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LTR To State Treasurer With Attachment, 9.21.2023
LTR To State Treasurer With Attachment, 9.21.2023
Kevin A. Smith
Deputy Treasurer
State and Local Finance
Michigan Department of Treasury
PO Box 30728
Lansing, MI 48909-8228
On November 10, 2021, as special legal counsel to the Warren City Council, I filed a
complaint for violation of the Uniform Budgeting and Accounting Act (“the Act”) with the
Department as prescribed by Sec. 20 of the Act at MCL Sec 141.440. My client is the legislative
body of the City of Warren which alleged that the chief administrative officer of the city, Mayor
James Fouts, had illegally expended funds in violation of the Act and the city’s charter. The Act
states that “violations shall be filed with the state treasurer and reported by the state treasurer
to the attorney general.” In written correspondence, the Department replied that my client
would have to produce an audit report showing violations of the Act.
Upon review of the Act, I agreed with the Department’s suggested course of action as
Sec. 20 of the Act references violations that are “disclosed in an audit of the financial records”
that shall be filed with the state treasurer and “reported by the state treasurer to the attorney
general.” The Warren City Council commissioned a forensic audit of the 2021-2022 fiscal year
budget of the city’s Downtown Development Authority (DDA) fund. The audit report attached
to this correspondence is dated September 20, 2023, and finds that the City of Warren DDA
exceeded the adopted budget in FY 2021-2022 by $460,037.58.
The audit report references the September 15, 2021, meeting minutes of the DDA Board
of Directors which state that “the mayor has decided […]to move forward with his budget.” In
other words, the mayor determined that he would ignore the City Council’s adopted budget
which made cuts to the contractual services and community promotions accounts in the DDA
budget. Notably, the mayor is the chief administrative officer of the city and the chairperson of
the DDA Board1.
1The city ordinances governing the DDA are found in the Warren Code of Ordinances at Sec. 2108 et seq:
https://library.municode.com/mi/warren/codes/code_of_ordinances?nodeId=PTIICOOR_CH2AD_ARTVBOC
O_DIV2.5DODEAU
On May 11, 2021, the Council adopted the 2021-2022 FY Budget for July 1, 2021 through
June 30, 2022. Specifically, as to the DDA budget, the Council reduced the contractual services
line-item to zero ($0) and the community promotions line-item to $10,000. The Mayor had
requested $615,000.00 in funding for the contractual services account and $75,000.00 for the
community promotions account. The Mayor and DDA had been using the contractual services
account to fund a television advertisement campaign featuring the mayor called “MI Warren”
and the council opposed this and other expenditures and exercised its policy and budgetary
authority to make these cuts.
The mayor disagreed with the cuts and decided to direct expenditure of the funds instead
of abiding by the lawful appropriations. The mayor, in defiance of the Act and the city’s charter,
instructed the city finance staff to fund the DDA contractual services line-item at $615,000.00
and the community promotions line-item at $75,000.00. The audit report indicates the actual
amount of unlawful spending was $460,037.58, some spent on TV ads, and the rest spent on
other items without approval.
In the meantime, after filing the initial complaint with the Department on
November 10 , 2021, the mayor continued his defiance of the city budget process. The city
council filed an action in Macomb County Circuit Court2 and obtained a declaratory judgement
that the mayor was in violation of the charter and the Act, and a preliminary injunction order
was entered against the mayor to prevent further illegal spending. The mayor appealed this
order to the Michigan Court of Appeals which resulted in a unanimous published decision from
the Michigan Court of Appeals3. The court concluded as follows:
In this case, the council did not appropriate funds that were spent by a defiant public official who
was not authorized to do so because he believes that he is above the law.
Finally, the enclosed audit report discovered a new issue related to the community
promotions line item. The city council reduced this line item to $10,000 but $60,000 was spent
on “gift cards” that were allegedly funded with “COVID relief money.” The minutes of the
September 15, 2021 DDA meeting indicate that gift cards were being purchased to “stimulate
small business with COVID relief money.” The auditors could not confirm the use of COVID relief
funds to pay for the gift cards. If, in fact, $60,000 worth of gift cards were purchased with city
resources, it raises questions as to whether there is a valid public purpose. These gift cards were
used at local restaurants and shops. A review of the Department of Treasury Audit Manual for
2Warren City Council v. James R. Fouts, Macomb County Circuit Court Case No. 2022-000923-AW.
3Published opinion here: https://www.courts.michigan.gov/siteassets/case-
documents/uploads/OPINIONS/FINAL/COA/20221229_C361288_30_361288.OPN.PD
Page 3 of 3
Kevin A. Smith, Deputy Treasurer
Re: Forensic Audit Report showing Violation of Uniform
Budgeting and Accounting Act
September 21, 2023
Local Units of Government in Michigan, Appendix H, raises serious concerns about whether these
gift cards meet the definition of public purpose if purchased with city funds and not COVID
stimulus dollars. Regardless, the gift cards were purchased with funds that were not
appropriated and at a minimum the purchase was $50,000 over-budget.
Another consideration for the Department is that the mayor refused to cooperate with
the audit, and it resulted in a court order for the mayor to produce financial records to the
auditors hired by the city council. On May 5, 2023, the Macomb County Circuit Court issued a
writ of mandamus against the mayor requiring that he cooperate with the audit and release DDA
financial records to the auditor4. The financial ledger of the DDA is a public record and these
records were withheld by the mayor for months from the city council and its auditors in an
attempt to obstruct the audit. These actions have resulted in a significant delay in these findings
being presented.
Therefore, on behalf of the Warren City Council, I request that the Department take
corrective action and refer this matter to the Attorney General for appropriate action to recover
funds and/or hold the violators accountable under the Act. Please contact me if you have any
questions or need further information.
Regards,
PLUNKETT COONEY
(signed electronically)
Jeffrey M. Schroder, Special Legal Counsel
City of Warren City Council
Email address: [email protected]
Direct dial: (248) 594-2796
JMS/nw
Att. -Forensic Audit Report dated September 20, 2021
cc: Michigan Department of Attorney General [email protected]
Open.28127.02392.31829810-1
4 Warren City Council v. James R. Fouts, Macomb County Circuit Court Case No. 2022-000344-AW.
Corporate Investigative Services
Sincerely,
William Edwards
William Edwards
Director of Financial Investigations
WFE/amh
Enclosure
Plunkett Cooney
Jeffrey Schroder, Esq.
RCIS Case 465771/21-1361558
September 14, 2023
The information contained in this document is intended only for the confidential use of the recipient(s) named herein. The
information provided in this report was prepared and transmitted under the Michigan investigator/client privilege law and, as
such, is protected and not to be transmitted or transferred without prior written approval of Rehmann Corporate Investigative
Services, LLC (Rehmann CIS). This information is intended for investigative purposes only. If you are not the intended recipient
or an agent responsible for delivering this document to the intended recipient, you are hereby notified that you have received
this document in error and that any review, dissemination, distribution or copying of any part or parts of this document is
strictly prohibited. If you have received this document in error, please notify Rehmann CIS immediately. Rehmann CIS does not
guarantee the accuracy or completeness of outside agency records.
EXECUTIVE SUMMARY
The City of Warren, Michigan (“the City”) is governed by a seven-member Council, the Mayor, the Treasurer and the
City Clerk. The Downtown Development Authority (“DDA”) is a component unit of the City. A component unit is a
separate legal entity for which the primary government is financially accountable. The DDA was established pursuant
to Act 197 of the Public Acts of Michigan, 1975, as amended, and approved by the Warren City Council to prevent
property value deterioration, eliminate the causes of that deterioration, increase property tax valuation where
possible, and improve economic growth in the business district of the City. It is governed by a board of directors,
consisting of the mayor plus eight members appointed by the mayor subject to the approval of the City Council.
The City Council is responsible for adopting annual balanced budgets for all the primary government’s general,
special revenue and debt service funds as required by the Michigan Public Act 621 of 1978, the Uniform Budgeting
and Accounting Act. The City’s fiscal year runs from July 1 to June 30. The DDA is a special revenue fund that uses
the modified accrual basis of accounting consistent with generally accepted accounting principles.
The City Mayor submitted a recommended budget to the City Council in April 2021 for the fiscal year 2021/2022.
The City Council adopted the 2021/2022 budget at its May 11, 2021 meeting. The adopted budget allocated less
funds to the categories of “contractual services” and “community promotions” than proposed in the Mayor’s
recommended budget. The Mayor’s recommended budget requested $615,000 for “contractual services” and
$75,000 for “community promotions.” The adopted budget allocated no funds for “contractual services” and $10,000
for “community promotions.”
At a DDA board meeting on September 15, 2021, it was recorded in the minutes that “the mayor has decided […] to
move forward with his budget.” A motion was passed by the DDA board to fund the MI Warren, Buy Warren Small
Business Initiative for $60,000, to be allocated to “community promotions.” This amount exceeded the budgetary
allowed amount for “community promotions” by $50,000.
Rehmann CIS was engaged to review the DDA’s disbursements during the 2021/2022 fiscal year to identify any
budget overages. The DDA exceeded the adopted budget in two categories: $410,037.58 for “contractual services,”
and $50,000 for “community promotions.” Rehman CIS determined that the DDA exceeded the adopted budgetary
amounts in both “contractual services” and “community promotions” by $460,037.58.
FORENSIC REVIEW
The City uses BS&A Software (“BS&A”) for its financial management. BS&A allows users to upload copies of source
documents, including invoices to link to journal entries. Rehmann CIS reviewed the source documents for the general
ledger entries for “contractual services” and “community promotions.” The review was limited to these two
categories due to the difference in dollars budgeted between the City Council approved budget and the budget
proposed by the City Mayor.
Contractual Services
The City Council fiscal year 2022 budget approved no funding for “494-9494-80100 Contractual Services.”
Rehmann CIS conducted an in-depth review of the DDA’s financial transactions for fiscal year 2022, as they
related to “contractual services.” The review identified and confirmed that $410,037.58 was disbursed /
expensed to “494-9494-80100 Contractual Services,” all of which exceeded the adopted budget amount. Rehmann
CIS reviewed the invoices and other supporting documentation for the line items listed on the general ledger, which
are detailed below.
Landscape Services
Beginning in 2021, Landscape Services, Inc. entered a two-year contract with the City to provide landscaping
services. The detailed pricing sheet included with its bid divided the services into the following locations:
Rehmann CIS reviewed 21 itemized invoices from Landscape Services, Inc., all entered into the BS&A System totaling
$218,757 (See Exhibit 1). The service locations on the invoices correspond to the seven locations listed in the bid.
Rehmann CIS confirmed the check payments for the 21 invoices.
Community Promotion
The fiscal year 2022 City Council budget approved $10,000 for “494-9494-88001 Community Promotion.” For
fiscal year 2022, $60,000 was expensed/allocated to “494-9494-88001 Community Promotion,” $50,000 of which
exceeded the adopted budget amount. The monies went to fund the MI Warren, Buy Warren Small Business
Initiative. The City entered into an agreement with Yiftee, Inc. to supply the gift cards. The initiative was to create
incentives for consumers to shop local Warren retailers by purchasing and providing online/e-gift cards. The initiative
was to “stimulate small businesses with COVID relief money.” Rehmann CIS was unable to confirm the use of COVID
relief monies for the gift card purchase and found no specific mention of COVID relief funds being used in either the
2021 or 2022 City of Warren Comprehensive Annual Financial Reports.
• Exhibit 2
• Exhibit 3
Invoice
Service Location Number Invoice Date Amount
City Hall & City Center Park 198954 8/2/2021 $ 9,357.00
Mound Road 198956 8/2/2021 $ 12,054.00
Community Center 198972 8/2/2021 $ 2,268.00
Community Center 198972 8/2/2021 $ 2,268.00
Police Station and 37th District Court 198955 8/2/2021 $ 2,268.00
City Hall & City Center Park 200070 8/14/2021 $ 500.00
Police Station and 37th District Court 200071 8/16/2021 $ 1,056.00
Mound Road 200072 9/1/2021 $ 13,254.00
City Hall & City Center Park 200590 9/30/2021 $ 810.00
Mound Road 200592 9/30/2021 $ 1,470.00
Community Center 200595 9/30/2021 $ 2,025.00
Police Station and 37th District Court 200591 9/30/2021 $ 3,240.00
City Hall & City Center Park 201133 10/1/2021 $ 6,238.00
Mound Road 201135 10/1/2021 $ 12,054.00
Community Center 201149 10/1/2021 $ 2,268.00
Police Station and 37th District Court 201134 10/1/2021 $ 1,512.00
Community Center 202733 11/1/2021 $ 3,240.00
City Hall & City Center Park 202715 11/1/2021 $ 8,910.00
Police Station and 37th District Court 202716 11/1/2021 $ 2,160.00
Mound Road 202717 11/1/2021 $ 17,220.00
City Hall & City Center Park 207732 6/1/2022 $ 16,050.00
Common Rd / Civic Center N / Kennedy Circle N 207734 6/1/2022 $ 272.00
Mound Road 207735 6/1/2022 $ 44,870.00
Community Center 207746 6/1/2022 $ 8,000.00
Police Station and 37th District Court 207733 6/1/2022 $ 6,240.00
City Hall & City Center Park 208553 6/30/2022 $ 4,455.00
City Hall & City Center Park 208554 6/30/2022 $ 1,080.00
Eckstein Park 208557 6/30/2022 $ 340.00
Mound Road 208558 6/30/2022 $ 17,220.00
Mound Road 208559 6/30/2022 $ 1,960.00
NE Corner of Van Dyke & 13 Mile Rd. 208560 6/30/2022 $ 544.00
Community Center 208561 6/30/2022 $ 3,240.00
Community Center 208562 6/30/2022 $ 2,700.00
Police Station and 37th District Court 208555 6/30/2022 $ 2,160.00
Police Station and 37th District Court 208556 6/30/2022 $ 4,320.00
Community Center 209014 7/1/2022 $ 1,134.00
EXHIBIT 2
Invoice
Description Number Invoice Date Amount
Media Invoice Purchase Order #2010801 2070B 10/26/2021 $ 9,530.00
MI Warren Buy Warren November Community Gift Card Invoice 2072B 11/6/2021 $ 15,000.00
Purchase Order # 2010801
Week 11/15 WJBK Fox 2 $5,000
Week 11/15 Comcast $5,000
Week 11/22 Comcast $5,000
Media Invoice Purchase Order #2010801 2073B 11/6/2021 $ 4,300.00
Warren Weekly ‐ 11/24 Full Page Color $1,650
Warren Weekly ‐ 12/8 Full Page Color $1,650
Macomb Daily ‐ 11/21 Sunday 1/2 Page $1,000
MI Warren Buy Warren December Community Gift Card Invoice 2078B 12/1/2021 $ 1,650.00
Purchase Order Revised
Week 12/8 Warren Weekly
MI Warren Buy Warren December Community Gift Card Invoice 2074B 12/1/2021 $ 25,000.00
Purchase Order # 2010801
Week 11/29 WJBK Fox 2 $5,000
Week 11/29 WWJ CBS/WKBD CW $5,000
Week 12/06 WXYZ TV 7 ABC $5,000
Week 12/13 WWJ CBS/WKBD CW $5,000
Week 12/06 WXYZ TV 7 ABC $5,000
EXHIBIT 3
2/9/2022 HUBBELL ROTH & CLARK INC ‐ Improvement: Civic Center Storm Sewer 169337 12/20/2021 $ 5,850.51
ENGINEERING SERVICES Improvements
Activity: Design (workscope approved 12/14/17)
02/09/2022 KNIGHT WATCH INC ‐ Project Name: City of Warren ‐ 8 Full Replacements 21395 9/16/2021 $ 19,233.18
REPLACING EQUIPMENT Parts Mobilization for project $19,006.46
Engineering ‐ 1 Hr @ $113.36
Project Management ‐ 1 Hr @ $113.36
02/09/2022 KNIGHT WATCH INC ‐ Project Name: City of Warren ‐ 8 Full Replacements 23739 11/18/2021 $ 2,885.00
REPLACING EQUIPMENT Installation ‐ 18.25 hours at $113.36
Programming ‐ 6 Hours @ $136.03
2/9/2022 LOWES HOME IMPROVEMENT ‐ (9) 2X4 Troffer Prismatic LED @ $61.73/each 3317084 10/15/2021 $ 563.81
CRIME COMMISSION Other Materials
BUILDING RENOVATION
2/9/2022 LOWES HOME IMPROVEMENT ‐ GE LED 60V A19 RVL FR $7.11 7565261 10/18/2021 $ 432.00
CRIME COMMISSION 7.48‐IN BN FRST GLS FL $12.33
BUILDING RENOVATION (9) 24‐48 CLNG PNL RND TXTD 9 @
$45.84/each…$412.56
2/9/2022 LOWES HOME IMPROVEMENT ‐ Frogtape $9.48 3736294 10/20/2021 $ 126.78
CRIME COMMISSION (2) 116 FL OZ EGG BSC @ $27.53/each
BUILDING RENOVATION (2) [Receipt is illegible] @ $27.53/each
2/9/2022 LOWES HOME IMPROVEMENT ‐ 2x2 Troffer Prismatic LED 3911095 10/22/2021 $ 36.08
CRIME COMMISSION
BUILDING RENOVATION
2/9/2022 LOWES HOME IMPROVEMENT ‐ (2) AFT Craftsman @ $12.14/each 3302201 10/15/2021 $ 24.28
CRIME COMMISSION
BUILDING RENOVATION
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GENERAL LEDGER ‐ INVOICES REVIEWED
FOR THE PERIOD JULY 1, 2021 TO JUNE 30, 2022
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