Unpacking the Rec Center Reaudit Report

Following an audit request by members of the local citizens group calling themselves the "Betterment Committee" the Iowa State Auditor's office released a report last week on their reaudit of the City's Recreation Center project. 

Breaking the report down, there are a few key findings:

1. Because the City did not open the bidding process for construction of the Recreation Center up for competitive bids, the City did not follow "proper bidding requirements in awarding the contract for the Recreation Center to Eagle Grove Recreation, a nonprofit corporation."

2. Because City Administrator Bryce Davis was the registered agent, incorporator, and President of Eagle Grove Recreation, while Robert Torkelson, an employee of the City's department of Parks and Recreation and a local contractor, "there is an appearance of conflict of interest."

3. There were no disbursements made to either Davis or Torkelson.

4. The City's documentation of disbursements made to Eagle Grove Recreation were lacking in sufficient detail to adequately explain their purpose and justify their amounts.

5. It is feasible that the City was in compliance with requirements in the Iowa Constitution for dispersing donations, and the evidence does not suggest otherwise.

In relation to the appearance of a conflict of interest due to Administrator Davis' and Parks and Recreation employee Torkelson's roles in setting up the Eagle Grove Recreation nonprofit, the Auditor's office recommended the City develop policies and procedures to ensure conflicts of interest are disclosed, and in the case of a potential conflict of interest, "the employee or Council member should abstain from actions related to the potential area of conflict." 

But the City rebutted that recommendation, noting that the Auditor's own definition of "an actual or potential conflict of interest" requires a person to be in a position to influence a decision in order to receive "personal gain", which the lack of disbursements to either Davis or Torkelson which the Auditor confirmed shows was not the case. Also, the City notes that in their roles as City employees both Davis and Torkelson were already required to make such disclosures, and subject to policies and procedures to ensure the same. But as employees, both are also required to do their jobs and "participate and represent the City's interest in many organizations where City funds are provided" and that any such organizations in which the City Administrator is a member, such as Eagle Grove Recreation, is public information. 

Ultimately, the Auditor's office accepted the City's response. Which illustrates why the finding is of an "appearance" of a conflict of interest, and not any actual conflict of interest.

In relation to the disbursement of non-profit donations, the Administrator's office recommended that in the future, the City "should clearly document the public purpose during a meeting open to the public, and ensure an agreement or contract is entered into to ensure funds are used in accordance with the donors wishes or the reason for the City to solicit donations for a project." The City agreed, and while they noted that in their view "the documents provided during the public hearings and available to the public clearly showed the public purpose and how the funds were going to be utilized", the City nevertheless pledged to "improve its policies relating to donors, receiving donations, and being a project specific fiscal agent for certain associations and non-profit organizations."

In relation to the matter of competitive bidding in this instance, however, the City and the Auditor did not see eye to eye. While the Auditor's office recommended that the City "should develop policies and procedures to ensure compliance with section 26.3 of the Code of Iowa," the City asserted that they had done so. The City's intent, they asserted, "was to provide a tax increment grant for economic development purposes to Eagle Grove Recreation for the construction of a rec center under the City’s Urban Renewal powers, which is a permissible use of City funds." Furthermore, the City pointed out that they had "engaged legal services to oversee the public hearings, urban renewal plans, amendments, annual appropriation loan agreements, and TIF ordinances, etc. to ensure proper protocol was followed for disbursements." 

The City also took issue with the Auditor's finding that in allowing Eagle Grove Recreation to contract for construction  the City had run afoul of the 2005 precedent set in Gannon v. Bd. of Regents, which ruled that "A government body may not delegate or 'contract away' its duties or functions in order to avoid disclosure of what would otherwise be a public record." Pointing out that the City's interest in promoting the development of a Recreation Center "serves an economic development purpose", the City argued that they "did not 'contract away' a vital, indispensable, integral government function necessary for its continued viability. Rather, it provided an economic development grant and leased land to a private, non-profit corporation to allow that corporation to operate a rec center that the City desired to support just like many other economic development projects."

Of course, the economic development function of a Recreation Center is obvious even to the layman. The existence of a Recreation Center within the City of Eagle Grove will enable the hosting of competitive sporting events which are currently impossible to host locally, as well as creating more activities for locals outside of the home. Not only would this bring City residents out to the local businesses, spending on such things as gas, snacks, and meals, but it would bring masses of visitors from out of town spending in Eagle Grove's stores, gas stations, and restaurants.

But that, in the Auditor's view, "does not relieve the City of its essential duty to comply

with competitive bidding law," even by outsourcing the project to a nonprofit company, such as Eagle Grove Recreation. The Rec Center has a “highly interwoven and symbiotic relationship” with the City, the Auditor's office asserted, quoting Gannon, "and is performing a function deemed critical by the City—as demonstrated by the substantial investment and involvement of City officials."

While the two parties agreed to disagree, the City did note that despite the "difference of opinion regarding the application of Iowa’s competitive bid statute to this specific situation", the City would use the Auditor's report "as a guide for better practices" in the future. And in the finality of it all, that's the real progress here. Because as the reaudit shows the purpose here was not the personal enrichment of any City employees, but rather the general enrichment of the City's businesses and people, the City's economy as a whole, in the form of economic development. And while the City pressed ahead with the project, and in the absence of any clear guidance on how best to do so made some errors in procedure, now the City has clear guidance on how to engage in further economic development in the future. And, logically, that is ultimately likely to enrich us all.