2021 | Government

Inspector general says economic group does not always follow conflict of interest, sponsorship policies

Investigation clears ‘self-dealing’ allegation

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After investigating an allegation that the Montgomery County Economic Development Corporation violated a sponsorship policy, the county’s inspector general found that the $20,000 sponsorship was allowable.

In November, the Office of the Inspector General received an allegation that MCEDC was “self-dealing.” The allegation was that the corporation approved a $20,000 sponsorship that a board member requested in 2019 to support a venture they operate.

The complainant also claimed that the former MCEDC CEO was inappropriately given $100,000 in a compensation package to buy a home.



In a report released on Tuesday, the OIG found that the specific sponsorship in the complaint was allowable under policy, but the organization did not always follow policy when considering board member-related sponsorship requests.

The office also found that the organization does not have a process to ensure that conflict of interest forms are “consistently collected, reviewed and maintained” and that the forms do not require the disclosure of all potential conflicts.

OIG staff members did not investigate the claim about the compensation package for the former CEO because they did not find any provisions in policy or contracts that did not allow the payment. The payment was recorded in MCEDC’s 2018 tax filing as a loan for housing purposes.

According to the report, MCEDC, between January 2015 and February 2021, granted sponsorships totaling $103,500 to organizations that board members had a financial interest in or in which they had a policy-making position.

Those funds represented 26% of the sponsorships awarded during that time period. Sponsorships with board member affiliations were given an average of $10,250 — more than twice what organizations with no board member affiliations received.

“Our investigation further disclosed that three quarters, $79,000, of the $103,500 awarded to board member affiliated organizations went to entities or events affiliated with one company chaired by an MCEDC Board Member,” the report said.

Of the remaining quarter, $20,000 went to a business founded and chaired by another board member and $4,500 went to an initiative hosted by a nonprofit in which a board member served in a policy-making role.

Although MCEDC policy allows for board members to request sponsorships for organizations that they are involved in, the “funding amounts, proportion of total awards, and disparity between awards granted to Board Member affiliated projects and non-affiliated projects, at a minimum, gives the appearance of inequitable application of funding and possible self-dealing,” according to the OIG.

Of 10 sponsorship requests reviewed by OIG, three were not properly presented to the board and the remaining seven did not contain at least one required element.

After MCEDC reviewing meeting minutes, OIG staff members also found that conflicts of interest were not properly documented. MCEDC declined to provide OIG with the letters required to be sent to sponsoring entities and board members that include conditions of sponsorship grants.

When the OIG requested conflict of interest forms for the 11 board members between 2016 and 2021, MCEDC could only provide all of the forms for 2016. None were collected in 2017 and 2020.

About half of the forms were provided for 2018, 2019 and 2021.

Among the OIG’s recommendations were:
• documenting all conflicts of interest
• requiring board approval for all sponsorships affiliated with board members
• consistent collecting and reviewing of conflict of interest forms
• updating the conflict of interest policy to ensure impartiality in decisions
• issuing letters delineating conditions imposed on sponsorships involving board members.

In a response to the report, Benjamin Wu, the president and CEO of MCEDC, wrote in a letter to Inspector General Megan Davey Limarzi that the organization agrees that there could have been a more reliable process to ensure conflict of interest forms were collected and reviewed. The issue has been resolved, he wrote.

Wu wrote that although MCEDC agrees that the board’s activities and transactions should have been better documented in meeting minutes, the investigation did not include interviews with board members.

“If the OIG had interviewed those in attendance at the Board meeting when these sponsorships were approved, it would have been demonstrated that the Board did recognize potential conflicts of interest to exist on the part of the Board members who requested sponsorship and acted accordingly,” he wrote.

But in a response to MCEDC in its report, the OIG wrote that its conclusion was based on evidence and not “uncorroborated information, such as interviews.”

“We purposely limited our review to an examination of available written Board meeting minutes,” the response said. “Any information obtained through interviews would not have satisfied the requirements established in policy or been adequate evidence to conclude that the Board met all requirements when considering Board Member connected sponsorships.”

Briana Adhikusuma can be reached at briana.adhikusuma@bethesdamagazine.com.