The Northwest Arkansas Economic Development District misused government funds and private grants, the Arkansas Legislative Audit said in an investigative report released Monday.
The Legislative Audit, formerly known as the Legislative Audit Division, said the district transferred federal and state funds to unauthorized programs to balance losses in certain divisions with surpluses in others.
"We need to acknowledge what happened in the past and address those issues," Joe Willis, executive director of the district, said. "We'll come out better for it."
The district in Harrison is a nonprofit organization that disburses money for infrastructure improvement, economic development, transportation and more. It used to run 14 senior-citizen centers and a solid-waste program.
Willis was hired in October after the board of directors asked his predecessor, Michael Norton, to leave, according to the audit report. Willis said he expected problems when he took the job. Nevertheless, he said, the "depth and breadth" of the troubles surprised him.
Auditors looked at the district's books from 2005 through the end of 2014. They found that transfers of funds meant for one thing -- such as Medicaid reimbursements for food -- were mixed with other funds into consolidated bank accounts for a division.
Transfers then took place among accounts that disregarded the legal requirements for the use of certain funds.
The district used the transfers to make payroll, pay utilities and settle debts totaling more than $600,000 to Springfield Food Service Co., the report states.
The district receives funding through fees, the federal government, the state and private sources such as the Walmart Foundation.
Auditors said the district owes about $1.2 million to other agencies, and other agencies owe the district $104,000.
It's unclear whether the money will be paid back.
"Those are ongoing discussions," Willis said. "We're at an early stage in that process."
In addition to improper transfers, auditors said the district failed to record transfer amounts correctly, properly file paperwork with the Arkansas Highway and Transportation Department -- resulting in a loss of about $908,000 in federal funds -- and remit payroll taxes and employee 401(k) contributions in a timely manner.
The board and executive director should "[i]ncrease and maintain knowledge, awareness, and performance of operational and fiscal oversight, accountability, and fiduciary responsibilities," according to the report.
Willis said the district's managers now will review every check written, monitor bank reconciliations, require documentation when adjusting entries in the district's general ledger and more.
"If you pay attention to the cents, the dollars take care of themselves," he said. "If you pay attention to the details, the whole picture looks better."
Metro on 08/29/2015