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Fairmont will not seek liquor store ‘forensic audit’

FAIRMONT — A motion to approve a state forensic audit of the Fairmont Municipal Liquor Store failed to gain support at the City Council meeting earlier this week.

Council member Ruth Cyphers introduced the concept of a forensic audit by the Minnesota Office of the State Auditor at the council’s Aug. 26 meeting, wanting a “deeper look” into the city’s books because “the taxpayers deserve to know.” She submitted a list of areas to Flaherty & Hood, the city’s interim legal counsel, that she said she compiled from “input from community members, input from councilors and input from past and present employees,” believing the attorneys would tell her what could and could not be audited.

“That’s not what happened,” she said. “I thought maybe the list would be vetted before our meeting with the auditors, and it was not so we dealt with it as we went through them.”

On Oct. 30, Cyphers; Mayor Debbie Foster; Patty Monsen, city clerk; and Paul Hoye, city finance director, represented Fairmont during a 90-minute conference call with a contingent of auditors and legal representatives from the OSA. The call addressed a number of topics, including items on Cyphers’ list, which included the liquor store, Housing and Redevelopment Authority, human resources, the Fairmont Aquatic Park, tax-increment financing, dredge funds and the water treatment plant.

“We received a letter back from them Nov. 8 stating that the only area they would be able to look into further would be the use of liquor store funds to make sure everything was spent appropriately,” Hoye said.

The OSA estimated the cost to be $5,000, but charges would be billed accordingly, whether higher or lower.

Councilman Bruce Peters asked what would be “an inappropriate use” of liquor store funds.

“It is up to the council’s discretion on what they use those funds for,” Hoye said. “There’s no restriction for the use of those funds. I believe what they are looking for is if there was any use of those funds that wasn’t approved by the council.”

Councilor Randy Lubenow asked why the OSA questioned the liquor store funds.

“If they picked only one item, they must have seen some type of red flag,” he said.

“I don’t believe they saw any red flags. I think it was more a concern of what the liquor store funds were being spent on,” Hoye said.

Lubenow asked Hoye if he had any concerns about the liquor store fund.

“I don’t have any concerns, but I’m more than willing to look into whatever the council decides to look into,” he said.

Foster pointed out that the liquor store is part of the city’s annual audit, so it is not a fund that goes unnoticed.

She called for a motion to direct city staff to assemble all documentation to proceed with an audit of the liquor store proceeds from January 2002 to January 2019. Cyphers offer the motion. Foster asked if there was a second to the motion, but none of the council members offered their support so the motion failed.

Councilor Tom Hawkins added a memo about the Housing and Redevelopment Authority in the council’s agenda packet, with his statement lobbying for an audit of the HRA, which owns the fourplex on Poetter’s Circle and the Burton Lane townhouses.

“It’s a really unusual situation on how it was run,” he said.

Hawkins, who serves as council liaison to the HRA board, said the city built the market-based housing back in 2001 under the auspices of the HRA, which originally was established to operate Friendship Village. The new housing was managed by city staff, but owned by the HRA. He said the books were never audited, and the HRA board did not know what was going on.

“They (board) were not involved other than votes once in a while when there was a rent increase,” he said. “They had no information. To this day, there’s no documentation or paperwork at the HRA for those two properties that they’ve owned since 2001.”

While Hawkins said he did not believe anything untoward was going on, he had two attorneys tell him that it would be a logical thing to look into.

Foster said there was a full audit on the properties in 2016, 2017 and 2018, but Hawkins maintained that a “spot check” from the beginning of the housing projects should be supported by the council. He recommended that the city pay for a forensic audit if the HRA requests it.

Turning to another matter, the council authorized Foster and Hawkins to begin contract negotiations with Mark Sievert to serve as interim city administrator to allow time for an executive search for a permanent administrator. Sievert, who has experience in conflict management, previously served in Fergus Falls and Lake City but is now retired. The motion passed 4-1, with Councilor Wayne Hasek dissenting.

Troy Nemmers, city engineer/public works director, has been serving as acting city administrator since Mike Humpal was put on paid administrative leave Oct. 14.

In other business, the council:

o Authorized city staff to begin the process to initiate a half-percent local option sales tax for the specific purpose of street repair and construction. By implementing alternative financing for street projects, the city could save about $400,000 per year in bond issuance fees and interest charges. The city currently has a half-percent tax earmarked for a community center, and the new tax would have to be approved by the Legislature, the city’s voters and the City Council.

o Unanimously approved a five-year contract with the Martin County Attorney to handle the city’s criminal legal matters. The contract is for $75,000, with a 2.5 percent increase each year starting in 2021.

o Rejected three bids from legal firms, none of them local, seeking the position of the city’s legal counsel for civil matters. A new request for proposal will be sent out hoping to attract bids from more firms, specifically those in the Mankato and New Ulm areas.

o Unanimously approved city staff to work with bond counsel to develop a 10-year tax abatement program for the construction of multi-family housing in Fairmont. The program would require builders to continue to pay current taxes on a property’s value but not pay for value added by new construction for 10 years.

o Heard a report from Foster that the cost of legal fees for data requests this year are running almost $15,000, an amount not in the budget and that does not include staff time to procure the requested documents.

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