Museum audit questions $800,000 expenditure

An audit of the foundation that previously supported York County’s public museums raises questions about whether nearly $800,000 was properly spent in 2007.

The audit focuses on the transfer of that money from the Culture and Heritage Foundation to the foundation’s real estate development arm, which was called the Sustainable Development Group, or SDG.

The report does not allege that the money was stolen. Rather, the review says the foundation’s trustees were not properly informed about how the money would be used.

Foundation trustees were initially told the money would help fund the design of a new county museum on the Catawba River. Instead, the money was used to help pay for a real estate project the foundation and SDG were developing with a private company, according to the audit.

The foundation was involved in the development project, which called for a mix of retail businesses and housing near I-77 and Sutton Road. But the audit said the trustees were not “overtly informed” that the $800,000 would be spent to purchase more land and to pay off a line of credit.

Most of the foundation’s money was generated from donors and from interest earned from donations that were invested.

The audit results are the latest skirmish in a years-long dispute between York County officials and the foundation. York County Council and the county museum commission have raised questions about how the foundation and its subsidiaries spent money and managed donated land.

York County officials sued the foundation in 2013, saying they wanted to protect money and land given to the foundation on the public museum system’s behalf. The lawsuit came after the foundation changed its mission from solely supporting county museums to financially supporting a broader range of cultural and historical preservation efforts in South Carolina.

The lawsuit was settled last year, but only after York County Council and the foundation board agreed to jointly pay for an audit of the foundation’s finances. Auditors were guided by a list of concerns submitted by York County officials late last year. County officials have refused to make public that list of concerns.

The county and the foundation each spent $37,500 on the audit.

On Wednesday, York County officials issued a statement about the audit report, calling the $800,000 transfer “evidence of fraud or wrongdoing.” York County Council Chairman Britt Blackwell touted the results as evidence the county was right to be skeptical of the foundation’s money management and to push for more transparency in the lawsuit.

“This proves we did the right thing,” Blackwell said. “It shows our concerns were legitimate.”

In the report, however, the GreerWalker auditing firm stops just short of alleging fraud. Instead, auditors wrote: “It appears to us that a material fact was not communicated” related to the $800,000 transfer.

SDG and the foundation are now dissolved, according to Bill Easley, the most recent chairman of the Culture and Heritage Foundation board.

In a statement to The Herald on Wednesday, Easley challenged the assertions of county officials that the audit uncovered “fraud.”

The only issue raised by the audit report is about “internal communication between (the foundation) and its subsidiary SDG,” Easley wrote.

Auditors concluded that SDG had not “overtly shared information about” how the money was ultimately used. But, Easley wrote, that information and details about the $800,000 transfer were shared with the foundation board through meeting minutes and other communication.

SDG’s former board chairwoman, Jane Peeples, told The Herald previously that she expected an audit of the foundation and SDG’s records and actions to reveal no wrongdoing. In court documents over the past two years, an attorney for the foundation and SDG asserted that his clients had never misused donated funds or assets.

The dispute between county officials and the foundation centered mainly on nearly 400 acres of land donated to the foundation in the 1990s. The foundation planned to use the land, along the Catawba River near Sutton Road, to generate revenue for the museum system by developing the retail/housing development.

Plans also called for setting aside 60 acres for a new county museum to replace the current facility on Mount Gallant Road.

A deal was signed with a North Carolina company to develop the project. Under the plan, the company gave SDG $4.5 million. But when the deal fell through after the recession, SDG had to repay $3.78 million to maintain control of the land.

Today, the 60 acres set aside for a county museum are owned by the county. The new museum has not been built, and it’s unclear whether the building’s design was completed. The rest of the land has been sold to a private company for residential development as well as to Carolinas HealthCare System for a potential hospital and the Fort Mill School District for an elementary school.

‘Fraud’ claim not criminal charge

Although York County officials alleged fraud on Wednesday, Blackwell said it’s unlikely county officials will “take this any further” as a legal matter. Sixteenth Circuit Solicitor Kevin Brackett said Wednesday his office has not been forwarded any evidence for a potential criminal investigation.

It’s not clear if the report’s findings could be legally “actionable,” said Brian Autry, an attorney with the firm Nexsen Pruet who represented York County on this case.

“There may be evidence of wrongdoing from an accounting standpoint, but that’s different from whether it rises to actionable fraud as a legal matter,” Autry said. Autry said he had “no idea” if the evidence cited in the audit could meet the definition of criminal fraud.

Like the auditors, Brackett noted that fraud has a specific legal definition.

“I’ve seen allegations of fraud that weren’t provable fraud, that were just sloppy bookkeeping,” Brackett said. “I don’t want to speculate recklessly about what anybody might have done.”

Previously, York County officials had agreed to issue a public statement affirming that the foundation had not misused donated funds, if an auditor found no evidence of fraud or wrongdoing.

But on Wednesday, county officials pointedly refused to issue such a statement. Wednesday’s statement was jointly released by York County government and the county’s Cultural and Heritage Commission – the volunteer committee that oversees operations of the public museum system.

The York County public museum system includes Historic Brattonsville, The Main Street Children’s Museum, the Museum of York County, the Historical Center of York County and the McCelvey Center.

Easley said Wednesday the foundation spent “at least $368,000” on legal fees associated with disputes with York County. Less than one year after the county filed its lawsuit, The Herald reported that York County had spent more than $140,000 of taxpayer money on the legal fight. An updated amount was not available late Wednesday.

Easley says the money the foundation spent on defending itself could have been put toward the county’s museums.

Since it started in 1998, the foundation has contributed nearly $12.6 million to the public museum system, he said. That figure includes nearly $8 million for the county museum system to use for capital projects in the future and previous contributions of donated dollars for operational costs of running museum sites.

“The hard work of many donors and board members has produced significant results,” Easley said, adding, “It is unfortunate that this success has not been appreciated by recent county leadership.”

This story was originally published July 1, 2015 at 9:58 PM with the headline "Museum audit questions $800,000 expenditure."