The state auditor plans to expand his investigation into the relationship between a government agency set up as the landlord at a business development park and its anchor tenant, Internet start-up SafeHarbor.
State Auditor Brian Sonntag said Wednesday that his auditors will review a $1 million bank loan SafeHarbor secured in 2000. According to Uniform Commercial Code filings, SafeHarbor pledged equipment in its offices as collateral. However, the equipment and furnishings were owned by the Grays Harbor Public Development Authority.
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SafeHarbor CEO Brian Sterling and company President Bo Wandell denied pledging the government's assets for the loan in an interview with The News Tribune on Tuesday. However, that contradicted PDA correspondence and Sterling's own statements earlier this month when he said the company owned the furniture and equipment and had title to those assets when they were pledged for the loan.
The PDA bought the $2.3 million in equipment for SafeHarbor, and the company pays rent on the supplies.
Sonntag also said auditors will re-examine the agency's finances in 1999 and 2000 after a six-month News Tribune investigation found conflicts of interest between the PDA's board members and SafeHarbor, public bid laws that were broken on SafeHarbor's behalf and several instances in which the agency forgave SafeHarbor's delinquent rent payments.
After laying off 65 of its 240 employees, SafeHarbor remains on the brink of going under. The company is hoping to receive $5 million to $10 million in venture capital next week to stay afloat.
Meanwhile, in a reversal this week, the PDA plans to dispute some of the findings in a draft audit from Sonntag's office.
Tami Garrow, the PDA's chief executive officer, said in earlier conversations with the auditor's office that she believed the audit would be accurate and planned to make changes as a result of some of its conclusions. The PDA's board members changed their minds, though, once they saw a draft of the audit, she said.
"It was impossible for me to know what all was going to be in it," Garrow said. "There are indeed some issues that we would at least like to debate, and that's our prerogative."
Specifically, Garrow said the board disagrees with the auditor's finding that the PDA violated the state constitution's prohibition against lending public credit to a private company. The draft audit says the PDA should not have set up a $2.3 million line of credit for SafeHarbor to purchase the equipment for its offices at the business park.
But Garrow said the PDA's charter established the agency as a public corporation. As a result, it did not have to abide by the constitution, as other arms of government must do.
On Wednesday, the PDA's attorney sent the auditor a 10-page letter that outlined some of the PDA's objections. The attorney, Art Blauvelt, also took issue with Sonntag's decision to release a draft of the audit before the final report was completed in April.
Blauvelt said Sonntag never gave the PDA an opportunity to correct errors it found in the audit before its public airing. Sonntag said he released the audit only because the PDA discussed it at length with a local newspaper.
Sonntag also said the state Attorney General's Office would handle the legal questions raised in the audit and the response from the PDA's attorney. Garrow and Sonntag plan to meet Monday. Another rebuttal letter may follow, Garrow said.
A second phase of the audit will begin at that time to review the PDA's matters in 2001.
Among other issues, Sonntag said, his auditors will look at a federal Housing and Urban Development loan guarantee and grant that the PDA and Grays Harbor County applied for on SafeHarbor's behalf.
The $4.8 million loan and $600,000 grant helped finance a second, 43,000-square-foot office building for SafeHarbor. In documents to support the application, the PDA claimed SafeHarbor was current on its rent. According to PDA invoices when the documents were written in May 2001, though, it was not.
SafeHarbor moved into the building in October 2000. Five months and several layoffs later, it moved out.
Sonntag said his office also plans to look at a five-year contract SafeHarbor has with the state to provide Web-based "help desk" services to state agencies.
Sonntag said his office will review the agreement as a part of its regular audit of the Department of Information Services, which awarded the contract. To date, SafeHarbor has billed the state about $460,000 under the contract.
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* Reach staff writer Beth Silver at 360-754-6093 or firstname.lastname@example.org.
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