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Tuesday, Oct. 7, 2008 | The San Diego Workforce Partnership is in the final stages of settlement talks with the U.S. Department of Labor over a years-long probe into the nonprofit’s mismanagement of millions in taxpayer dollars.

Since 2004, Labor Department investigators have been examining years of records that reveal how the jobs training agency has spent tens of millions of dollars in grants meant for the education and training of unemployed workers.

In their most recent report, issued in June and recently obtained by voiceofsandiego.org, investigators documented $750,000 in federal grant money that the partnership used for unneeded and unused building space and excessive rent for space it did occupy. They also found $6.6 million in unallowable employee salaries that were charged to federal grants.

This spending ran contrary to federal regulations that require expenses such as office space must not exceed “that which would be incurred by a prudent person.” And the agency used estimates to determine the salaries charged to the grants. Federal regulations demand meticulous documentation of salaries paid with federal grant money.

All told, the Labor Department is demanding that the partnership pay back $7.7 million in grant money that it spent between 2002 and 2004.

The partnership has corrected the vast majority of the problems identified by the auditors, and is appealing the demand, said Chief Executive Officer Mark Cafferty on Tuesday. Cafferty said he is confident that the final amount owed will be much lower.

“We are in a settlement and resolution process,” Cafferty said. “The amounts of money in that settlement will be significantly different than those listed in the final determination.”

Cafferty said the talks should be resolved by Oct. 15. Thomas C. Martin, the Labor Department grant officer who signed the final determination, didn’t return a call seeking comment.

Founded in 1974 by the city and county of San Diego, the partnership has grown to be the principal job assistance agency in the county. It oversees more than two dozen smaller charities that provide job counseling and other services for 20,000 to 30,000 county residents each year. Its $30 million annual budget comes almost entirely from federal grants.

Revelations of the partnership’s mismanagement of grant dollars first surfaced in 2005 after Labor Department monitors found widespread fiscal mismanagement at the agency, including unallowable expenditures, inadequate separation of finance-related duties and awards of grant money to local subcontractors without competitive bidding.

The June report detailed a variety of questionable actions by the partnership under former CEO Lawrence G. Fitch, who retired in December. The agency, for example, committed in 2002 to a 30-year lease of an 82,000 square-foot building in City Heights when it only needed about 40,000 square feet, the auditors found.

Partnership officials said they had planned to sublet space in the building to the charity Neighborhood House and the San Diego Community College District, but both organizations backed away in the midst of budget cuts.

Additionally, auditors found that the agency charged salaries to federal grants that did not accurately reflect the time employees actually spent on programs funded by the grants. Rather than logging the number of hours employees spent on federal programs, the partnership allocated salaries based on estimates. Auditors say the estimates were off by $6.6 million.

Partnership officials have maintained that they didn’t violate federal guidelines by estimating the employees’ hours. However, the agency now has a revised timekeeping system that counts employee hours on a program after they are worked.

Auditors also took the partnership to task for how it generated and classified income it received. In 2000, the agency began charging fees to subcontractors that operated the “one-stop” job hunting centers that it oversees throughout the county. Several subcontractors said they could not afford the fees and were thus barred from competing for the contracts. By 2006, the agency had collected more than $1 million in charter fees.

Partnership officials treated the money as discretionary income that could be spent in a variety of ways. The Labor Department said that since the money was generated through federally funded programs, it must be spent on those programs. The agency has since stopped charging charter fees, and auditors determined that the money was indeed spent on allowable programs.

The findings by Labor Department auditors have not been the only evidence of fiscal mismanagement at the agency.

In 2006, the San Diego Union-Tribune reported that the partnership spent $2.6 million in taxpayer money on an online program for job hunters that took years to develop, but ended up little more than a compilation of internet links that attracted few users.

Former partnership employees said the expensive and relatively useless website was an example of the incompetence and cronyism that had become commonplace at the agency under Fitch. The contract for the website went to a company run by a former partnership board member without competitive bidding.

Fitch resigned in December, a year before he was scheduled to retire. He cited the “toll that the events of the last two years have taken on me” as the primary reason for his early departure.

Please contact David Washburn directly at david.washburn@voiceofsandiego.org with your thoughts, ideas, personal stories or tips. Or set the tone of the debate with a letter to the editor.

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