DPS Inspector General investigation into land deals under 1994 bond reveals lack of due diligence, but no evidence of wrongdoing

DPS has revised internal policies, procedures to ensure questionable transactions won’t be repeated

Detroit Public Schools Inspector General Wilbert Marsh has released a final report stemming from a series of investigative hearings held by former DPS Emergency Manager Robert C. Bobb into several real estate transactions that were made under the district’s 1994 $1.5 billion capital improvement bond.

The investigation was launched in April 2009, to address continuing concerns regarding the district’s 2002 purchase of space for its administrative staff in the Fisher Building for what appeared to be an inflated price. Questions were raised because the district left the School Center Building, which it owned, and purchased space in the Fisher Building.

The investigation was expanded to probe land acquisition for construction of the new Cass Technical High School building, purchases of multiple properties from the City of Detroit’s recreation department, the purchase of a parking structure for Detroit School of Arts and acquisitions of the old Thorn Apple Valley and new Northeastern High School sites.

The investigation showed that while the district used some unorthodox real estate practices to purchase the properties in question, none of the transactions were deemed illegal.

“Overall, my office determined that there was a lack of due diligence, managerial oversight, minimal levels of inexplicable spending, but there was no evidence of real estate flipping,” Marsh said.

A preliminary investigation revealed an absence of documents and records surrounding the transactions, so Bobb convened eight public investigative hearings between October 2009 and February 2010. Seventeen witnesses were called to testify in an effort to gain insight into the decision-makers’ rationales.

The Office of Inspector General determined that DPS had very few policies and procedures governing the transactions in question, however, there was inconclusive evidence that there were any violations of standard real estate practices.

As a result of the investigation, the OIG made 12 recommendations for policy and procedure changes, most of which have already been implemented. Among the changes that have been implemented in recent years are:

Legal counsel participates or is consulted on all transactions and signs all documents before they can be executed

DPS identifies the goals and objectives of each capital improvement, complex real estate transaction, or complex large construction contract

DPS uses a “transactional checklist” for complex real estate transactions

DPS evaluates and uses control measures to use at various intervals during projects to assess performance and make necessary changes

Any purchase or lease of a building or land by DPS is preceded by an appraisal or other relevant and meaningful valuation of the building or land

The due diligence process is thoroughly documented and easily retrievable for use in later analysis of any purchase

DPS conducts feasibility studies prior to complex transactions involving space planning, real estate and staff relocations

DPS should implement a Corporate Compliance Program to assure consistent district-wide implementation and monitoring of a “code of conduct” and risk avoidance program.

The DPS Office of Auditor General ensures compliance with federal and state regulations

An independent accounting firm oversees expenditures of construction funding to ensure compliance with bond and tax issues

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