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Ihlen addresses auditor’s office findings about concerns
The letter from the Minnesota State Auditor’s Office (OSA) to the city of Ihlen that triggered the resignation a few weeks ago of City Councilor Gary Olsen did not require that Olsen resign his seat.
Olsen’s resignation came following a review of Ihlen’s governmental practices. That review showed, among other things, that a conflict of interest existed whenever the city hired Olsen to do sewer repair services.
Olsen told the County Star during an interview that he had “no choice” but to resign his public office due to his private work for the city. But according to the letter sent to the city by the state, as well as a telephone interview the County Star conducted with Minnesota State Auditor Rebecca Otto, Olsen could have remained on the council if both he and the city provided signed resolutions and affidavits whenever Olsen performed work for the city.
“I wouldn’t have had to resign,” Olsen conceded during a Friday interview. “I could have continued to do work for the City, but if I didn’t resign I would have had to constantly report to the state any time I did work for the City — and I don’t need that.”
The OSA wrote that under Minn. Stat. 471.87 public officers are prohibited from having an interest in a contract with their own community. But because the general rule is so strict, the legislature has created a number of exceptions, which are found in Minn. Stat. 471.88.
“State law is strict about conflict of interest,” Otto said. “But the law does allow some exceptions because there are so many small communities and towns where this issue is more apt to come up.”
To use the exceptions found in Minn. Stat. 471.88, a city and the interested city council member must follow the procedures set forth in Minn. Stat. 471.89. This statute requires the city council to “authorize the contract in advance of its performance by adopting a resolution setting out the essential facts and determining that the contract price is as low as or lower than the price at which the commodity or services could be obtained elsewhere.”
In addition, before claims are paid on the contract, the interested officer must file with the city clerk an affidavit stating: the name of the officer and the office held by the officer; an itemization of the commodity or services furnished; the contract price; the reasonable value; the interest of the officer in the contract; and that to the best of the officer’s knowledge and belief the contract prices are as low as, or lower than, the price at which the commodity or services could be obtained from other sources.
None of this had been done previously and according to Otto, the OSA was not requiring the city to submit resolutions and affidavits for previously completed work by Olsen, only for future work.
Olsen said he would continue to work on the city sewer pumps because the city needs it.
“We have had others look at the pumps but they didn’t want to do the work,” Olsen said.
The OSA review of Ihlen’s practices began after Susan Wienands, a Lake Wilson resident who owns two properties in Ihlen, contacted the state in November 2008 with concerns about a $100 special assessment for the Ihlen-Eden Community Center the city charges residential property owners.
Wienands said her concern was that the city was not assessing all property owners uniformly and when she brought it to the attention of Ihlen Mayor Jeannine Swenson, the mayor did not satisfy her concerns. That’s when Wienands took her complaint to the state.
The County Star obtained a list from the Pipestone County Auditor of the Ihlen property owners who were assessed the $100 special assessment. Both commercial and residential properties were assessed on the list, which contained 44 properties out of a total of 45 properties.
When asked about the additional property, Swenson indicated one resident receives an exception from the special assessment because, she said, the property owner submitted an inspection report to the council indicating the house had mold and was uninhabitable.
“Anyone who owns property, whether they live on the property or are gaining rental income from the property, it is assessed,” Swenson said. “But if it is a piece of property with a house that has been assessed by the assessor that it’s not livable and the taxes are taken off the home part of it, then it isn’t assessed.”
The OSA addressed that issue in its letter to the city, dated July 31, recommending that the city adopt a written special assessment policy that establishes a set procedure for exception requests. Written policies and procedures will ensure that the city applies the special assessment charge uniformly and that there is a specific process for requesting an exception, according to the letter.
Swenson said a draft of the special assessment policy is currently with the city attorney’s office.
But the state raised concerns in its letter beyond the special assessment, such as the conflict of interest involved with Olsen; concerns about a city expenditure that may not have served a public purpose; about a donation the city accepted without complying with statutory requirements; and about fundraising activities the city engaged in.
When asked about the concerns raised by the state, Swenson said, Aug. 24, the council is addressing the concerns brought forth in the letter.
Following are the issues raised by the OSA:
Community Center Rental
A concern was brought forth that the city was charging residents different rates to rent the Community Center for private events. It was noted in the letter that the city does not have a facility use policy but instead rental rates are set forth on the rental contracts.
Swenson said they have had a rental agreement in place for two years and there wasn’t a problem with that. “The OSA just wanted to see it,” she explained.
Also in 2009, the City Council passed a motion allowing each resident to use the Community Center free of charge, each on one occasion, during 2009.
Public Purpose
The OSA raised the concern that the city spent public funds for a Christmas celebration held at a local church. In the letter it noted that the city sponsors a Christmas event held at a church that includes a Christmas message by a religious speaker, refreshments and hay rides. Specifically, the city pays the postage costs for an invitational flier sent to city residents and selected former residents, a gratuity for the religious speaker and the rental charge for the hay rides.
It was also noted that the design and printing of the invitational flier, the refreshments and cleaning services for the event are donated.
Swenson said the City Council decided at its last meeting to eliminate the Christmas event.
Community Center Loan
The OSA noted in October 2008, the City entered into a 20-year loan with a one percent interest rate for its Community Center. The City entered into a standard loan obligation with a local bank and paid off a prior loan that had a higher interest rate.
The OSA said that the authority of a city to incur indebtedness is governed by statute. Generally, Minnesota law does not allow cities to borrow money from a bank simply by filling out standard loan forms. In the future, the city must comply with Minnesota law relating to public indebtedness.
“They aren’t forcing us to change anything,” Swenson said. “But in the future the City will comply with Minnesota law relating to public indebtedness.”
Donation
The City received a $35,000 donation for the Community Center from the Fishback Foundation, a private organization that provides community-oriented assistance. The money was used to make a loan balance payment on the original Community Center loan and to pay for refinancing costs on the new loan. But the City Council did not pass a resolution accepting the donation.
According to Swenson, they will write a resolution to accept the donation from the Fishback Foundation and will also pass a resolution for any future donations.
Fundraising
The OSA noted in the City’s 2008 financial information that the City had a fundraising expense of $1,477 in its Community Center Enterprise Fund.
This expense pertained to a carved ham dinner the city sponsors each year as a fundraiser for the Community Center. Public funds were used to pay for advertising and food costs. The City would make approximately $600 profit each year from the supper.
“We can have any fundraiser as long as it is put on by a committee from the town,” Swenson said. “We are kind of looking at possibly having the Senior Citizens help out in this regard.”
She explained that the fundraisers helped pay half of the loan payment each year and the assessments helped pay the other half of the payment.
The state review by the OSA
The Minnesota Office of the State Auditor receives about 1,000 questions and concerns about local government finances each year, including reports of possible misuse of public resources, according to its Web site.
The Legal/Special Investigations Division of the OSA considers whether a financial concern about a local government involves a violation of a state law, rule or an accounting standard. Common issues include concerns about competitive bidding, conflict of interest and the possible theft of public funds or property.
“We get a lot of calls about small communities and townships because there are so many,” said Rebecca Otto, state auditor. “Some are from individual citizens, groups of people, city officials, legislators, and local government offices.”
She said the goal of her office is to help assure the success of local governments by checking that they’re following state statutes. She also indicated that her office sends out review letters to many communities each year listing issues and concerns her office has as well as recommendations, especially those that are required to have yearly audits.
“We want to be responsive to individuals and local governments,” Otto said.
Possible results of an OSA review include referral to the appropriate agency or entity with jurisdiction; answer provided to a general financial question; review conducted during the next financial audit; review conducted and recommendations forwarded orally or in writing to the local government; proceed with a formal investigation and issue a final report; or decline review because issue is outside the authority of the OSA or because a determination has been made that a review is not warranted.
In the City of Ihlen’s case, the result was that a review was conducted and recommendations forwarded in writing to Ihlen officials.
“We have a procedure in place that we follow when someone contacts us,” Otto said. “The first thing we do is check to see whether the issue is in our jurisdiction which is dealing with financial issues. Sometimes it is just a question that can be answered with a phone call. Other times it’s a major case or just an issue where local government can do things better and we make a recommendation. There are a whole variety of ways to determine possible results.”
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