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City Council commissioned audit finds Warren Mayor Fouts violated spending limits by more than $460,000

Mayor Fouts
Posted at 6:54 PM, Sep 21, 2023
and last updated 2023-09-21 18:59:07-04

WARREN, Mich. (WXYZ) — The conflict between Warren City Council and Mayor Jim Fouts took another turn as the council released a Forensic Audit Report that concludes Fouts violated legal spending limits in the city's Downtown Development Authority by more than $460,000.

According to a news release from City Council, The unauthorized spending of $460,037.58 in fiscal year 2021-2022 included over $50,000 for television ads featuring Fouts and $60,000 for gift cards that were approved to be paid with COVID relief funds. However, the auditors found no evidence that COVID relief funds were used.

Read the full audit below:
21-1361558 City of Warren - Forensic Accounting REPORT by WXYZ-TV Channel 7 Detroit on Scribd

Fouts has released a statement blasting the audit, calling it "just another repeat of the same lies and distortions that have marked City Council’s entire term of office."

The long-running conflict between the mayor and city council over the budget has simmered in the Macomb County community for the last several years and even made its way to the Court of Appeals, which found that Council could override Fouts's budget recommendations. That case made its way through the courts after Council said Fouts could not use hundreds of thousands of dollars that he had appropriated for the city's Downtown Development Authority.

The money had been budgeted towards an ad campaign featuring Fouts. According to City Council's press release, they determined Fouts was using the DDA's “contractual services” account to fund television ads and other promotions. City Council then eliminated the money for the DDA's contractual services budget and cut the community promotions budget to $10,000.

The press release says during a September 15, 2021 DDA board meeting there was an announcement that Fouts would use his own budget, not the one City Council had approved.

Read the meeting minutes released by City Council below:
September 15, 2021 DDA Minutes by WXYZ-TV Channel 7 Detroit on Scribd

Council then moved to the courts to enforce their budget, with the Michigan Court of Appeals ruling on December 29, 2022, that Fouts was in violation of the law and must follow the city council’s approved budget. The court also upheld a preliminary injunction barring the mayor from further spending on these matters.

However, according to the council, the preliminary injunction was issued after the mayor had already authorized spending the $460,037.58 in the DDA budget.

While the case was playing out in court, Council also referred the matter to the Michigan Department of Treasury, which indicated it would review an audit if one was submitted. Council moved to conduct the audit, which Fouts fought before being ordered to cooperate and produce financial records in May 2023.

Rehmann Corporate Investigative Services conducted the independent forensic audit, which was released today.

“After the mayor violated the budget and obstructed the audit for two years, we finally have the truth from an independent auditor. The mayor and his political appointees are not above the law. If it’s not in the budget, they do not have the legal authority to spend the money," Councilman Garry Watts stated in a news release. "I hope the Department of Treasury and Attorney General take swift action to deter future violators from illegally spending tax dollars.”

In response, to the release, Fouts released the following statement:

The City Council’s press release regarding the audit of Fiscal Year 2022 Downtown Development Authority financial activity by their hand-picked auditor is just another repeat of the same lies and distortions that have marked City Council’s entire term of office.

The simple fact is this – there was a budget impasse with regard to the use of DDA funds in Fiscal 2022. I proposed a budget that would continue to pay for annual landscaping services, tax appeal legal fees, engineering and other professional fees that have been part of the operation of the DDA for many years. Some of the services were actually connected to contract awards that the City Council itself had approved.

The City Council chose to turn their backs on local companies providing services merely to spite me – another failure for which this Council has been noted.

The impasse had to be resolved in court – adding to the more than $1 Million of taxpayer money for legal fees needlessly squandered by City Council.

Once the court determined that the council-adopted budget prevailed the DDA stopped paying vendors for services even though some of those services could not be stopped. Grass still had to be cut, trees and bushes trimmed and debris cleaned up. Legal services to resolve tax appeals still had to be processed. It took more than a year to get the City Council to quietly pay for services they knew were necessary parts of city operations – only after they were warned that landscaping, legal and other services would be discontinued and the blame for deterioration of city property and other costs to the taxpayers would fall squarely in their laps.

The forensic audit is nothing more than a regurgitation of the same information that the Administration has provided to City Council from the beginning. Another wasted City Council expenditure. There was no denying that Council irresponsibly failed to provide funding for necessary services without justification. I continued to provide those services despite Council’s wanton disregard for the community.

There are three (3) other minor points in the City Council propaganda release that should be addressed here:

1. The September 2021 minutes of the DDA Board meeting did indeed infer that COVID relief monies were part gift card program meant to stimulate activity in local businesses. That was a misstatement on the part of staff. No COVID relief monies were ever a part of the DDA budget for Fiscal Year 2022. If there had been federal funds involved in DDA operations those monies would have been listed as such in the budget document (FY2022 Adopted City Budget page 211) and they clearly were not.

2. The funds that were used for promotional ads on television and in print were by no means political advertising. The focus of the ads was on encouraging investment and development of the business community. My part in those ads was minor and totally in keeping with my role as Mayor and Chairman of the DDA Board. I am, by right, the spokesman for the City, like it or not. Council’s objection to this is founded in petty jealousy for doing something they would definitely do themselves if roles were reversed.

3. All funds are dedicated to the DDA, and must be utilized, for lawful purposes including economic stimulation, development, infrastructural repairs, and even community promotion. This is all to enhance the City, according to a DDA Plan approved by the Council in 2005, state statute and local ordinances. The DDA expended all funds according to their lawful mission, as legally required. This is not funding that can be withheld from the Board as a means to stop its progress or the discharge of its responsibilities.

Warren City Council has sent a letter referring the matter to the State Treasurer, notifying them about the results of the audit and asking them to bring the matter to the attention of Attorney General Dana Nessel.

You can read the letter below:
Ltr to State Treasurer With Attachment, 9.21.2023 by WXYZ-TV Channel 7 Detroit on Scribd