What appeared at first to be a time of transition has become a much tougher trial for the Seward Neighborhood Group (SNG), as years of financial mismanagement and current funding shortfalls come to light.

Two months after the resignation of former SNG Executive Director Lori Stone and former Board Treasurer Perry Caranicas, the neighborhood group is wrestling with the discovery of financial problems that may have left the organization insolvent. (Stone left SNG officially at the end of August.)

Although details are still unclear, it appears that financial mismanagement on multiple fronts — some of it more than a decade old — has left the organization with little or no money to offset its debts, payroll and other obligations.

What is known is that SNG owes the city’s Neighborhood Revitalization Program (NRP) $135,000 for the unauthorized use of housing funds, but the problem likely goes beyond NRP funds, said Jack Whitehurst, SNG’s contact at NRP. Acting SNG Board Treasurer Kevin Brown confirmed as much, but declined to comment on the record before SNG releases an official statement early next week.

Brown did confirm that all staff were laid off, effective Friday, Sept.14. According to its website, SNG employed five staff, not including the vacant director’s position.

The board and Executive Committees have been meeting weekly to sort through financial records and come up with a strategy for revitalizing the 47-year-old organization, said Brown. The board invites all Seward stakeholders to attend ongoing weekly strategy meetings at 7 p.m. on Thursdays at the SNG offices, 2323 E. Franklin Ave.

The board is expected to release a statement early next week and hopes to have more information at the Sept. 22 King’s Fair, which will go on as planned.

NRP snafu the tip of the iceberg

The first sign of trouble came on Aug. 1, when NRP Director Bob Miller sent a letter to the SNG board, notifying them of $135,000 in “unauthorized expenditures” from the SNG housing account that should have been approved by the SNG board and/or NRP.

As the official city-recognized neighborhood organization for Seward, SNG receives and administers NRP dollars — public funds generated by projects in tax-increment financing districts — for a wide range of neighborhood projects, including the salaries of SNG staff. (SNG has also been funded through non-NRP grants and program revenue.)

In this case, the problem stems from the use of revenue from housing programs — most of it from a deferred loan program, through which SNG gave small loans to Seward residents for home improvements — deposited or transferred to SNG’s main account, between 1998 and 2003, and used for non-housing-related programs.

While such fund transfers are common with NRP dollars, they require a “plan modification” and approval by the publicly elected neighborhood board and/or NRP — neither of which were aware of the transfer of the funds in question. (SNG has made 34 proper plan modifications over its NRP history.)

In 2003, the NRP contract administrator requested a report from SNG with financial details of the programs, which ran from 1995 to 2003. Despite several subsequent requests and an offer of NRP assistance in the audit, SNG did not submit the reports until April 2007 — more than four years after the initial request.

Whitehurst said it is likely that the organization will have to return the $135,000 to NRP, possibly by giving up NRP funds available but not yet contracted from SNG’s Phase I and Phase II plans.

It is likely that $82,468.50 in unspent housing program funding — intended as home improvement loans for Seward residents but frozen by NRP pending the submission of the requested reports — will be forfeited. In addition, $32,000 unspent from SNG’s completed Phase I plan, and other remaining Phase II dollars, may be returned as part of the penalty.

NRP has given SNG until January 2008 to come up with a proposal to pay back the dollars in question, said Whitehurst, who stressed that the current SNG board is “working very diligently to sort it out.

“This is a problem they’ve inherited,” said Whitehurst. “They’ve been very diligent in the past couple of months to try to get a handle on it.”

The buck stops where?

Still, the question remains why the problem — and the apparent administrative foot-dragging — were allowed to go on for so long without the knowledge of the SNG board.

“Boards can ask questions of staff and feel like they’re getting the information fully and accurately when they’re not,” said Whitehurst. “Boards can also not ask enough questions to stay on top of the organization’s finances.”

Asked if the executive director or the board of directors is responsible for the mismanagement of the NRP funds, Whitehurst said, “I think the buck stops with all of the above.”

Although their official statement is pending, board members pledged to sort through the problem, increase transparency regarding the organization’s operations and keep the Seward community informed as it moves ahead and attempts to rebuild.

Although the extent of SNG’s financial mismanagement is unknown, Whitehurst guessed — and acting treasurer Brown confirmed — that it goes beyond the NRP problem. It may involve other misappropriated funds and a maxed-out line of credit. There is no known evidence, at this time, of criminal malfeasance.

Watch for further coverage of the situation next week on this website and in the October issue of The Bridge.

last revised: September 19, 2007

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