimaz]

...Auditing class dismissed.....

Professional insights are always appreciated. We need more of that.

[Henry Whalley]

Article in Freep...

AFAIK business schools offer several courses on how to rip-off ordinary consumers, but do they teach students how to govern charitable organizations?

https://www.freep.com/story/news/loc...h/74089159007/

https://www.amazon.com/Confidence-Me.../dp/0300037880

[Henry Whalley]

...no one checking the actual bank balance for over a decade is kind of incomprehensible.

Peter Principle? My educated guess is that its 44-member board was filled with more than a few self-serving incompetents. Often people seek prestigious board positions in order to punch tickets enroute to higher levels of incompetence or grift. These assignments look great on the Potemkin Resume.

[stasu1213]

I think that any elected officials especially those who sit on the city council should be removed from being on any board of the Riverfront Conservancy. It's a conflict of interest especially since they are part of the legislator part of city government

[Henry Whalley]

...especially since they are part of the legislator part of city government

Not to mention that they are elected politicians and thereby attuned to skinning and grinning, graft, ambition, and incompetence.

[swingline]

I think that any elected officials especially those who sit on the city council should be removed from being on any board of the Riverfront Conservancy. It's a conflict of interest especially since they are part of the legislator part of city government

I don't understand your position. The Conservancy is a private sector non-profit. It receives some funding from public money, i.e., the City of Detroit. Having a City Council person[s] on the board is a form of oversight that helps ensure that public money is being spent in the best interest of taxpayers. Your position suggests a starting assumption that all elected officials are corrupt.

[Honky Tonk]

It receives some funding from public money, i.e., the City of Detroit. Having a City Council person[s] on the board is a form of oversight that helps ensure that public money is being spent in the best interest of taxpayers.

Works great, doesn't it?

[Henry Whalley]

Works great, doesn't it?

Works?????:[[

[stasu1213]

I don't understand your position. The Conservancy is a private sector non-profit. It receives some funding from public money, i.e., the City of Detroit. Having a City Council person[s] on the board is a form of oversight that helps ensure that public money is being spent in the best interest of taxpayers. Your position suggests a starting assumption that all elected officials are corrupt.

I am stating that taxpayers are already paying council members for being that. Council members are getting another payment for sitting on the board as well. No. You had brought up corruption. However, that can be a possibility without saying it is actually happening. It still a conflict in interest

[Jimaz]

Flashpoint: Massive embezzlement scheme, future with 3D printers, and more

We keep learning more and more about the scandal that has rocked Detroit’s civic, business, and political scene.

[Henry Whalley]

and more

The Best and Brightest were on the Board?

[Henry Whalley]

After reading today's article, it dawned on me that the Conservancy may need a GoFundMe page like uninsured people create for medical bills. But seriously, before receiving more funding, IMHO the entire board should be replaced.

Detroit Riverfront Conservancy faces mounting cash crunch amid missing money scandal


Chad Livengood
Kalea Hall
The Detroit News
Published 11:00 p.m. ET June 16, 2024

[Lowell]

One has to wonder why board Chair Matt Cullen is still around and hasn't, like the Conservnacy's CEO, 'fallen on his sword' and stepped aside--ditto for many board members. This lengthy snippet from today's Free Press does much to display his and others failure that allowed this heist. One can even question why these actors are not under investigation.

Board members facilitate loans

Before Smith was accused of embezzling $40 million from the nonprofit where he was CFO, he approached a firm run by the very people tasked with holding him accountable with a personal business pitch. In 2023, Smith wanted $3 million to open a cigar bar - called Discretion - just steps from the Conservancy's RiverWalk.

[Smith] sought a loan from Invest Detroit, a nonprofit whose board, like the Conservancy's, is led by businessman Matt Cullen, and whose CEO is also a Conservancy board member.

Smith's Biltmore Development Group won the property and approval to develop from the Economic Development Corporation of Detroit - a public body governed by mayoral appointees - after offering $500,000 for it in a bidding process in 2019.

City council - where Riverfront Conservancy board member Mary Sheffield serves as president - unanimously approved a $12 million tax incentive for the project in September 2022.

Invest Detroit, whose CEO is also Riverfront Conservancy board member Dave Blaszkiewicz, approved $3 million in loans for Biltmore in April 2023, property records show. It's not clear from records how much of that Smith's company ultimately received.

The move positioned Smith to financially benefit from the work of his nonprofit, in what Harrington, the Santa Clara professor, said represents a potential conflict of interest. She added Smith's business pitch should have triggered a closer examination of Smith's personal businesses dealings by the Conservancy board.

It's not clear whether disclosures were made because Invest Detroit's activities aren't public, and nonprofits aren't subject to open records laws.

Sheffield did not immediately respond to a request for comment and an Invest Detroit spokesman declined comment on behalf of the firm and Blaszkiewicz. A Conservancy spokesman did not answer questions regarding Cullen's role.

[Richard]

^ Matt used to be CEO of Bedrock,it’s all connected.

But personally he never came across as a sleazy person,but he and another investor bought out rights for casinos from Dan in northeast Ohio,it’s a billion dollar enterprise,do not see him being involved with what amounts to chump change in the bigger picture.

But the good ol boy network runs strong in a lot of cities,he has a ton of things on his plate and it would probably be easy enough in passing to play something based on trust that what was being presented was above board.

Thats the problem in business,you cannot trust anybody because somebody is always looking for that angle to get over on somebody or something. Fewer and fewer cannot seem to just fly straight and do the right thing.

Maybe that’s why they have not publicly showed the indictment,the main guy has not finished rolling over yet.

But I will keep repeating it

The city residents need to demand the state discloses who The off shore owners were of all of the city property that was transferred during the bankruptcy as the city was being pillaged for pennies on the dollar.

Why did they need to hide the identity of those who received those city owned assets.

All of this other stuff is just tentacles of an octopus,they need to go back to the start.

[Henry Whalley]

One has to wonder...

And I wonder whether this debacle will hurt Mary Sheffield's chances of becoming mayor.

[stasu1213]

One has to wonder why board Chair Matt Cullen is still around and hasn't, like the Conservnacy's CEO, 'fallen on his sword' and stepped aside--ditto for many board members. This lengthy snippet from today's Free Press does much to display his and others failure that allowed this heist. One can even question why these actors are not under investigation.

This sounds like someone is singing like a canary

[Henry Whalley]

CFO William A. Smith is shopping for a plea deal.

[DeLemur]

I still can't believe Will Smith was the only person on the bank account. How did their annual auditor not tell them this is wrong and needs changing?

[stasu1213]

Things had started falling apart when Faye Nelson had stepped down from the CEO position. It was probably the same period that Wll Smith assumed the CFO position. I think that this change had occurred when the new administration came in with the new council by district. Who selected Smith to be CFO and giving him total reign over the deposit and withdrawal of the Conservancy's bank account without having to answer for any transactions that he had made should step down for His/her's position on the board. Not accusing Sheffield for any wrong doing when I say that no elected officials should be sitting on a board of any profit or non profit organization. Their job is to legislate city government and focus on that only.