Arundel board's volunteers paid themselves

County audit reveals apparent conflicts

August 16, 1999|By Matthew Mosk and Laura Sullivan | Matthew Mosk and Laura Sullivan,SUN STAFF

Volunteer board members of Anne Arundel County's economic development agency have paid themselves thousands of dollars over six years for supplying the nonprofit group with everything from legal advice and accounting work to stationery and computer software.

The first independent audit of the Anne Arundel Economic Development Corp., released last week, as well as newly opened financial records and disclosures made in interviews, show that the agency has concealed apparent conflicts of interest while freely spending public money.

"This makes me sick," County Executive Janet S. Owens said when told of the findings. "This is supposed to be a voluntary board of people committed to helping the county. The only thing I can say is, this is coming to an end."

The corporation's chief executive, William A. Badger Jr., first denied that board members had been paid for goods and services. After several board members acknowledged and defended the deals, Badger confirmed they had occurred.

"I think it is correct that some board members have provided services, yes," he said late Friday.

Six years ago, then-County Executive Robert R. Neall separated the development agency from the rest of county government as a way to more efficiently lure business -- and tax dollars -- to the region. It was reorganized as a nonprofit organization, an arrangement authorities called "quasi-public."

Though the agency continues to get nearly all its revenue from taxpayers -- about $6 million from the county budget and more from a hotel tax -- public oversight of its financial dealings ended. Even top county officials could no longer see the books.

Some of those records, made public for the first time in the audit, show that the corporation spent more than $60,000 on accounting and legal services, some of which were provided by Annapolis firms run by two members of the corporation's board.

The board members defended their actions.

"There's nothing unusual about board members charging for their services," said Andrew R. Lombardo, an accountant who served until last month as board treasurer. His firm does the corporation's monthly accounting.

"We didn't go to the organization to sell our services," he said. "We were recruited because we can provide these services."

`Full disclosure'

Gary H. Zorn says he does between $2,000 and $3,000 worth of envelope, folder and stationery printing for the corporation each year. He said that though the corporation does no formal price comparisons, he believes his rates are competitive.

Leonard A. Blackshear, a longtime board member who said he sold the corporation $2,000 worth of voice-recognition computer software last year, said: "They asked me if I would provide it, and I said, `Yes.' We had full disclosure."

Asked to whom the deal was disclosed, he said, "To the board."

In the eight months since Democrats took control of county government, the new leaders have insisted that the agency submit to government scrutiny.

Owens and County Council Chairman Daniel E. Klosterman Jr. decried the way the corporation had denied their requests to view records.

In recent months, they have escalated their demands for more disclosure. That included requiring the development group to submit to a county audit to receive its budget allotment.

Tensions over the records led to the abrupt resignation of chief executive Richard J. Morgan last month, and to Owens' decision to replace five of the board's nine members, including Zorn, Lombardo and founding member Charles F. Delavan. The board controls the remaining seats.

`Significant deficiencies'

The audit reported "significant deficiencies" in the agency's bookkeeping and showed that corporation officials spent $55,000 traveling in fiscal year 1998 -- more than six times what Baltimore County's economic development agency spent. The travel included an $8,000 weekend trip to Arizona for Morgan and then-County Executive John G. Gary to mingle with executives from international corporations.

The audit found no money missing.

Reassured, Owens promised that the culture of secrecy was in the past and selected Badger on Friday to ascend from senior vice president to the corporation's top job.

When reporters arrived at the corporation's offices last week to inspect financial records that must, by federal regulations, be opened immediately upon demand, Badger refused. He told them to leave and had a staff member lock the office door.

On orders from the corporation's lawyer, he released the records the next day.

Domenic J. LaPonzina, a spokesman for the Internal Revenue Service, said the records ask a series of questions to establish if a corporation deserves to be exempt from paying taxes.

On its forms, the development group answered "No" to this question: Have the directors, either directly or indirectly, furnished goods, services or facilities to the organization?

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