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Some records destroyed in EB-5 investigation

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news Mitchell, 57301
The Daily Republic
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Mitchell South Dakota 120 South Lawler 57301

PIERRE — An external financial review of three business-assistance programs at the Governor’s Office of Economic Development is taking longer than expected because records were destroyed.

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GOED Commissioner Pat Costello originally estimated in a Nov. 27 memo to Gov. Dennis Daugaard that results would be available by mid-December.

But the report hasn’t been received yet from the private accounting firm doing the work, according to Tony Venhuizen, a spokesman for the governor.

He said one aspect of the review is to identify a check or electronic transfer that corresponds to every one of the expenditures.

“Some of the older expenditures records have been destroyed and the auditor is working with the bank to verify those payments using bank records. Hence the delay,” Venhuizen said.

The review is part of a scandal that has been expanding since the body of former state Cabinet official Richard Benda was found Oct. 22 following his suicide in rural Lake Andes.

The review was commissioned in the wake of state Attorney General Marty Jackley’s investigation that found $550,000 was diverted from a state Future Fund grant approved by Gov. Mike Rounds in December 2010.

Jackley confirmed on Friday that he also ran into a records gap.

“While lack of records created some challenges and delays during the investigation, the attorney general through other records, obtained via grand jury process and witnesses, provided the information necessary to determine the financial redirection to federal EB-5 loan monitoring,” Jackley said.

State laws are wide ranging on records retention and destruction, depending on the type, but the main law on financial spending records establishes a window of five years that they must be kept.

That is partially because the state auditor’s office doesn’t have a digital records system. The Legislature hasn’t required one and hasn’t provided funding for it.

Instead, records are kept in boxes at storage sites until their turn comes up for disposal.

“Vouchers and supporting receipts which have been audited by the auditor-general may be destroyed by the state auditor after four years in his discretion without further approval or authorization from the records destruction board,” state law says.

The Future Fund grant program, established in 1987, operates solely under the governor’s control. Commissioner Costello sought the external review of the Future Fund’s operations after Jackley’s investigation found the diversion.

Costello contracted with the certified public accounting firm Stulken, Petersen, Lingle, Walti and Jones of Pierre to look at each disbursement and verify there is a corresponding file, an approved application, supporting documents and matching payment.

Costello said David Lingle, who is performing the review, recommended that each disbursement be matched to a wire transfer or canceled check. That additional procedure is under way.

Costello subsequently expanded the external review to cover two other GOED assistance programs known as Proof of Concept and Dakota Seeds.

The $1 million Future Fund grant was reimbursement to Northern Beef Packers of Aberdeen for equipment and construction costs. Northern Beef in turn sent $550,000 to another Aberdeen company in early 2011.

The $550,000 was used to cover the $225,000 annual salary that Richard Benda reportedly received to serve as a loan monitor on the Northern Beef project.

Benda was secretary of tourism and state development from 2006 through the end of Rounds’ administration in early 2011. GOED and the Future Fund were part of Benda’s responsibilities. He wasn’t retained in the Daugaard administration and Costello replaced him as the head of economic development activities.

Just days after Daugaard officially took office in January 2011, Benda picked up the $1 million grant check and delivered it to Northern Beef. The $550,000 then was transferred to an escrow account for use by SDRC Inc. to pay Benda.

Benda and SDRC president Joop Bollen of Aberdeen signed a state contract in 2009 giving SDRC the authority to manage and operate the EB-5 immigrant investment program on state government’s behalf.

SDRC raised tens of millions of dollars from foreign investors, primarily in China and South Korea, who each put up $500,000 as loans for projects. They each also paid $30,000 to $50,000 or more in fees.

If sufficient jobs are created by projects receiving the loans, the immigrant investors and their families receive permanent visas to live in the United States.

In September of this year, the state contract with SDRC was terminated upon Costello’s order. The Stulken firm agreed on Oct. 10 to conduct the Future Fund review.

Benda died at a relative’s farm near Lake Andes on Oct. 20 from a shotgun wound to the abdomen. The attorney general ruled on Nov. 26 the death was a suicide. On Nov. 27, the governor released information about the Jackley investigation into Benda’s activities.

The two main sets of findings were that Benda double-billed and was double-reimbursed for three airline tickets in 2009 and 2010 and the diversion of the $550,000.

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