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Inspector general: suspend Denali Commission

Alex DeMarban
Where did a "sizeable portion" of $240 million in federal funds destined for rural Alaska projects go? Images_of_Money photo / cc via Flickr

(Update: This story has been altered to include comments from Denali Commission federal co-chair Joel Neimeyer, who says federal funds were not used to create or sustain the special accounts.)   

The inspector general for the Denali Commission has found that the federal agency has lost track of accounts that could hold up to $100 million, if they were created at all.

Until the mystery is solved, the report concludes that Congress should not reauthorize the commission, a federal agency created in 1998 that has helped improve life in rugged rural Alaska by providing funding for power plants, health clinics and other vital facilities.  

The accounts were possibly created by about 60 small towns and villages in rural Alaska to ensure that money would one day be available to repair and replace electric utilities and bulk fuel facilities.

Millions could be missing, or not

Deposits were supposed to be made yearly for the expected life of a project, sometimes 30 years or more. The report says the bank accounts, if they exist, presumably include some "substantial portion" of $240 million in federal funds the Denali Commission granted to the state over the years to pay for the rural power plants and tank farms.

Federal co-chair Joel Neimeyer takes the position that federal money was not used to seed or fund Denali accounts. Rather, the $240 million was spent on designing and building tank farms and power system upgrades, he said. As part of the process, communities created business plans for funding the accounts using locally generated money, such as a surcharge attached to fuel sales.

The inspector general for the commission, Mike Marsh, who works to prevent fraud and waste, did not return calls and emails seeking comment.  

At any rate, the report says the Denali Commission established a policy saying it would keep track of the village accounts, and required that communities send the commission annual audits and other information about the accounts.

In his report, Marsh notes that during his recent investigation, Denali Commission employees were able to produce bank statements proving the existence of only two accounts, one for a tribal entity and the other for a city.

Officials with the commission, which has received about $1 billion in 14 years, also said there was no monitoring system in place to oversee the accounts.  

Neimeyer said he has hired a person to contact each of the villages and determine which communities created accounts. The report recommended the commission take such a step.

The Denali Commission plans to release a public report once all communities have been contacted, Neimeyer said. It will provide a more complete picture of the accounts, and will be available on the agency's website.

"The commission has largely completed our research of project record files and we are about one quarter through the process of contacting individual communities," Neimeyer said. "We expect a final report to be available to the public in March 2013 once all communities have been contacted on this matter.”

Who's to blame?

Neimeyer, who was with the Denali Commission between 1999 and 2005 before returning as co-chair in 2010, called the criticism of the commission's failure to oversee "appropriate." He said the entire commission, including Neimeyer, is at fault.

"Everyone is partly to blame. We all had input, I had input on these things," he said.

Why the lack of oversight?

"I have my thoughts on why that is, but I think it's better to get all the information together, and we can aggregate it. (I think) there were many reasons why, but what were the compelling reasons? I don't know the largest factor in that, and I have to explore that."

The intent of the commission, one of seven regional agencies created by Congress to distribute federal grants to rural areas, was "well-meaning" and intended to "promote sustainability and negate personal dependence," the report says.

Unfortunately, that may not be the outcome.

The "unsolved mystery is a very serious one," Marsh said, creating potential legal liability for the government if the funds were misused or vanished.

Were the accounts ever created? Or are they just missing, quietly accruing interest as they should be?

Marsh doesn't know, he said, despite an exhaustive search that included checking with officials at the state agency receiving the funding, the Alaska Energy Authority, the four financial institutions where the special accounts were to be created, and others.

"… None of the possible explanations would seem to be positive ones," Marsh wrote in the November report, a semi-annual review presented to Congress for the second half 2012.

Drained accounts?

"Perhaps the accounts were opened -- but drained -- long ago," he writes. "Perhaps cities obediently signed the requirement, but immediately disregarded it as a mere funding ritual. If so, the backbone of Denali's long-advertised 'sustainability' was in practice little more than an urban legend."

The 60 entities aren't named in the report.

In establishing the policy more than a decade ago, Denali Commission instructed grant recipients to contact specified banks and establish a "Denali Commission Renewal and Replacement Account," the report sys.

The commission said it had negotiated terms for the creation of such accounts with Wells Fargo of Alaska and First National Bank of Alaska. But bank officials contacted by the inspector's office said no such special accounts existed.

The two other financial organizations the Denali Commission had steered villages toward -- West Star Escrow and Alaska Municipal League Joint Insurance Association -- also had no knowledge of such accounts, Marsh reported.

In a blow to Alaska early in the report, Marsh said attempts by special-interest groups to reel in federal funds with few strings attached is "big business" in the 49th state. In fact, lore surrounding the commission suggests that was the original goal of its founder, Sen. Ted Stevens.

The report, also featured at GIMBY.org, a government watchdog group, will likely heighten calls to end the Denali Commission. That's a goal of Citizens Against Government Waste, which claims the commission doesn't fund projects competitively and has wasted tens of millions of taxpayers' dollars.

The inspector's conclusion that Congress not reauthorize the Denali Commission until the mystery is cleared up was one of eight recommendations.

Neimeyer said he was surprised at the recommendation that Congress not reauthorize the Denali Commission, but would not comment further on the suggestion.

"I'll comment further on that once the white paper is done," he said.

Alaska Sens. Mark Begich and Lisa Murkowski, supporters of the Denali Commission, were not immediately available to comment on the report Friday.

Contact Alex DeMarban at alex(at)alaskadispatch.com