PALM SPRINGS DESERT SUN December 2, 2005 Farm labor camp requests investigation Board says audit revealed possible cause for concern By Xochitl Peña INDIO - The corporation that owns the farm labor camp in Indio providing shelter for 1,000 east valley farm workers has asked the Riverside County District Attorney's office to investigate the corporation's finances for "potential criminal issues." An auditor's report on the Indio Housing Development Corp.'s financial records from January 2002 to September 2004 cited issues of improper payments, conflicts of interest and involvement in business partnerships that could have put the camp in debt for almost $10 million. First requested in 2004, the recently completed report was forwarded to the district attorney's office by the corporation's board of directors, made up of almost an entirely new governing board membership than a year ago. With a need to upgrade the camp's 253 dated apartment units and improve the life there for the men and women who harvest the valley's crops, the board of directors said the auditor's probe and request for an investigation by the district attorney's office is necessary in order to secure the financial stability of the organization. "The report itself says that there are things that are questionable and we have an obligation to have it investigated," said Rick Diaz, a member of the corporation's board of directors. The almost 10-month inquiry by Palm Springs accountant Karl Anderson cost close to $17,000 and was the first-ever look at a "Board of Director Checking Account." The auditor's report is based on limited financial documents and interviews. Concerns outlined in the report include: potentially improper payments of almost $56,000 to the corporation's attorney and former executive coordinator; conflicts of interest between the attorney and executive coordinator; and a "self-dealing" contract benefiting the executive coordinator. "Based on my review, analysis and interviews, I believe that certain persons connected to the organization may have exceeded their scope of authority and performed non-reimbursable services," Anderson, a certified public accountant, wrote in an Oct. 15 letter to the corporation's board of directors. The board's audit subcommittee drafted a letter dated Oct. 24 to Bruce A. Bower, assistant chief investigator, asking that he review the report because of "not only civil but potential criminal issues." Ingrid Wyatt, public information officer with the Riverside County, said Kelly Keenan, supervising deputy district attorney, is reviewing the materials. There is no investigation at this point. A decision on how to proceed may occur in mid-December, she said. "At that time we'll determine what action (to take), if any," Wyatt said. This isn't the first time someone has requested a probe. In September 2004, Police Chief Brad Ramos asked the Riverside County grand jury to investigate alleged financial and management improprieties discovered by the U.S. Department of Agriculture, which provides the mortgage and has outstanding loans with the camp. USDA cited issues before It was the U.S. Department of Agriculture in April 2004 that first brought up financial and management concerns involving former board members. Issues raised by the USDA included: payment of $10,971 out of the wrong funds for attorney services; inappropriate use of more than $6,000 to pay a non-corporation employee to type board minutes; failure the past three years to file IRS Form 990, the tax-exempt statement for nonprofit organizations; and unstructured board meetings, with board members not receiving their meeting packets and treasurer's reports not always provided. On Sept. 20, 2004, Chief Ramos asked the grand jury to investigate those allegations citing "potentially felonious conduct in violation of California Penal Code Section 424," which includes the embezzlement or falsification of accounts. The matter did not warrant a criminal investigation, Richard West, supervising deputy district attorney, replied in a letter. "The inappropriate expenditures alleged seem to be out of ignorance rather than criminal intent," the letter further stated. And much to the satisfaction of USDA officials, the board of directors for the past year has been working on clearing up many of the alleged issues. "That is our ultimate goal, to make sure that everything is up in the clean," said Pamper Rodriguez, board treasurer. That is why, she said, the board requested the auditor's inquiry and subsequent investigation - to make sure there aren't any improprieties. The $1 million loan the USDA threatened to withhold if the corporation did not clean up its act is no longer in jeopardy, said Bob Krauter, spokesman for the USDA Rural Development agency. "A new board is now in place. Obviously they've made a number of changes. I think they are on the right track," he said. The nonprofit organization needs that $1 million loan in order to receive a $1 million matching grant from the state. The money is used for apartment renovations and road, sewer and park improvements for its residents. Because of the problems raised, the corporation was not able to secure the matching grant this past year because the application deadline passed. However, it plans to apply this next funding season. "We do want that matching million so we can continue to do good for the campo. We know there is a lot that needs to be done," Rodriguez said. The auditor's report also was forwarded to USDA officials working with the camp. However, ramifications of the report will not affect the working relationship between the USDA and the corporation, Krauter said. Audit raises like concerns Several of the concerns raised in the current auditor's report are similar to the previous USDA allegations and involve Juanita Ramos, former board president, former executive coordinator and former Indio representative. She also was elected Indio City Clerk and served in that honorary capacity until her term was up in 2005. Ramos did not return several phone messages left at her home requesting comment for this article. George Williams - the corporation's attorney, former board member and Ramos' former contracted employer - also is named in the auditor's report. Williams is the husband of Indio Mayor Melanie Fesmire. Concerns raised by the auditor's report include: Payments to Ramos as IHDC executive coordinator. She became executive coordinator March 11, 2003 and was paid $40,000 from April 2003 to September 2004, in addition to $2,379.04 in expense reimbursements. The audit says there is no evidence the Ramos' contract was presented to the board for review as the bylaws require, and there appears to be a possible conflict of interest and act of "self dealing." Payments to Williams as attorney for IHDC. Directors understood that Williams was providing "pro bono" work. However from May 2002 to October 2004, IHDC paid Fesmire & Williams $15,918.30 for legal services. Williams said he could not comment on specifics of the auditor's report because he has not seen it. However, he did say that not all his work was free. "I provided lots and lots of pro bono work. It's just that not all the work I did was pro bono," he said. Williams in the past has also worked with the Inland Counties Legal Services, the California Rural Legal Assistance, El Progreso del Desierto, and the Coachella Valley Mexican-American Chamber of Commerce. Potential conflict of interest between Ramos and Williams. Ramos used to work as an interpreter for Williams at his law firm as an independent contractor. Williams and Fesmire are godparents to Ramos' son. At least two board members said they never knew of the relationships until after problems surfaced. Mayor Fesmire did not return calls for comment. "The firm of Fesmire & Williams has never hired Juanita (Ramos). She is not our employee. I think we may have hired her once maybe twice over the past many years to act as an interpreter for a deposition," Williams said. He added that she has worked as an interpreter for a client of his, but never as an employee of his law firm. And about his personal relationship with Ramos, he said they are friends. Williams said he did draft the contract under which she became the corporation's executive coordinator. Lack of financial documents from former treasurer Lupe Archuleta. Despite requests by Riverside County Supervisor Roy Wilson and current board members, Archuleta did not turn over all financial records in her possession. Wilson appointed Archuleta to the board to represent the county. However, the county ended the relationship in January, thus putting an end to Archuleta's position. Archuleta did not return several phone calls to her place of work. As criticized in USDA letters, the organization used farm labor camp funds to pay a non-IHDC employee to type board minutes. Board secretary Maria Serrano's daughter was paid more than $6,000 to type board minutes. Serrano declined to speak to the auditor because she doesn't speak English, according to the report. She was in Sacramento on vacation this week and unavailable for comment. The general checking account was not included in the corporation's annual audited financial statements, providing an opportunity for misuse. There were several questionable expenditures, such as reimbursement to Ramos and contributions to some of Ramos' favorite charities. Jack Gilk, the CPA and farm labor camp's independent auditor for about 15 years, said it is common practice to audit a company's operations - in this case the farm labor camp - but not the personal finances of the owner, in this case the Indio Housing Development Corp. Gilk, based in Carlsbad, said he only audited the farm labor camp's operational account, which was used by Hyder Property Management Professionals, the company that manages the camp on a day-to-day basis. He did not audit the corporation's board of directors' account. Also, contrary to USDA allegations, Gilk said the corporation has filed Form 990, the tax-exempt statement for nonprofit organizations, for the past three years. He personally filed them and wonders why the USDA assumes they were not filed. According to GuideStar.com, an online organization that keeps track of nonprofit organizations, the corporation has filed its 990's since at least 1998. IHDC entered into limited partnerships with five for-profit companies that run subsidized housing. The bylaws do not appear to have been violated by involvement in the limited partnerships. However, as a partner, the corporation could have been held liable to help cover losses if any incurred. Risky partnerships? In addition to running a camp that houses the valley's farm laborers, the Indio Housing Development Corp. since 1996 has owned general partner interests in companies that run subsidized housing. The corporation had a 4 percent interest in Mecca Apartments II in Mecca and a 1 percent interest in most of its other partnerships - Redondo I, Redondo II, both in West Morland, and Cottonwood in Calipatria. It's unknown how great the organization's investment was in a fifth interest, Quail Place, located in Blythe. The corporation has disposed of its interests in Mecca Apartments II and Quail Place. It is unclear whether Sam Jack, a local Indio businessman, real estate developer and former Indio planning commissioner, was a partner in those interests or if he just sold his interests to the corporation. Don Hyder, former owner of Hyder Property Management Professionals, said he can't fully recall, but it seems as though Jack transferred some partnership interest to the corporation. "I don't remember half the projects we have. So much of this stuff is so long ago," he said. The board is currently trying to rid itself of its interests in Redondo I, Redondo II and Cottonwood. Indio Housing Development Corp. acquired those three interests from Bill Martin. According to the auditor's report, it was Hyder who introduced the corporation to Jack and Martin. A nonprofit organization investing in limited partnerships is not illegal or uncommon, experts say. However, there are risks involved, and, according to the auditor's report, there is no evidence that the risks of such investments were discussed by the board. "As a general partner, the organization has had potential exposure to millions of dollars in debt if one or more of the limited partnerships would meet with financial failure," Anderson, the CPA, said in a letter to the board of directors. According to Robert Yetman, assistant professor with The Graduate School of Management at UC Davis, it is not uncommon for a nonprofit organization to enter into limited partnerships to increase cash flow. For example, a charity shares in the profits of the limited partner, while the partner is able to avoid paying taxes because of its relationship with the charity. It's often the tax avoidance that makes the partnerships seem questionable, said Yetman. "But they are often for valid business reasons," he said. If the for-profit partner turns a profit, then the charity does, too. By the same token: "It can be dangerous for a nonprofit to participate in too many financial business activities," said Yetman. "If these activities do not produce expected profits, the charity is responsible." To pay for any losses, charities usually dig into money from grants and donations that were intended to go to the people who benefit from the charity's good work, said Yetman. According to the audit report, a review of financial filings from 2004 for Redondo I, Redondo II and Cottonwood indicate that the farm labor camp had a total recourse debt, or liability of $9.8 million. "The organization's share of recourse debt represents liabilities or debts for which IHDC could have personal liability in the event that the real estate assets are lost to foreclosure in favor of the creditor of the limited partnership," said Anderson's report. What's next? Directors Rodriguez and Diaz said they could not comment on specifics of the auditor's report because of a pending investigation by the district attorney's office. Rodriguez said she requested the auditor's probe in December to comply with the USDA and make sure there weren't other potential improprieties occurring in addition to what the USDA discussed in their letters. "We're just trying to make sure everything is OK. Not that we're trying to put anyone at blame. We're trying to make sure we covered our butts," she said. ABOUT THE CAMP • The camp is located at 47-155 Van Buren St. • It houses about 1,000 farm laborers in 253 apartments. • The camp provides services such as child care, immunization clinics and housing subsidies. • It was established some 60 years ago by the County of Riverside. • The Indio Housing Development Corp. was formed in 1981 and took over its operation. The current board of directors has seven members - three "at-large" directors, one city appointee and three farm laborers who reside at the camp. Board positions are annually rotated. At-large directors are: • Ben Guitron, public information officer with the Indio Police Department and interim board president; • Rick Diaz, who represents Santa Rosa Del Valle medical clinic and also is an Indio Planning Commissioner; • Juventino Cardona, who represents the Coachella Valley Missionary Program, and is board secretary. City appointee: • Pamper Rodriguez, appointed by Indio City Council to represent the city on the board, and board treasurer. Resident directors: • Javier Hernandez, interim vice president; • Vicente Ortega; • Cruz Cervantes.