PORT TOWNSEND — COVID-19 and financial irregularities, including a possible embezzlement, crippled the Fort Worden Public Development Authority in 2020, but the board is currently working toward recovery, the Port Townsend City Council was told.
At the joint meeting between the council and the Public Development Authority (PDA) board on Monday, the council was asked to delay a decision on proposed code changes related to its charter of the Fort Worden Lifelong Learning Center until after a state auditor’s report is released.
The state auditor’s office is investigating internal financial irregularities discovered in 2020.
Funds set aside for capital projects such as Makers Square and Glamping were used to cover operational costs, and the board was not aware of it until last fall, when funds were quickly shuffled to cover loan payments.
The state’s investigation includes looking into possible embezzlement, interim Executive Director David Timmons said, adding that more details would be known once the report is released later this month.
The cause of financial irregularities was a “lack of control” and “trusting an individual,” Timmons told the council.
“The fault there was not fully on the board or the administration, rather an individual that was looking to deceive,” Timmons said. “When that occurs, it’s hard to find.
“I know we could’ve managed this without the pandemic.”
Timmons did not list the total amount of funds missing.
Timmons asked the City Council to delay approving oversight language in the code until the state auditor’s report is issued and the PDA can finish negotiations for loan terms necessary for its recovery.
Internal finances are improving, Timmons told the council, with the books recovering “rapidly,” and reorganization efforts on track to implement by July.
The PDA is still in a precarious position though, Timmons said.
It is struggling to continue to fund operations on a month-to-month basis — with potential recovery loan applications still being processed — and if it lets up or slows down its recovery efforts, it could fully collapse, Timmons said.
“If we stop now, it could do irreparable damage,” he said. “Failure is not an option. This is our Apollo 13 moment.
“We’ve got 10 minutes of oxygen to get through a 20-minute window.”
The council did not discuss the proposed code changes Monday and is expected to continue discussions in future meetings.
Financial issues for the PDA were brought to light in February 2020 before the COVID-19 shutdowns began. The state auditor’s office released a report that said that, in 2016 and 2017, the PDA had finance-management issues to correct.
Issues included late submissions of the annual financial reports, failure to disclose debt and that staff members tasked with preparing the financial statements lacked the technical experience needed to perform their duties.
While the PDA began to address the internal financial issues, the pandemic hit, and Fort Worden was forced to close due to the subsequent shutdown. The agency received no funding through the Coronavirus Aid, Relief and Economic Security (CARES) Act, Timmons said.
The PDA lost what it computed to be millions in potential revenue.
Reorganization is in the works.
The proposed reorganization of the PDA divides the responsibilities of management into three areas: hospitality services, asset management and the PDA trust.
The PDA trust would be overseen by a new board of trustees that would be tasked with ensuring the business models of the asset management and the nonprofit hospitality services are viable and continue to further the Lifelong Learning Center mission, Timmons said.
Makers Square is almost complete, which will help increase revenues this year, and hospitality bookings have already begun to increase, he said.
The PDA board is asking the City Council to prioritize selecting a new board for the reorganized PDA, so plans can move forward.
They’re also asking them to be cautious in how much oversight the council imposes, specifically in regard to finances, because the city is currently not liable for the PDA’s finances. Changing the code to require quarterly financial statements may indirectly cause the city to be liable in the future, Timmons said.
Timmons said oversight should be focused on the stakeholders’ interest, which, for the city, is the Lifelong Learning Center.
Oversight should be triggered by the need to support the PDA in future emergencies similar to COVID or the potential Cascadia earthquake that the PDA has no control over, Timmons said.
Monday’s full discussion and presentation can be viewed at https://tinyurl.com/PDN-PDADiscussion.
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Jefferson County reporter Zach Jablonski can be reached at 360-385-2335, ext. 5, or at zjablonski@peninsuladailynews.com.
