The city of Raleigh announced Wednesday that after conducting an internal audit it would no longer continue to renew its contract with and will evict from its premises the nonprofit Raleigh Business and Technology Center.
The RBTC is a business incubator, helping small businesses in Southeast Raleigh get established and rents them office space at a discounted rate.
The audit turned up a variety of problems at the organization: it owes $57,500 in payroll taxes to the IRS, it cannot account for more than $100,000 in payments — including nearly $25,000 in tellers checks — and it officially lost its nonprofit status last year after failing to file the proper forms.
These fraud cases were turned over to the Raleigh Police Department and are currently under investigation.
Lawrence Wray, chair of the RBTC Board of Directors and the former Raleigh assistant city manager, vigorously defended the organization, although he said mistakes had been made.
“I believe that this program is entirely too great for the city to say, ‘No, we need to close the building down, move people out, shut it down for six months and then open it back up,’” Wray said.
RBTC would not be a part of that hypothetical re-opening.
Wray said a number of the issues highlighted in the audit can be traced back to Robert Robinson, the former executive director who resigned his position effective June 30. Robinson made the decision to do so, Wray said, after reading a draft copy of the audit report.
Robinson was the one responsible for filing IRS Form 990, which would have allowed RBTC to retain its nonprofit status. The form was not filed for three years, and the organization lost its federally approved nonprofit status on May 15, 2012.
RBTC’s contract with the city stipulates that it maintain this status.
The audit also found that six payments totaling $940 were made to Robinson which could not be accounted for.
Loans totaling $3,846 were made to him as well, and a $290,000 payment was made to a group co-founded by Robinson for services provided.
An audit firm hired by Robinson that was supposed to have been run by a certified CPA was not, which meant that it was not actually qualified to issue an audit letter — although this did not prevent them from being hired to conduct RBTC’s audits in 2010 and 2011.
“We trusted him,” Wray said of Robinson. “We thought that he was doing a good job; he had been here for 10 years and I had no idea the kind of stuff that was going on until I came down here and started asking some questions.”
Wray said he hopes that RBTC will get the chance to present its case before the City Council. Robinson’s resignation is only one indicator, he said, that the organization is taking steps to right the wrongs found through the audit.
Jayne Kirkpatrick, director of Public Affairs for the city of Raleigh, said the final decision for the organization’s future lies with the mayor.
It was Mayor Nancy McFarlane, however, who issued the press release Wednesday indicating that the city was cutting ties with RBTC.
In the statement, the city requested that RBTC vacate the premises at 900 South Wilmington Street at the intersection of Martin Luther King Jr. Boulevard, a building it has occupied since its opening in 2000. The city is going to allow any small businesses currently renting space on the property to negotiate short-term lease agreements.
Wray said he did not believe the city had done its due diligence in making its decisions without first allowing his organization to properly respond to the charges. He also said he was told the request for the audit came out of the city manager’s office.
Kirkpatrick said the audit was done as part of the standard procedure of the city’s Internal Audit department.
“They make sure that not only is the city operating as it should,” Kirkpatrick said, “but also where we would have some tenant like the RBTC, to make sure that they were conducting business as they should be. That’s a routine thing.”
The City’s Findings
In response to the audit, the city noted that there were “significant issues where RBTC is not in compliance with the city contract.”
A statement issued by former city manager Russell Allen noted, “It is also of major concern that there are a number of related party transactions … that could represent conflicts of interest.”
Wray said he does not necessarily disagree with anything found in the report, although he could not recall which board member received a reported $3,100 loan.
He went on to explain that he was responsible for the $66,000 loan that also drew scrutiny from the auditors. Wray said he did not actually loan the money to RBTC, but rather put up some land he owned as a guarantee for a loan to RBTC.
Wray said a loan made to the Grace AME Zion Church was done so before its pastor became a member of the RBTC board, a fact not made clear in the audit.
Aside from these minor issues, Wray said he thinks the organization can benefit from the audit as it moves forward and continues to serve the small-business community.
Instead of evicting the organization and canceling its contracts, Wray said the city should consider some other options, which he hopes to present to City Council.
The first option would see the RBTC continue without any funding from the city of Raleigh. Last year, it received $149,000. The second would see the city withdraw its funding for a period of six months to show that RBTC is capable of functioning as a viable incubator program.
The final option would see the RBTC bringing in the Raleigh Development Authority to help restructure the organization.
The city has yet to respond officially to any of these suggestions.