An internal investigation into how the city of Stonecrest handled federal coronavirus relief money found widespread mismanagement, improper contracts and the “overwhelming” whiff of a kickback scheme orchestrated to financially benefit city employees.
The fallout has been swift, with a state lawmaker calling for the ouster of Mayor Jason Lary and at least six of the city contractors or employees implicated in the investigation already being terminated.
But things are unlikely to end there.
Byung J. “BJay” Pak stepped down as U.S. Attorney for the Northern District of Georgia earlier this year. He called the initial findings, which were made public late Tuesday, “extremely troubling” — and had little doubt federal investigators would be getting involved.
“There are factors that indicate that there’s a potential for criminal activity,” Pak told The Atlanta Journal-Constitution on Wednesday.
“This is a classic kind of example where there’s potential conflicts of interest and the flow of money goes from a grant program to basically insiders, people who work for the city or have fiduciary duty to the city.”
Pak said he would expect the special inspector general for pandemic recovery — a new federal office created to monitor CARES Act spending for fraud, waste and abuse — to look into the Stonecrest situation. He anticipated his former office and the larger Department of Justice would be involved too.
The city’s internal investigation — which runs 60 pages, plus hundreds more with exhibits — suggests that those entities be made aware of the situation and be requested to conduct a formal probe. Georgia state Sen. Emanuel Jones has already called for an investigation as well.
Bob Page, spokesman for the U.S. Attorney’s Office for the Northern District of Georgia, declined to comment Wednesday. FBI spokesman Kevin Rowson said the agency would neither confirm nor deny the existence of an investigation.
Last April, the federal government distributed about $600 million in coronavirus relief funds directly to Georgia’s five most populous communities: the city of Atlanta as well as Cobb, DeKalb, Fulton and Gwinnett counties.
The goal was to help local governments cover unexpected costs related to the pandemic; the money was also eligible to be used for things like small business loans, rental assistance for residents and bolstering community organizations providing COVID-related services.
Smaller Georgia counties and municipalities later received federal relief funds passed along by the state. But cities within the four large counties had to turn to their county government for a cut.
By the fall, Stonecrest — whose 55,000 residents are spread throughout the southeastern corner of DeKalb County — had acquired just over $6.2 million.
According to the investigation conducted by city attorney Winston Denmark at the request of the City Council, the money meant to help Stonecrest and its residents navigate the pandemic was mismanaged and possibly pocketed by people charged with administering it.
The report found that the city contracted with Municipal Resource Partners, a nonprofit founded just last May, to disburse nearly all of the funds to small businesses, nonprofits and churches. The city paid a premium fee — $510,000 — for the nonprofit to write checks on the city’s behalf.
About $4.3 million was given to 138 small businesses, but Denmark found some of those businesses were also asked to give a portion of their award to one of three companies for marketing services.
At least a few recipients complied writing checks equal to 25% of their award to those companies, which were created by city officials or people with “deep ties to city staff,” Denmark found.
”While this investigation cannot definitely conclude that this was a ‘kickback’ scheme, the appearance of such is overwhelming,” the attorney wrote.
Stonecrest operates with a unique model, contracting with an outside firm to provide staff and operational services. Many of the allegations were laid upon those contractors from Jacobs Engineering. The report alleges they bypassed safeguards by signing emergency contracts that weren’t reviewed or approved by the City Council or city attorney.
The report includes mention of one such employee approving the use of relief funds for things like “self-care stress packages including candles, butter, oils and tea” ($3,000) and massages for city staff members ($3,500).
Jacobs on Tuesday called the allegations “abhorrent” and said contractors and employees alleged to be involved had been terminated.
‘A terrible stain’
For city councilmembers, the investigation confirmed suspicions of impropriety surrounding the relief money.
The five-member council was granted more power after a recent city charter change that stripped the mayor of his authority to preside over meetings, set agendas and took away his vote, except to break ties.
The council voted to launch the internal investigation in February after they said the office of Mayor Jason Lary was not providing crucial details and updates on the CARES program. Lary has previously denied any wrongdoing with the program, but earlier this week said the blame for anything going “awry” rests with him.
“We were given an opportunity to do some great things with the money they we were provided to help those in need,” Councilman Rob Turner said. “To have it mismanaged in any way, it’s really a terrible stain on the city.”
Councilwoman Jazzmin Cobble said she’s not sure when the council will discuss the investigation again publicly, but she said its crucial for the city to keep investigating and take Denmark’s recommendations on next steps.
“It’s not something that we’re just going to brush under the rug,” she said.
Federal authorities may ensure that doesn’t happen.
Caren Morrison, an associate professor at Georgia State University and former federal prosecutor in the Eastern District of New York, said she would be surprised if they don’t.
“I would just like to see, for once, people doing their jobs as they’re supposed to,” Morrison said, “without using it as a great opportunity for self-enrichment at the expense of people who really need the money.”
The story so far:
Stonecrest received $6.2 million in CARES Act funds from DeKalb County. Questions were raised after the city contracted with a newly formed nonprofit to disburse those funds to small businesses. An internal investigation began, and its results were released this week, finding widespread mismanagement and improper contracts that resemble a kickback scheme.