The audit findings come amid a tumultuous period for the 20-year-old organization, marked by the departures late last month of Daedalus Howell, executive director since 2013, and Desiree Poindexter, the assistant director.
Howell laid off Poindexter and resigned himself, then both were terminated by the board after the discovery that Howell had taken out a $22,000 cash advance on the organization’s credit card to make payroll, including his own $85,000 annual salary.
Informed of the audit findings Wednesday, Howell suggested the city’s report was incomplete and claimed some of the funds in question were appropriately spent on operations, including staff salaries.
“It’s a bit of a mystery,” Howell said. “It just seems like they’re missing a piece of the puzzle.”
Before the layoffs, CMedia had a staff of about six people.
Howell was hired in part to help the organization broaden its revenue stream to make it less reliant on city funding, which makes up the bulk of its budget and this year totaled $350,000.
Looking at the group’s finances for the past two and a half years, auditors found several issues.
While CMedia had been paid $374,000 by the city to purchase computers and other equipment over that period, only about $46,000 in equipment purchases was accounted for in the group’s ledger.
Those purchases included iPads, MacBooks and GoPros used in video production.
But how the remainder of the funding was spent wasn’t clear from the group’s accounting, auditors said.
They also discovered the group was insolvent, with $32,000 in the bank in August and $52,000 in liabilities. The finding raised questions for the city about whether the organization could fulfill its obligations under the city contract, which runs through March.
The third discovery could raise many more eyebrows. Auditors determined that Howell racked up $10,000 on the group’s credit card over the same period for coffee, meals, drinks and other expenses.
The list of purchases showed Howell used the card liberally for everything from a cup of Flying Goat Coffee to $100 meals at Santa Rosa’s Spinster Sisters and bar tabs at Novato’s HopMonk Tavern and Petaluma’s La Dolce Vita Wine Lounge.
The expenses, the city audit found, were “not-in line with CMedia’s tax-exempt purpose.”
Howell, a 44-year-old Petaluma novelist, blogger and artist, defended his use of the card, however, saying they were legitimate expenses as he tried to diversify and expand CMedia’s business model so it didn’t rely so heavily on city funds.
“I was told when I was hired that I had to cultivate relationships and that’s what I did,” Howell said Wednesday. “In my opinion, I did everything as appropriately as I could.”
Howell said he turned in receipts for all the expenses and that the organization’s books were regularly audited.
In some cases, the expenses were for dining with employees, he said. Asked about a $171 meal in Paso Robles in February, Howell said that was a mistake for which he immediately reimbursed CMedia.
Howell writes the Rivertown Report blog for the Petaluma Argus-Courier, which is owned by The Press Democrat’s parent company, Sonoma Media Investments.
Eric McHenry, the city’s chief information officer, said the group’s annual audits submitted to the city were not detailed enough to show individual expenditures by staff members, suggesting the board may have been unaware of that activity as well.
The bigger issue, from a financial perspective, was the use of nearly $330,000 that, by law, was supposed to be dedicated to equipment or physical upgrades, known as capital funds.
CMedia was allowed to receive up to $150,000 per year in such funds annually and did so after submitting requests for how the funds would be spent, McHenry explained.
But when the city conducted the audit, officials were surprised to find how little had actually been spent on equipment, he said.
“That was a big flag for us,” he said.
According to Alan Alton, the city’s deputy director of finance, the city’s auditor discovered that $244,000 had been transferred during the audit period from the capital account into the operating account that covers labor expenses.
A limited amount of capital funds can be used to pay for the labor involved in getting the equipment up and running, but it’s not appropriate for 85 percent to be spent on labor, as appears to have been the case, McHenry said.
Howell said the city was well aware some of the capital funds were being used for salaries and the CMedia’s own auditor said the organization was being conservative in how it did so.
But he could not explain why the city could find so little documentation of equipment purchases.
McHenry said the city gave CMedia officials every opportunity to identify how the funds were spent, and would reassess if new information was brought forward.
McHenry has already hired four former CMedia staffers on a temporary basis to ensure meetings of the City Council, school board and county library commission are recorded.
The group’s board members spent much of Tuesday’s meeting trying to figure out what to do next.
If the City Council cancels the contract on Dec. 6, CMedia must be out of the Mendocino Avenue building and all city-owned equipment turned over by Dec. 7. Board members discussed hiring an attorney, pushing back on the audit findings and lobbying council members for a reprieve.
Board treasurer Marlowe Allenbright said she didn’t think CMedia was being treated fairly given that the city has reduced its funding to the organization in each of the past three years.
“The city strangled us, and we finally got wise and fired the cause of the drain of cash and the city comes back and says ‘You’re done,’ ” Allenbright said.
But the protests from the board members irked some audience members at the public board meeting. One woman, who declined to be identified, urged board members to take responsibility.
“The bottom line is money is missing and you’re accountable as the board,” she said.