State of Iowa Re-Audit Report Copyrighted
November 5, 2018
City of Dubuque Action Items # 7.
ITEM TITLE: State of lowa Re-Audit
SUMMARY: City Manager transmitting the Auditor of State's Report on
Re-Auditforthe Period July 1, 2015 through June 30,
2016.
SUGGESTED DISPOSITION: Suggested Disposition: Receive and File
ATTACHMENTS:
Description Type
Auditor of the State's Report FY2016 Supporting Documentation
Reaudit Letter Supporting Documentation
pR oF OFFICE OF AUDITOR OF STATE
qti't s'T STATE OF IOWA
J � 9� Mary Mosimaq CPA
Q �0 Auditor of State
* 't'� * State Capitol Building
Des Moines,Iowa 50319-0004
����F �F ��� Telephone(515)281-5834 Facsimile(515)7A2-6134
NEWS RELEASE
Contact: Mary Mosiman
515/281-5835
or Tami Kusian
FOR RELEASE November 2, 2018 515/281-5834
Auditor of State Mary Mosiman today released a reaudit report on the City of Dubuque for
the period July 1, 2015 through June 30, 2016. The reaudit was performed at the request of
petitioners pursuant to Section 11.6(4)(a)(3) of the Code of Iowa. The petition submitted to the
Office of Auditor of State requested a reaudit of the year ended June 30, 2016.
The reaudit was requested due to concerns regarding City operations, including certain
relationships between the City, City officials and outside organizations, the propriety of
disbursements to certain vendors and outside organizations and whether any conflicts of interest
exist.
Mosiman recommended the City ensure all disbursements are approved by the City Council
prior to payment, are permissible by Article III, Section 31 of the Iowa Constitution, provide a
public benefit, and are in the best interest of the City. Also, the City should comply with the Code
of Iowa and ensure all business transactions are disclosed in accordance with Chapter 362.5(j) of
the Code of Iowa.
A copy of the reaudit report is available for review in the City Administrator's Office, on the
Auditor of State's website at https://auditor.iowa.eov/reports/audit-reports/, and in the Office of
Auditor of State.
# # #
CITY OF DUBUQUE
AUDITOR OF STATE'S REPORT ON REAUDIT
FOR THE PERIOD
JULY 1, 2015 THROUGH JUNE 30, 2016
1620-0288-TOOZ
Table of Contents
Paee
Officials 3
Auditor of State's Report on Reaudit 5-6
Background Information 8
Detailed Findings: Findine
Payments To The Community Foundation of Greater Dubuque A 8-14
Business Transactions B 14-16
Sale Of The 18*h Street Engine House C 16-17
DisbursementApproval D 17-18
Staff 19
2
City of Dubuque
(Before January 2016)
Term
Name Title Expires
Roy D. Buol Mayor Jan 2018
Karla A. Braig Council Member Jan 2016
David T. Resnick Council Member Jan 2016
Lynn V. Sutton Council Member Jan 2016
Joyce E. Connors Council Member Jan 2018
Ric W. Jones Council Member Jan 2018
Kevin J. Lynch Council Member Jan 2018
Michael C. Van Milligen City Manager Indefinite
Kenneth J. TeKippe Finance Director (Retired Jan 2016)
Kevin S. Firnstahl City Clerk Indefinite
Barry A. Lindahl City Attorney Indefinite
(After January 2016)
Term
Name Title Expires
Roy D. Buol Mayor Jan 2018
Joyce E. Connors Council Member Jan 2018
Ric W. Jones Council Member Jan 2018
Kevin J. Lynch Council Member Jan 2018
Luis Del Toro Council Member Jan 2020
David T. Resnick Council Member Jan 2020
Jake A. Rios Council Member Jan 2020
Michael C. Van Milligen City Manager Indefinite
Jean M. Nachtman (Appointed Jan 2016)Finance Director Indefinite
Kevin S. Firnstahl City Clerk Indefinite
Barry A. Lindahl City Attorney Indefinite
3
City of Dubuque
4
pR oF OFFICE OF AUDITOR OF STATE
qti't s'T STATE OF IOWA
J � 9� Mary Mosimaq CPA
Q �0 Auditor of State
* 't'� * State Capitol Building
Des Moines,Iowa 50319-0004
����F �F ��� Telephone(515)281-5834 Facsimile(515)7A2-6134
Auditor of State's Report on Reaudit
To the Honorable Mayor and
Members of the City Council:
We received a request to perform a reaudit of the City of Dubuque in accordance with
Section 11.6(4)(a)(3) of the Code oflowa. As a result, we performed a review of the audit report for
the year ended June 30, 2016 and the workpapers prepared by the City's Certified Public
Accounting firm to determine whether the CPA firm addressed any or all of the specific issues
identified in the request for reaudit during the annual audit of the City. Based on this review and
our review of the preliminary information available, we determined a partial reaudit was necessary
to further investigate specific issues identified in the request for reaudit. Accordingly, we have
applied certain tests and procedures to selected accounting records and related information of the
City for the period July 1, 2015 through June 30, 2016. In addition, we have applied certain tests
and procedures to selected prior and current fiscal year transactions, as deemed necessary.
Based on a review of relevant information and discussions with City officials and personnel, we
performed the following procedures:
1. Obtained agreements between the City and Dubuque Initiatives to determine the
relationship between the City and Dubuque Initiatives.
2. Reviewed disbursements to Dubuque Initiatives for propriety.
3. Reviewed the relationship between the City and the Community Foundation of
Greater Dubuque (CFGD) for potential conflicts of interest.
4. Reviewed disbursements to CFGD for appropriateness and public purpose.
5. Reviewed disbursements to Gronen Restoration or John Gronen for propriety.
6. Reviewed the sale of the 18*h Street Engine House to Dubuque Bank 8� Trust
Community Development Corporation for propriety and compliance with
section 364.7 of the Code oflowa.
Based on the performance of these procedures, we have developed various recommendations for
the City. Our recommendations and the instances of non-compliance are described in the
Detailed Findings of this report. Unless reported in the Detailed Findings, items of non-
compliance were not identified during the performance of the specific procedures listed above.
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The procedures described above do not constitute an audit of fmancial statements conducted in
accordance with U.S. generally accepted auditing standards. Had we performed additional
procedures, or had we performed an audit of the City, additional matters might have come to our
attention that would have been reported to you.
We would like to acknowledge the assistance extended to us by officials and personnel of the City
during the course of the reaudit.
� ���
M MOSIMAN, CPA
Auditor of State
July 24, 2018
6
City of Dubuque
7
City of Dubuque
July 1, 2015 through June 30, 2016
Background Information
We received a citizens' petition to conduct a reaudit of the City of Dubuque for fiscal year 2016.
The request detailed specific concerns, including:
1. Audit of Dubuque Initiatives and the money trail between the City and Dubuque
Initiatives.
2. For conflicts of interest, in particular between the City Manager and his wife's
organization, Community Foundation of Greater Dubuque.
3. Conflicts of interest involving Gronen Restoration, aka John Gronen.
4. The sale of the 18*h Street Engine House for $1.00 to Dubuque Bank and Trust.
5. The connection between Van Milligen and Dubuque Bank and Trust.
6. The City's total indebtedness for general obligation bonds, taY increment financing
bonds, parking fund bonds, sewer bonds, water bonds, storm water bonds and
Roshek Building indebtedness.
7. Movement of funds between departments without proper approval.
8. Dubuque's vehicle expenditures as compared to cities of comparable size.
As a result of the request, we performed a review of the City's audit report and workpapers
prepared by the City's independent auditors to determine whether a complete or partial reaudit of
the City should be performed. As a result of this review, we determined it was necessary to
perform reaudit procedures for the first 5 concerns presented for the period July 1, 2015 through
June 30, 2016. Items 6 and 7 were sufficiently reviewed by the City's independent auditors. In
addition, item 8 was either outside the scope of the reaudit or was not considered to be an audit
issue.
Except as included in this report, no additional findings were identified related to the specific
concerns presented with the citizens'petition for reaudit. While the reaudit procedures performed
addressed the concerns presented, additional procedures were not performed. Had we performed
additional procedures, additional matters might have been identified and included in this report.
Detailed Findings
(A) Pavments to the Communitv Foundation of Greater Dubuaue - The Community Foundation
of Greater Dubuque (CFGD) is a nonprofit organization organized under Chapter 504A of the
Code of Iowa and as described in Section 501(c)(3) of the Internal Revenue Code. The
purpose of the CFGD is for the support of scientific, educational and charitable activities in
the Greater Dubuque Metropolitan area, including Northwestern Illinois and Southwestern
Wisconsin. According to its June 30, 2016 audited financial statements, the CFGD is
supported through contributions from the general public and area organizations.
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Between July 1, 2015 and June 30, 2016, $232,500 was disbursed to CFGD from the City for
various programs of the CFGD. We reviewed agreements and payments from July 1, 2015
through June 30, 2016. During this period, the City paid $142,500 to CFGD for a program
known as Inclusive Dubuque. The objectives of the program are to engage and coordinate a
network of leadership from diverse communities within Dubuque in order to support a
coordinated, collaborative approach to supporting a more inclusive community, facilitate an
equity profile to help reveal the impact of changing demographics and determine strengths
and opportunities related to equity/inclusion, engage community members in developing
priorities from the information gathered in the equity profile, collect data and measure
outcomes and facilitate funding to support Inclusive Dubuque for 3 years. A required
monthly report to the Human Rights Director detailing activities related to the use of City
funds was not received by the City, and the annual report to the City Council was not
received as required.
For fiscal year 2016, the City paid CFGD $67,500 for Project H.O.P.E. (Helping Our People
Excel) in monthly installments of $5,625. The objective of Project H.O.P.E. is to facilitate
inter-agency collaboration systems and to make systems easier to access and navigate in
order to connect disengaged youth and adults to education and employment opportunities. A
required monthly report to the Economic Development Director detailing activities related to
the use of City funds was not received, and the annual report to the City Council was not
received as required.
For fiscal year 2016, $22,500 was paid by the City to CFGD as fiscal agent for the Every
Child Every Promise Agency (ECEP). The objectives of the program are to support a culture
in which all families are supported and every child receives every promise. According to the
agreement, ECEP encourages inter-agency collaboration and reducing policy/program
barriers to service in order to ensure every child has access to caring adults, safe places, a
healthy start, effective education, and opportunities to serve. Detailed objectives include
coordinating and improving out-of-school activities, increased transportation access for
youth, and ensuring grade level reading by 3�d grade. A required monthly report to the
Housing and Community Development Director detailing activities related to the use of City
funds was not received, and the annual report to the City Council was not received as
required. Additionally, the agreement required ECEP to update the City Council with written
reports quarterly and bi-annual presentations which were not received or presented.
The Constitution of the State of Iowa prohibits governmental bodies from making a gift to a
private non-profit corporation. Article III, Section 31 states, in part, "... no public money or
property shall be appropriated for local, or private purposes, unless such appropriation,
compensation, or claim, be allowed by two thirds of the members elected to each branch of
the General Assembly." Chapter 15A of the Code of Iowa states, "Economic development is a
public purpose for which the state, a city, or a county may provide grants, loans, guarantees,
taY incentives and other financial assistance to or for the benefit of private persons." Except
for mention of these projects in the City's Five Year Goals Plan, the public purpose served by
these disbursements is not clearly documented or approved as part of an economic
development plan under Chapter 15A of the Code of Iowa.
Recommendation - The City should obtain and review all reports required by these
agreements to ensure funding by the City was spent appropriately. In the future, the City
should ensure all agreements with private non-profits are for a public purpose under
Chapter 15A of the Code of Iowa. The City should consult independent legal counsel to
determine the appropriateness of the disbursements and whether any or all funds should be
returned to the City.
Resoonse -The City of Dubuque does ensure all agreements with private non-profits are for a
public purpose. The City of Dubuque asserts that all the funding agreements with the
Community Foundation of Greater Dubuque (CFGD) fall within the definition of public
purpose. To expand upon the City's position, the agreements with the CFGD were for a public
purpose, Iowa Code Chapter 15A outlines the regulations for use of public funds to aid
9
economic development. Pursuant to Chapter 15A, "Economic Development is a public
purpose for which state, a city, or a county may provide grants, loans, guarantees, tax
incentives and other financial assistance to or for the benefit of private persons." (emphasis
added). Additionally, economic development is defined as: "private or joint public and
private investment involving the creation of newjobs and income or the retention of e�sting
jobs and income that would otherwise be lost." (emphasisadded).
The City of Dubuque created the office of Director of Community and Economic Development
on February 27, 1990. Economic Development reaches beyond just creating more jobs.
Creating jobs may not mean the addition of new jobs, but creation of skilled workers to fill
vacant jobs to retain businesses in the community and allow for growth opportunities.
One way to improve job quality and worker prosperity is to raise the value of the individual
workers in the eyes of businesses and help businesses compete globally. Key components in
doing this are education and workforce development systems. Both components focus on
increasing the supply of the available skilled workers and help reduce the costs to employers
of skills mismatch. Economic Development is not only educating employees, but also
developing, attracting, and retaining skilled workers and in turn reducing turnover for the
businesses. The Greater Dubuque Regional Skills Gap Analysis completed in Fall 2017
collaborated with both economic and workforce developers as well as educators to gather
information on projected shortages (gaps) and identify strategies to mitigate these shortages.
In 2016-2017, Greater Dubuque Development Corporation conducted 341 company visits
with an impact of 36,943 employees in which they visited with management to discuss
challenges they are facing. The results of the assessment included:
• 29% cited workforce as a top challenge within the community
• 60% of those citing recruitment being a challenge
The Community Foundation of Greater Dubuque previously established a number of
initiatives in the community which align with the City of Dubuque Vision Statement, Mission
Statement, and City of Dubuque Goals 2022. Partnering with the CFGD is consistent with the
City efforts to minimize workforce gaps and challenges to promote and support Economic
Development.
The specific programs cited in the audit included:
• Inclusive Dubuque
• Project H.O.P.E.
• Every Child Every Promise
Creation of a separate initiative by the City of Dubuque when the CFGD was already working
in the subject areas is not the best use of City resources nor in the best interests of citizens.
Multiple entities working on the same thing without partnership or coordination is inefficient,
undermines the ability of each to accomplish its mission, and creates unnecessary
competition. The City of Dubuque is open to putting initiatives out for bid when there are not
e�sting opportunities for partnership, engagement, and synergy. The programs listed above
are vital in promoting Dubuque's Economic Development not only today, but in the future as
well.
The funding provided to the CFGD initiatives was not a gift, but a partnership furthering the
City's economic development efforts. "Economic developmenY' means private or ioint
nublic and nrivate investment involvine the creation of new iobs and income or the
retention of existin¢iobs and income that would othercvise be lost."
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Inclusive Dubuque helps engage and coordinate a network of partners dedicated to creating
an informed, equitable and inclusive community where all people, regardless of race, age,
culture, gender, ethnicity, religion, sexual orientation, class or disability are respected,
valued, treated fairly, and engaged in the community. Amongst the many Inclusive Dubuque
partners are the following businesses and business groups:
• 365Ink
• 4 the People, Inc
• Alliant Energy
• Body and Soul
• Cartegraph
• Clarke University
• Department of Corrections
• Diamond Jo Casino
• Dupaco Community Credit Union
• Iowa State University Extension and Outreach
• John Deere Dubuque Works
• Loras College
• Medical Associates
• Mercy Medical Center
• Mystique Casino
• Northeast Iowa Community College
• Prudential
• TH Media
• UnityPoint Health Finley Hospital
• University of Dubuque
• University of Wisconsin-Platteville
• Wartburg Seminary
Inclusive Dubuque helps create a community where all people feel respected, valued and
engaged. Not only do these factors help businesses attract talent, but it allows businesses
to retain talent which is vital for economic development. Inclusive Dubuque has a wide-
range of partners from non-profits, to for profit companies, to colleges, and other
governmental entities demonstrating the community's dedication and collaborative effort to
advancing equity and inclusion in the Dubuque community. Inclusive Dubuque designed its
equity profile to be a process that discovers how diverse groups are affected by various systems
in the community. For this summary, diverse groups include race, age/generation, culture,
disability, gender, nationality, religion, sexual orientation, socioeconomic status, veteran
status and more.
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Launched in 2015, the equity profile sought to gather local data, along with feedback from
community members in seven different focus areas:
1. Economic wellbeing
2. Housing
3. Education
4. Health
5. Safe neighborhoods
6. Transportation
7. Arts/culture
Economic wellbeing encompasses areas including workforce demographics, poverty rates,
unemployment rates and more. This information provides insights to the changing
demographics of Dubuque's workforce. Recent demographic projections indicate that the
minority population is projected to become the numerical majority of the under age 18
population in 2018. The minority population is also projected to become the majority of total
population in 2043. There is also a shift in the age distribution of the population:
• the 65+ age group increases by 8%
• the under 18 age group decreases by 3%
• the 18-64 age groups decreases by 6%
Inclusive Dubuque brings people and businesses together to create a dialogue to facilitate
communication on how Dubuque can continue to support a diverse workforce including
people of any age, gender, race/ethnicity, socioeconomic status and professional category;
and how we connect more people (targeting those who are unemployed or underemployed) to
programs in our community that provide education and job skills training, so they can
increase their earnings and fill much needed gaps in the local workforce.
Project H.O.P.E. (Helping Our People Excel) is an initiative which increases access to
economic opportunity for all community members by supporting networks driving system
changes, expanding pathways to education and employment, and increasing access to
financial institutions. Project HOPE began in 2008 and since that time has successfully built
a network of partners to address barriers to economic opportunity in Dubuque. The partners
include:
• City of Dubuque
• Greater Dubuque Development Corporation
• East Central Intergovernmental Agency
• IowaWorks
• Dubuque Community School District
• Northeast Iowa Community College (NICC)
• The Circles Initiative
Through the work of partners, successful initiatives have been launched that focus on high
school dropout re-engagement, connecting individuals to job trainings and careers, and
connecting families to financial services. Key accomplishments include Re-Engage Dubuque
which has connected over 400 youth who did not complete high school to alternative
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education options and post-secondary education. 126 have received their high school diploma
or HSED. Opportunity Dubuque, which is a training/employment partnership targeting the
unemployed and underemployed, has accepted 554 students, and 434 have graduated or are
currently in training. 98% of contacted graduates have retained employment or are continuing
their education. This program is key in responding to the needs of employers and workers in
Dubuque by providing the necessary skills for today's jobs in advanced manufacturing,
information technology, healthcare and logistics. Project HOPE also participates in two
learning cohorts to learn best proactive strategies within the Dubuque community to be more
inclusive through providing access to banks and credit unions and tools to help individuals
and families grow their financial strength. Project HOPE continues to convene stakeholders
for the Mental Health and Child care Needs Assessment to facilitate conversations around
how partners can act on the recommendations. Both have been identified as common
barriers in obtaining and retaining employment.
Every Child Every Promise (ECEP) is dedicated to helping all young people succeed in
schools, a career, and in our community. ECEP has partnered with both local and national
partners in carrying out the five ECEP promises: Caring Adults, Safe Places, Health Start,
Effective Education, and Opportunities to Serve. Through these five promises, our youth
become invested in their education and engaged in the community, ultimately readying
them for the workforce. ECEP also has programs dedicated to grade-level reading which is a
collaborative effort by funders, nonprofit partners, school, governmental agencies and
parents to help ensure that more low-income children succeed in school and are
prepared for college, a career and active citizenship. For the 2015 school year, Dubuque
Schools saw a significant impact in reading scores for students participating in the reading
program. 89% (416) students enrolled in the program improved reading scores and 92% (439)
students attended school 90% of the time or more. Not only is the ECEP an investment in the
youth but is an investment in attracting talented workforce to the community. When
looking for employment, good schools are often a high priority on thejob seekers list of things
to look for. Having programs that engage and support the youth, ultimately reflect in better
test scores, which is key in attracting, developing, and retaining a skilled workforce.
Each of the above programs and the City's partnership with CFGD shows not only a
dedication towards Economic Development, but also a commitment towards the City Council
Goals 8� Priorities as set in 2014 and 2015. The City's vision statement includes an `inclusive
community' and `achieving goals through partnerships'. The City with its partnership with
CFGD is working towards these goals. Other important factors to note in the Council's goals
and priorities as top priorities, high priorities and Management in Progress are: Inclusive
Dubuque Action Plan and the City's role as a partner in implementation of action plan, City
Economic Development and the funding of those through partnerships, Project HOPE,
Campaign for Grade Level Reading and partnering with AmeriCorps, Intercultural
Competency Program and recruitment and retention, Intercultural Competency Program for
the Dubuque Community, Bridges Out of Poverty Program, Police-Race Dialog. The City of
Dubuque Vision Statement calls for Dubuque in 2032 to be a sustainable and resilient city
and an inclusive and equitable community with a strong diverse economy. The City of
Dubuque Mission Statement focuses on achieving goals through partnerships allowing for the
delivery of excellent municipal services which support urban living, contribute to an equitable
sustainable city, plan for the community's future, and facilitate access to critical human
services. The City's five-year goals specifically call out:
• a Robust Local Economy: Diverse Businesses and jobs with Economic
Prosperity
• Partnership for a Better Dubuque: Building Our Community that is Viable,
Livable, and Equitable
The City, CFGD, and many other partners are active partners in these initiatives. Specific to
the CFGD, staff ineet monthly with the City department directors assigned to the initiatives at
one-on-one meetings and at monthly steering committee meetings where routine written
13
reports are provided. There are also additional informational meetings throughout the year
and presentations, including to City Council, on the plans and outcomes of this work. All the
above priorities and goals have a direct relationship to the programs the City partners with
CFGD on.
Workforce Development is not only a top priority for the City, but for State and Federal
Government as well. Just recently in President Trump's visit to Dubuque, he held a
roundtable discussion on this very issue. This visit brought together both business and
political leaders throughout the state and community in which they all agreed a strong
workforce is vital to the community and to economic development. Education and programs
such as the ones Dubuque partners with CFGD on are such programs that work towards this
common goal supporting economic development.
FLiture Ready Iowa is former Governor Branstad's and current Governor Reynolds' initiative
started in 2014 to develop strategies to improve educational and training attainment of its
citizens and the alignment of those degrees and credentials with employer demand. Much
like Dubuque's partnership with CFGD, Future Ready Iowa is a collaborative approach to
highlighting best practices, nurturing high-quality partnerships, and ensuring hard-working
taY dollars are focused on those areas that will ma�mize progress toward the goal.
Going forward, the City of Dubuque will obtain and review all reports required by funding
agreements to ensure funding provided was spent appropriately. The City will consult with
independent legal counsel to determine the appropriateness of the past disbursements
referenced for an evaluation of whether any or all funds should be returned to the City.
Conclusion - We concur with the City's response regarding obtaining and reviewing all
required reports and to consult with independent legal counsel to determine the
appropriateness of the referenced disbursements for an evaluation whether any or all funds
should be returned to the City.
(B) Business Transactions - The President and Chief Executive Officer (CEO) for CFGD is the
City Manager's spouse. In addition to the $232,500 discussed above in (A), the City paid
CFGD $5,400 on behalf of Faces and Voices, a community group that annually organizes a
Martin Luther King, Jr. birthday celebration, $3,000 for results based accountability training
presented by Public Health of Madison and Dane County, and $255 for tickets for City
employees to attend the Greg Gumble speech in association with the Martin Luther King, Jr.
birthday celebration.
Section 362.5(2) of the Code of Iowa states, "A city officer or employee shall not have an
interest, direct or indirect, in any contract or job of work or material or the profits thereof or
services to be furnished or performed for the officer's or employee's City. A contract entered
into in violation of this section is void." Chapter 362.5(3)(e) states, "The provisions of this
section do not apply to contracts in which a city officer or employee has an interest solely by
reason of employment... if the remuneration of employment will not be directly affected as a
result of the contract and the duties of employment do not directly involve the procurement
or preparation of any part of the contract."
FLirther, Chapter 15A.2 of the Code of Iowa states, "If a member of the governing body of a
city or county or an employee of a state, city, or county board, agency, commission, or other
governmental entity of the state, city, or county has an interest, either direct or indirect, in a
private person for which grants, loans, guarantees, taY incentives, or other financial
assistance may be provided by the governing board or governmental entity, the interest shall
be disclosed to that governing body or governmental entity in writing. The member or
employee having the interest shall not participate in the decision-making process with regard
to the providing of such financial assistance to the private person."
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The City provided us with an interpretation prepared by the City's Senior Legal Counsel
stating Ms. Van Milligen is a salaried employee of CFGD and her salary is not based on any of
the funds received by CFGD from the City. He further states she does not participate in the
negotiation of the purchase of service agreement for CFGD. While it is true Ms. Van Milligen
is a salaried employee of CFGD, her position as President and CEO makes her a significant
decision making member for the Foundation. Also, her husband, Mr. Van Milligen, City
Manager, recommended each of the service agreements discussed in (A) for approval by the
City Council.
Also, in accordance with section 362.5(j) of the Code of Iowa, the above transactions may
represent a conflict of interest since total transactions were more than $1,500 during the
fiscal year and the transactions were not competitively bid.
Recommendation - The City should consult independent legal counsel to resolve this matter.
In the future, the City should ensure all potential conflicts of interest transactions, contracts,
or agreements are competitively bid in accordance with section 362.5(i) of the Code of Iowa
and maintain adequate documentation to evidence bids and decisions. Also the City should
ensure there are no conflicts of interest when awarding grants, loans, guarantees, taY
incentives, or other financial assistance in accordance with Chapter 15A.2 of the Code of
Iowa.
Response - The City continues to assert there is no conflict of interest in the business
transactions between the City of Dubuque and the Community Foundation of Greater
Dubuque (CFGD).
The audit references the expenditures outlined in comment (A) above which will not be
further expanded upon. Additionally, the audit evaluated the annual Faces and Voices MLK
Day breakfast, a results-based accountability training, and tickets to a speech in association
with the Faces and Voices MLK Day celebration.
The CFGD role in the Faces and Voices MLK Day breakfast is that of financial assistant The
CFGD processes payments for the breakfast for the Faces and Voices community group as
the CFGD is better equipped to process, document, and handle the related financial
transactions for the event The planning group is not equipped to do so without a significant
amount of work and hardship. This has been done since 2008. Prior to that, the payments
were handled by Faces and Voices. The City has had attendees at the Faces and Voices MLK
Day breakfast for over twenty (20) years. The same can be said for the tickets purchased for
the speech associated with the event There is no contract or state code implicated in sending
city staff to attend community events. There is no opportunity for the City to competitively bid
an event for which staff inembers attend.
As to the results-based accountability training, the CFGD was hosting the training presented
by Public Health of Madison and Dane County and invited the public to participate. The City
chose to send staff inembers to the community training to further efforts by staff to further
the City's vision, mission statement, and goals. The training was not the City's contract nor
agreement The City paid the price for staff to attend the training as did other entities within
the community. There is no opportunity for the City to competitively bid an event for which
staff inembers simply attend for staff and community development.
Iowa Code Section 15A.2 outlines the provisions for conflicts of interest. Of note, the code
requires an interest direct or indirect IN A PRIVATE PERSON for which grants, loans,
guarantees, taY incentives, or other financial assistance may be provided. No City funding
was provided to Nancy Van Milligen as A PRIVATE PERSON when funding supported on-
going initiatives at the Community Foundation of Greater Dubuque or by the attendance of
City staff at community events.
The audit references Mrs. Van Milligen's significant decision-making authority for the CFGD
and the recommendations of Mr. Van Milligen in his role as City Manager. This conclusion is
inconsistent with the following provisions of Iowa Code §15A.2:
15
a. Employment by a public body....shall not be deemed an indicia of an
interest by the employee or of any ownership or control by the employee of
interests of the employee's employer.
b. The word "participate" or "participation" shall be deemed NOT to include
discussion or debate preliminary to a vote of a local governing body or
agency upon proposed ordinances or resolutions relating to such a project
or any abstention from such a vote.
The City continues to assert the contracts are not prohibited as they fall within the
exceptions outlined in Iowa Code §362.5. The provisions of §362.5 prohibiting an interest in
public contracts do NOT apply:
"if the remuneration of emnlovment will not be directiv affected as a result of the
contract and the duties of emnlovment do not directiv involve the nrocurement or
nrenaration of anv nart of the contract."
Finally, the City has always disclosed the relationship between Mr. Van Milligen and
Mrs. Van Milligen to its auditors, who also agreed that it does not meet the definition of related
party or conflict of interest as defined by Iowa Code.
Going forward, the City of Dubuque will consult with independent legal counsel to further
evaluate conflicts of interest The City will use competitive bidding where required. The City
will comply with Iowa Code §15A.2. Future contracts with CFGD will be recommended to the
City Council by the City Attorney and not the City Manager.
Conclusion - Response acknowledged. Chapter 4.1(20) of the Code of Iowa states, "Unless
otherwise provided by law, "person" means individual, corporation, limited liability company,
government or governmental subdivision or agency, business trust, estate, trust partnership
or association, or any other legal entity." Also, Mrs. Van Milligen is not merely an employee
of CFGD, but rather CEO and President which makes her a key decision maker for the
Foundation. In addition, Mr. Van Milligen did not merely participate in discussions but
rather made recommendation to the City Council to approve the contracts. In the future, the
City should ensure there are no conflicts of interest when awarding grants, loans,
guarantees, tax incentives, or other financial assistance in accordance with Chapter 15A.2 of
the Code of Iowa.
(C) Sale of the 18*h Street Eneine House - Per Section 364.7 of the Code of Iowa, a city may
dispose of an interest in real property by resolution after holding a public hearing regarding
the resolution and disposal. In June 2011, after holding a public hearing, the City approved
the sale of the engine house to Engine House #1, LLC for $1 and also approved a developer
agreement with Engine House #1, LLC to renovate the property. The developer agreed to
make a capital investment of not less than $1,550,000.
In August 2011, the City approved the transfer of the developer agreement and purchase of
the engine house to the Dubuque Bank 8� Trust Company Community Development
Corporation (Development Corporation); however, a public hearing was not held before
transferring the sale from Engine House #1, LLC to the Development Corporation. Also, the
reason for the transfer from Engine House #1, LLC to the Development Corporation was not
documented and City staff were unable to locate the purpose for the transfer.
Recommendation - The City should consult independent legal counsel to determine the legal
propriety of the transaction. Also, the City should ensure future dispositions of real property
are in compliance with the Code of Iowa and any subsequent revisions are documented in the
City Council meeting minutes.
16
Response - The City of Dubuque continues to assert the transaction between Engine
House #1, LLC and the City of Dubuque complied with the state code. The Development
Agreement between the City and Engine House #1, LLC was approved at a public hearing on
June 6, 2011, pursuant to notice published April 22, 2011 required by Iowa Code Sea 403.8
for the disposal of the City's interest in the property. A resolution was adopted by the City
Council at the June 6, 2011 meeting approving the Development Agreement and the sale to
Engine House #1, LLC.
The City Council consented to and approved the assignment of the Development Agreement
by Engine House #1, LLC to DB8�T Community Development Corp. on August 15, 2011. No
public hearing on the assignment was required either by Sea 403.8 or 364.7 because the
City Council had already disposed of its interest in the property when the sale was approved
on June 6, 2011.
Originally, another local non-profit, Dubuque Initiatives (DI), was interested in the benefit of
the taY credits generated by the project. However, after reviewing alternatives, DI determined
it would have to form another entity to take advantage of the taY credits and may not have
the resources to put cash into the deal if there were cost overruns. DI reached out to DB8�T
about its Community Development Corporation (CDC) taking over the project. After reviewing
the alternatives, it made more sense to have the end-user of the credits, the DB8�T CDC, own
the property. The DB8�T CDC gained both ownership of the building and the taY credits,
rather than buying the credits from Engine House #1, LLC. This allowed the DB8�T CDC to
gain more community development credits for their banking certification over buying the
credits.
The City of Dubuque will consult with independent legal counsel to determine the legal
propriety of the transaction disposing of the 18th Street Engine House. The City will ensure
dispositions of real property are in compliance with the Iowa Code and subsequent revisions are
documented in City Council meetingminutes.
Conclusion - Response acknowledged. On June 6, 2011, the City agreed, by resolution, to
dispose of the property to Engine House #1, LLC, not to DB8�T Community Development
Corporation. Chapter 364.7(2) states, "After the public hearing, the Council may make a final
determination on the proposal by resolution." Because the resolution agreed to in June 2011
was not the final determination, the City should have held a public hearing before the final
resolution was agreed to in August 2011.
(D) Disbursement Approval - A list of claims is not approved by the City Council prior to the
disbursement The City does not have a written disbursement policy allowing certain routine
monthly bills and payroll items to be paid prior to City Council approval.
Recommendation - The City could adopt a written disbursement policy to allow payment of
certain routine monthly bills and payroll prior to City Council approval. All disbursements
should be approved by the City Council prior to disbursement, with the exception of those
specifically allowed by the policy. Those bills paid prior to approval should be submitted to
the City Council for review and approval at its next meeting following payment The action of
the City Council should be recorded in the minutes of the City Council.
Resoonse - Effective July 1, 2018, the Council began approving accounts payable payments
before checks are issued. Also, effective July 1, was Resolution 142-18 in which the Council
gave authorization to the Finance Director to issue checks in payment of the following
expenditures prior to City Council approval.
• Bonds and principal representing bonded indebtedness of the City, when said
bonds and principal are due and presented for payment. All interest on bonded
indebtedness of the City when the same is due and coupons are presented for
payment, or when the contracted bond registrar requests payment.
17
• All other scheduled debt service principal and interest payments approved by
previous council action.
• All sales taY due to the State of Iowa.
• All utility bills for water, electricity, gas, telecommunications,etc.
• All medical, dental, disability and life insurance premiums and medical claims
from insurance provider.
• All annual premiums for the City's property, liability, and pollution policies.
• Salaries and wages of officers and employees at the rates authorized by City
Council.
• Payment of federal and state withholding taYes, social security, Medicare,
retirement fund, MFPRSI and IPERS contributions, and unemployment taYes as
required.
• Contractual payments for items approved by previous Councilactions.
• Reimbursements to employees for budgeted purchases (e.g. travelcosts).
• Deposit refunds under facility rental contracts.
• Utility overpayment refunds.
• Payments made to take advantage of early payment discounts.
A listing of the checks issued for the exceptions above are provided to Council at the next
council meeting for review.
Conclusion - Response accepted.
18
G[y o( Oub�q�e
5[aR
Thic reeutl¢ waz pee(emetl bp.
EYree[ H. Rubery Jr., CPA, Manager
Jemie T. Re�[a, 9eniar Autli[or II
C
/a�� � �� � �. �
Temere 9. Kueiary CPA
Oepu[y Autl¢or o( 9[aze
19
Ahlers&Cooney,P.C.
A H L E R S C O O N E Y Attorneys at Law
100 Court Avenue, Suite 600
A T T ❑ R N E Y 5 Des Moines, lowa 50309-2231
Phone: 515-243-7611
Fax: 515-243-2149
www.ahlerslaw.com
Kristin B. Cooper
515.246.0330
kcooper@ahlerslaw.com
November 2, 2018
Via E-Mail - cbrumwel@cityofdubuque.org
Crenna M. Brumwell
City Attorney
300 Main Street
Har�or View Place, Suite 330
Dubuque, Iowa 52001-6944
RE: Reaudit Report Released November 2, 2018
Dear Ms. Brumwell:
At your request we have reviewed the reaudit report on the City of Dubuque released
from the Office of Auditor of State on November 2, 2018. The reaudit recommends that the City
consult independent legal counsel on two separate matters which we consider below.
The first of these matters involves payments to the Community Foundation of Greater
Dubuque ("CFGD"). It is our understanding that the City made payments to CFGD from July l,
2015 through June 30, 2016 for various programs including "Inclusive Dubuque," "Project
H.O.P.E.," and "Every Child Every Promise." The reaudit states that"[t]he City should consult
independent legal counsel to determine the appropriateness of the disbursements and whether
any or all funds should be returned to the City."
The City's response to the reaudit includes considerable support for the proposition that
its payments to CFGD were made for economic development as defined under Chapter 15A of
the Iowa Code. Chapter 15A specifically provides that financial assistance made to or for the
benefit of private persons for economic development is a public purpose, which has also been
affirmed by the Iowa Supreme Court. See Brady v. Ciry of Dubuque, 495 N.W.2d 701, 706
(Iowa 1993). Iowa courts have generally deferred to legislative declarations of public purpose,
stating that it will not find an absence of public purpose "except where such absence is so clear
as to be perceptible by every mind at first blush."John R. Grubb, Inc. v. Iowa Hous. Fin. Auth.,
255 N.W.2d 89, 93 (Iowa 1977). We find no legal reason to second guess the legislative
declarations made by the City as to the public purposes served by the payments to CFGD.
With regard to the conflict matters identified in Section (B), we concur with the City's
response regarding potential conflicts of interest in the business transactions between the City of
Dubuque and CFGD.
The second matter involves the assignment of a Development Ab eement with Engine
House #1, LLC to Dubuque Bank & Trust Company Community Development Corporation
WISHARD & BAILY - 1888: GUERNSEY & BAILY - 1893; BAILY & STIPP - 1901; STIPP, PERRY, BANNISTER & STARZINGER - 1914; BANNISTER, CARPENTER.
AHLERS & COONEY - 1950; AHLERS, COONEY, DORWEILER, ALLBEE, HAYME & SMITH - 1974; AHLERS, COONEY, DORWEILER, HAYNIE, SMITH & ALLBEE, P.C. - 1990
November 2, 2018
Page 2
("DB&T"). The Development Agreement contemplated transfer and renovation of the 18tn
Street Engine House. We understand a public hearing was held prior to transferring the property
to and entering into a development with Engine House#l, LLC. At some point after the public
hearing the City consented to the assignment of the Development Agreement from Engine House
#1 , LLC to DB&T. The reaudit states that"[t]he City should consult with independent legal
counsel to determine the legal propriety of the transaction."
We disagree with the legal conclusions reached by the Office of Auditor of State.
Although this scenario involves a relatively unique set of facts, development ab eements
frequently include provisions allowing assignment of the contract, with or without consent by the
City, and such agreements also frequently include provisions for the transfer of real property.
Assuming the proper public hearing was held in advance of the transfer to Engine House#l,
LLC, we are not aware of any legal requirement to hold a second public hearing to approve a
City's consent to an assignment of a development agreement which includes provisions
approving a transfer of real property.
The statements expressed in this letter are based on a reasoned analysis of existing laws
and court decisions, which may be adversely affected by actions taken or events occurring,
including a change in law, regulation or ruling (or in the application or official interpretation of
any law, regulation or ruling) after the date hereo£ Please note that a court's decision regarding
the matters upon which opinions are expressed herein would be based on that court's own
analysis and interpretation of the factual evidence before it and of applicable legal principles.
If you have any questions regarding the information in this letter, please do not hesitate to
contact us.
Very truly yours,
Ahlers & Cooney, P.C.
�stin Billingsley Cooper
F R THE FIRM
KBC:sb
01534886-I\10422-000