Ann Arbor SPARK's early bookkeeping errors resurface as gubernatorial campaign subject

From the AP story:

Snyder, who cofounded Ann Arbor SPARK, is pictured with former Washtenaw County Administrator Bob Guenzel and University of Michigan professor Fawwaz Ulaby at the economic development group's opening celebration in 2005.

File photo | AnnArbor.com

No money went missing, and none of the audit's findings pointed to illegal activity. Snyder, who remains on SPARK's executive committee, told The Associated Press the problems were merely growing pains.

Yet while Snyder boasts on his website of SPARK's success at attracting talent and investment to the Ann Arbor area, a 2008 audit of the organization's 2007-08 contract with the Ann Arbor-Ypsilanti SmartZone Local Development Finance Authority found that SPARK didn't have adequate internal controls, submitted invoices late, provided services for companies that weren't eligible because they weren't in Ann Arbor and billed for services even when they hadn't fulfilled the contract's terms.

I covered the complex situation in 2008 as a reporter for the Ann Arbor Business Review. 

Here's what happened:

Snyder cofounded SPARK in 2005 in collaboration with the University of Michigan, Eastern Michigan University, Washtenaw Community College, local businesses and the Ann Arbor/Ypsilanti Local Development Finance Authority (LDFA), the board responsible for distributing tax dollars captured as part of the SmartZone initiative. The universities and LDFA board agreed to provide funding for SPARK.

Snyder personally recruited former Michigan Economic Development Corp. Vice President Michael Finney, then working in Rochester, NY, to return to Michigan to become CEO of SPARK.

SPARK provides various business development services and job-searching help to companies in Washtenaw County.

After three years in operation, LDFA discovered SPARK had not properly documented some of the hours its workers spent providing services to businesses within the cities of Ann Arbor and Ypsilanti. LDFA commissioned a law firm to conduct an audit of the contract between LDFA and SPARK, a contract in which LDFA provided $872,836.

After the $20,000 audit, the entities agreed SPARK had over billed LDFA by $45,643.75 and under billed it by $22,031.25 for various services. SPARK, which had an annual budget of $2.7 million at the time, agreed to refund $23,612.50 to LDFA, and the dispute was resolved.

But before that, one LDFA Board member, Mike Reid, resigned and wrote a letter to the Ann Arbor City Council saying SPARK deserved more punitive action.

"The audit report findings are indicative of system-wide internal control failures that obscure the LDFA board's ability to provide basic oversight and create conditions where misuse of public funds or outright fraud could easily go undetected," Reid said in a letter to the City Council.

Reid, discussing the situation with the Associated Press now, said "it would be patently wrong to call this a lack of oversight on the part of Rick Snyder."

After Reid's resignation in 2008, Snyder told the Ann Arbor News: "You have to take those things seriously. (Reid) is a respected public official. There has been a constructive dialogue so far, and there are some improvements I clearly think SPARK can make in this regard, and I believe the organization is very intent on doing that." 

Ann Arbor SPARK CEO Michael Finney

Ryan J. Stanton | AnnArbor.com

Reid's fiery letter to the Ann Arbor City Council was not reflective of the attitude on the LDFA Board, which generally supported SPARK's activities and called them effective in creating jobs for the area.

"I think it's important to say that we should get this resolved so that everyone can move forward and spend time on the real issues, which are the entrepreneurs," Rob Risser, an LDFA board member during the dispute, said at the time.

During the process, Finney repeatedly acknowledged the bookkeeping problems and said SPARK had not established perfect accounting procedures until hiring a full-time finance director in January 2008. After the audit, SPARK made additional changes to its policies, agreeing to keep stricter reporting deadlines and additional conflict-of-interest stipulations.

"It was a fast-growing organization that had to grow and develop and things, and as part of that process, its systems didn't totally keep up with the growth," Snyder told The Associated Press in a recent interview.

While Snyder, who still serves on SPARK's board, was serving as chairman, Finney and Snyder met regularly to discuss various ideas for new services SPARK could provide.

However, the AP, paraphrasing Finney, said "Snyder and other board members didn't deal with day-to-day operations."

Contact AnnArbor.com's Nathan Bomey at (734) 623-2587 or nathanbomey@annarbor.com. You can also follow him on Twitter or subscribe to AnnArbor.com's newsletters.