JOHNSTOWN — Last week five members of Johnstown City Council voted to accept a forensic audit that may not be a forensic audit.
In a mandamus lawsuit filed Monday, council members Jack Williams and Charlene Stanton argue that the 134-page “Economic Development Loan Review Report” of the city's Department of Economic Development, prepared by London-based Ernst & Young and approved by colleagues on city council, did not satisfy the referendum approved by voters last May. They are suing council members Frank Janakovic, Richard Britt, Sylvia King, Marie Mock and David Vitovich, as well as City Hall and the municipality's legal team, for violating Article XII of the Home Rule Charter by having a review of the city's loan program instead of a forensic audit.
Williams and Stanton spearheaded the push for a forensic audit, which was approved by approximately 79 percent of voters last May after Williams uncovered through Right-to-Know requests that more than $1 million in city loans to select local business owners had been “written off,” including several to companies still in operation.
“The solicitors blew this,” Williams said of the situation. “They blew it big time. This was not debatable because it was an action of the voters.”
Other members of city council and city solicitor Elizabeth Benjamin of Beard Legal Group were asked for comment via email and have not yet responded. Mayor Frank Janakovic said only that he would be out of town on personal business until May 29.
At issue is the nature and scope of the work performed by Ernst & Young. A disclaimer on the second page of the 134-page document states that the company “did not render an assurance report or opinion under the agreement, nor did our services constitute an audit, review, examination, forecast, projection or any other form of attestation as those terms are defined by the AICPA (American Institute of Certified Public Accountants).”
A forensic audit is different than a review in that it follows a specific set of standards, is generally more expensive and is universally admissible as evidence in a court of law. Our Town asked Ernst & Young to confirm or deny whether their report was a forensic audit.
The company replied with a one-line sentence: “We do not comment on client matters.”
Stanton said she was “shocked and disgusted” to learn the contract executed on the city's behalf by solicitor Benjamin with Ernst & Young did not specifically ask for a forensic audit.
“In my opinion, the ball has been dropped — by the city, the solicitor and five members of city council,” Stanton said. “This was to be a forensic audit, per detailed language in the voter referendum and cannot be changed . . . and in the resolution passed in August. The city solicitor was to prepare a contract with the auditing firm to conduct a forensic audit.”
In their mandamus suit, Williams and Stanton are asking for new requests for proposals to be sent for a forensic audit; for all submissions to be reviewed by the Cambria County Court of Common Pleas or people designated by the court who have no affiliations with City Hall; and for their council colleagues and Beard Legal Group to reimburse not only court costs, but also the full $90,000 promised to Ernst & Young.
“I'm sure that'll cause some heartburn,” Williams said of their call for reimbursement. “If council had any b---- at all they'd blame it on (the solicitors).”
The special meeting of city council last week was called for by Williams and Stanton. They did not, however, attend the meeting, noting that they didn't think they had a legible copy long enough to read the entire document prior to the vote.
“In my opinion, the people are being misled currently, by (council members) voting to approve a referendum calling for a forensic audit, and one not being done,” Stanton said.
“Forensic audits are precise in nature and and are designed to uncover fraud and malfeasance. They are also used in court proceedings should illegalities be uncovered.”
Tom Caulfield — faculty at the Association of Certified Fraud Examiners, former member of the Department of Justice National Procurement Fraud Task-Force and chief operating officer of Procurement Integrity in Stafford, Virginia — agreed to look over a portion of the Ernst & Young report.
“The acceptance of this report or not in a court is not driven by the title, but the quality of the work reflected within — which I can not render an opinion,” Caulfield said.
“As for it being a forensic audit or not — (Ernst & Young) called it a review, so they determined it was not a forensic audit.”
A more detailed account of the mandamus and contents of the report will appear in next week's print edition of Our Town.
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