LAS CRUCES – On Tuesday, New Mexico State Auditor Brian Colón released a long-awaited report by an external investigator into waste, fraud and abuse within the Las Cruces city government over a period of several years.
The findings included potential criminal violations of state and federal law by former city employees and vendors.
Before considering the report’s implications, here is a rough timeline of events:
The process began with an internal audit and investigation in March 2019. Philip San Filippo, director of economic development, and Jennifer Bales, executive director of Visit Las Cruces (the city’s convention and visitors bureau) were both placed on administrative leave and the city confirmed it was investigating the bureau.
Visit Las Cruces is administratively part of the Economic Development Department, and San Filippo preceded Bales as its director before his promotion in 2017.
A few months later, the city confirmed that its investigation included the nonprofit Friends of Las Cruces, purportedly organized in 2015 to conduct fundraising and sponsorship programs on behalf of the agency with a focus on the Las Cruces Country Music Festival.
The nonprofit is no longer active, and the report released by Auditor Colón alleges that it was used by San Filippo as a “shell company” to spend public money as he wished.
Over the summer of 2019, San Filippo was fired, Bales resigned and the Las Cruces City Council approved a contract with an external investigator, the McHard Firm, which is known for high-profile investigations into municipal governments. (The firm also recently investigated complaints of mismanagement and abuse at Spaceport America.)
The contract hinted at the investigation’s scope, which included transactions with Marci Dickerson, owner of two local restaurants and a catering business. Dickerson had also been awarded a contract to manage the country music festival.
Ultimately, the city paid more than $200,000 for the independent investigation, which reconstructed financial transactions tracing taxpayer dollars moving through Visit Las Cruces, the nonprofit Friends organization, the city-owned Rio Grande Theatre and numerous vendors involved with city events, including Dickerson.
More than a year after the investigation began, McHard delivered its report to the state auditor in May of this year, which was released to the public on Tuesday of this week.
The report is 767 pages in length, including a 62-page summary of findings and recommendations. The city estimates the data and written documents probed by investigators amounted to more than three million pages.
Among its conclusions, the report states, “there is probable cause to believe that criminal violations have occurred,” and that, “because of the actions of CVB employees under the direction of Mr. San Filippo, the City has incurred a total of $1,674,624 in losses since fiscal year 2016.”
That includes $1,321,542 in reconstructed losses for the discontinued Country Music Festival and events held at Plaza de Las Cruces downtown, combined with $353,082 in reconstructed losses from the Rio Grande Theatre.
You can read the report in its entirety at the bottom of this story.
Investigators found evidence that former city manager Stuart Ed and San Filippo skirted city policies and laws, discouraged compliance by others and covered up violations. Complaints by citizens and elected officials, including anonymous complaints submitted via the city’s ethics hotline, were buried or disregarded, the report states.
The report also includes evidence that the Country Music Festival and downtown events regularly lost money, as did the Rio Grande Theatre after the city assumed direct managerial control in 2017. This was despite presentations by both men that the theater and the music festival were financially successful. The report also states that San Filippo inflated attendance numbers for the festival.
Further, the report alleges that the bidding process was rigged to steer the management contract for the music festival to Dickerson, after which several obligations under the contract were farmed out to city employees, or to subcontractors with ties to San Filippo.
The report goes on to allege that Dickerson retained funds for services she did not perform.
In an interview with the Mesilla Valley News podcast Tuesday, Dickerson maintained the contract had been awarded to her “fair and square” and that she followed directions from the city in rendering her services. She forcefully denied allegations in the report that Ed and San Filippo extended preferential treatment to her, calling the audit a “political witch hunt” and said she had records that would exonerate her from bid-rigging claims.
“We did our job the way we were instructed to do our job … and a lot of this stuff is their internal problems,” she said.
A $25,000 loan from San Filippo to Dickerson related to The Game II, her restaurant on Northrise Drive, was flagged by investigators as an investment in her business that constituted a conflict of interest. San Filippo disclosed the loan to Ed belatedly, according to emails included in the report.
Meanwhile, investigators state that the nonprofit Friends organization had no funds of its own and was created by San Filippo to move city money around, avoiding financial procedures at the city and scrutiny by officials, with Ed’s knowledge.
Visit Las Cruces employees were, at times, working events in addition to their regular duties, but instead of being paid overtime they were directed to falsify their timesheets and take “flex time” instead, in violation of city policies and federal labor laws. When it came to the music festival, the report alleges they were performing services that should have been covered by Dickerson under her contract.
A Las Cruces Sun-News investigation last winter found that the arrangement ultimately cost the city at least $20,824 in back pay and settlements with employees.
The report also digs into allegations of improper donations of city funds to numerous nonprofit organizations, side dealing and uses of city resources for personal projects by Ed and San Filippo, as well as allegations that San Filippo rigged the hiring process when he was appointed to head the economic development department in 2017, to steer the Visit Las Cruces directorship to Jennifer Bales in violation of city policies.
This is only a partial list of the issues flagged by investigators in a summary exceeding 60 pages.
What happens next?
One reason the report was not released for seven months was to give law enforcement agencies time to review the report and hundreds of pages of evidence. To date, no legal action has been taken against any of the individuals named in the report. According to the city, it is under review by the state Attorney General’s Office.
The findings point to potential civil and criminal violations, specifically mentioning fraud, embezzlement, criminal procurement violations, money laundering and rigging bids. The federal laws potentially violated include the Fair Labor Standards Act and antitrust laws, the report states.
Dickerson, Ed and San Filippo have claimed they were afforded no opportunity to explain themselves or provide documents, and they are not listed among the individuals interviewed by investigators.
Although San Filippo declined to discuss the report with the Las Cruces Sun-News, immediately after his firing last year he maintained that the city never gave him a reason for being placed on leave and that he learned about the investigation from viewing city council meetings.
Visit Las Cruces and the city’s economic development department both have new leadership. Ed resigned as city manager in April 2019 for reasons that were not made public.
Fifteen months and two interim managers later, the city selected Ifo Pili, a candidate from out of state, as the new city manager.
‘Nuts and bolts’ of governance
Mayor Ken Miyagishima stated Tuesday that “the findings in this report have already resulted in many changes to make the City a better organization,” and said the latest annual audit — which was publicly released on Dec. 22 — indicated no repeat findings, suggesting previously flagged accounting and management issues had been resolved.
In an interview Wednesday, interim assistant city manager Barbara De Leon enumerated numerous changes at the city since its internal investigation launched in 2019.
She said the changes aim to improve the environment at City Hall so employees may safely come forward with concerns, handling of public funds and management at the city.
Some of the responses outlined by De Leon include:
- Review of hiring and compensation policies;
- Boosting protections for whistleblowers;
- Review of cash-handling policies and tightening rules on budget override authorizations and use of purchasing cards;
- Review of procurement procedures, including the function of a procurement review committee first proposed by Ed after questions arose about the purchase of movie sets by the city in 2018;
- Preparations over the past year to update the city’s procurement code, which will come before the Las Cruces City Council in 2021;
- Tightening up rules and requirements for selecting vendors, both in sole-source and competitive bid selections;
- Enhancing confidentiality and conflict-of-interest policies;
- Allowing purchasing staff to access personnel information about potential conflicts of interest on selection committees;
- Tightening up the management of contracts citywide to assure the city is deriving the full benefit and that vendors meet their obligations;
- Expanding use of performance-based contracts, tying payments to the vendor’s performance;
- Developing a module for managers to review contracts, invoices and payments;
- Creating a new position in the city auditor’s office focused on auditing contracts;
- Enhancing the independence of the city auditor’s office, which now reports to the city legal department instead of the city manager;
- Establishing an inspector general position and an oversight committee;
- Distributing hotline complaints automatically to oversight committee, which supervises the inspector general and city auditor;
- Review of the country music festival’s management and finances, leading to a decision to discontinue the event in February.
De Leon also said that policies regarding city sponsorships and other suggestions from external auditors were under discussion.
“It may not be the most enticing part of the story,” she said, “but it’s like the nuts and bolts. If those things get loose and come off, the wheels are coming off. So you have to attend to that maintenance.”
During the Las Cruces City Council meeting on Dec. 7, City Attorney Jennifer Vega-Brown said the city planned to launch a searchable database allowing the public to research city contracts and vendors. She said it might be live within six to nine months.
Councilors discussed potential additional steps in open session, including increased rotation or randomization of who sits on selection committees, and requiring conflict-of-interest statements more than once per year.
“It’s a small city and I get we all know each other to some degree,” District 3 Councilor Gabriel Vasquez said during the meeting, “… but avoiding those opportunities for decisionmakers to give taxpayer resources to companies in a way that we don’t feel is ethical is, bottom line, one of the most important things we can do.”
Restoring faith in governance
“People’s faith in government has been eroding,” Colón acknowledged in an interview Thursday. “My job is to restore your faith in government by embracing the principles of accountability, transparency and excellence in government.”
He stressed that public engagement is essential to accountability. The State Auditor’s Office accepts anonymous tips via its website, www.saonm.org, or the telephone hotline at 866-OSA-FRAUD.
Colón said the office fields more than 500 reports annually, and that this investigation stemmed from a report by the city.
“You had an internal investigator take a look, was not comfortable, and said, ‘This needs a deeper dive,'” he said. “That’s where government is working. We need government employees, civil servants, to step up. If it doesn’t seem right, they need to contact our office, and they need to trust that we’re going to respect their privacy. We believe in whistleblower protection.”
He praised the city for requesting an independent investigation and for the steps it has taken since then.
As for the private sector, Colón said businesses with government contracts “have an obligation to understand the government rules” as much as government entities do.
While high-profile investigations and scandals involving government come and go, Colón maintained that legal consequences and publicity have some deterrent value while giving municipalities an opportunity to improve their internal controls and procedures.
“We can’t catch it all,” Colón said, “but we’re catching a lot more than we used to.”
Read the investigative report here:
Read our previous reporting on the Las Cruces city investigation:
This article originally appeared on Las Cruces Sun-News: How the city is responding to State Auditor’s investigation into Visit Las Cruces