Rough roads ahead
Agency, plagued by management questions
and employee lawsuit, selects new board chair

By John Wolcott
SCBJ Editor

In a move to rescue the troubled Snohomish County Workforce Development Council, Economic Development Council President/CEO Deborah Knutson has stepped up to a temporary role as the new chair of the WDC board of directors.

Overview of WDC woes In a May 12 copyrighted story in The Herald, the Snohomish County Business Journal reported on its investigation into alleged problems with the administration and operation of the Snohomish County Workforce Development Council. At that time, the WDC was facing $600,000 in questioned expenditures being examined by the Washington state Employment Security Department and the federal Department of Labor. The agency also was facing a “whistle-blower” lawsuit filed by a former finance director and the withdrawal of the Snohomish County Labor Council over management, communication and operations issues, leaving the agency out of compliance with federal requirements. At the board’s May 23 meeting, directors elected new leadership on the board and began working to resolve the agency’s challenges, many of which reportedly were not revealed earlier to the full board by WDC management.

That appointment, decided at an executive session of the board’s May 23 meeting, appears to be the first significant step toward resolving the agency’s management, communication and questioned spending issues with state and federal examiners.

Knutson and the board also need to address a former employee’s “whistle-blower” lawsuit and resolve the Snohomish County Labor Council’s withdrawal from the board that has put the agency’s future in jeopardy.

Former WDC board Chair Liz Marks resigned at that meeting after a two-hour executive session to discuss financial and personnel challenges facing the agency. The removal of Marks as chair, along with Lorinda Causey as president/CEO, was part of the Snohomish County Labor Council’s written conditions for labor’s return to the WDC board.

Without the presence of the labor community representation, the board is out of compliance with federal regulations governing the makeup of work-force development boards. Unless the WDC is re-certified, the board would receive no federal funds and could be faced with staff layoffs, ending job development programs for county workers and closing its offices.

Reports cite funding concerns To provide more details of the operational problems that have surfaced in Snohomish County Workforce Development Council operations, here are excerpts and summaries from monitoring reports by the Washington State Employment Security Department and the U.S. Department of Labor. Washington Employment Security Oversight Report (operational and program monitoring audit), April 11 through 15, 2005, and June 15, 2005: With two observations cleared by WDC staff, five questioned program costs remain involving three conferences sponsored by the WDC, using $172,453 in federal funds: A New Business Ventures for Nonprofits workshop, February 2005, $15,000. A nursing conference, April 2005, $64,519. A Business Excellence conference, May 2005, for $93,933, including $50,000 for a presentation by noted business adviser Tom Peters. The state report questioned the charges for the programs being paid by federal funding reserved for work-force training and job development, but praised the work of WDC staff on such things as “excellent research on labor market information on occupations in demand and decline.” U.S. Department of Labor Workforce Systems Formula Grants On-Site Review, Oct. 3 through 14, 2005: Findings in the review that need to be answered by the Snohomish County WDC included: Unallowable fund-raising and advertising costs being charged to Workforce Investment Act grants instead of being paid from WDC’s administrative funds. Inadequate administrative and financial monitoring of recipient agency’s use of WIA funding, and the absence of an audit tracking system for those funds Failure to report on an accrual accounting basis and not reporting earned program income to the state. Insufficient documentation to prove participants in a $300,000 training program with Flight Structures Inc. of Marysville qualified for the training since they already were employed. Insufficient documentation for expenditures.

In the current fiscal year, the WDC received approximately $8 million in federal funds to run job and training programs that are considered essential for developing a skilled work force in the county.

“I think it’s a very valuable organization for this community and for economic development. I’ve always had a good relationship with labor and the county. We need to keep moving forward. I’m going to try my hardest to make this work,” said Knutson, already well established as an effective community leader. “Nobody knows exactly what’s going to happen, but I know my own executive committee will realize, too, that it’s going to take a lot of time.”

“We’re optimistic that the WDC will continue to move forward,” said Snohomish County Deputy Executive Mark Soine, who also was at the meeting representing County Executive Aaron Reardon. “It’s important that none of us lose sight of the mission and goal of the WDC to assist the workers in the community. That’s always foremost for the county. It’s unfortunate that there are disagreements on the board, but we’re working through those. I think those changes that are necessary will take place.”

Soine said he believes “the people on the board, and even those who may step off, have the same goal in mind, to do whatever is best for the community and its workers. ... We’re looking forward to continuing to work with the WDC and being positive about it. There’s a lot of hard work in front of all of us to be sure the WDC is successful in its mission.”

The troubles of the WDC began a year ago, but didn’t surface publicly until the business journal learned of the developments affecting the agency through contact with former employees of the work-force agency, former WDC board members and other business community resources.

In a May 12 copyrighted story in The Herald, the Snohomish County Business Journal reported on its investigation into alleged problems with the administration and operation of the Snohomish County Workforce Development Council.

While the staff of the WDC has received praise from state and federal agencies for its work, most of the problems involved in current, unsettled issues have been linked to actions and decisions by WDC President/CEO Causey.

Federal Workforce Investment Act funding is provided to the Washington state Employment Security Department (branded as WorkSource job offices throughout the state). In turn, funds are passed to the WDC for conducting training and job development programs for adults, workers who have lost jobs, youth employment and veteran job assistance.

In 2005, monitoring and review visits by those state and federal agencies found that the WDC had questionable expenses for several community programs. Some WIA funds were spent for fund-raising and information programs that did not directly help unemployed people find work, including $300,000 for a training program for the unemployed that was presented to workers who were still employed, although in danger of being laid off.

If the expenditures cannot be justified by the WDC, the agency would have to pay back the federal funds. Although the original $600,000 in question has been reduced after normal monitoring report reviews, changes in WDC regulations and adjustments in payments, a balance of about $430,000 is still in question.

Since payment would need to be made with nonfederal funds, and the WDC has no adequate resources, it’s expected that Snohomish County government would need to make the repayment, said John Chamberlin, a consultant hired for $25,000 to analyze the “audit” deficiencies and help guide the WDC board and staff through as many resolutions of those findings as possible.

The County Executive’s Office is the official receiving government organization. Board members are appointed by the county executive in accordance with federal requirements for WDC board membership.

Lack of communication has been a major stumbling block in the WDC’s operation, according to sources on the board. Interviews with a dozen sources close to the situation revealed that many of the directors on the agency’s board had not been informed about the audits, lawsuits or other issues that have been building to a critical point.

Board member Suzanne Monteiro, with the state division of vocational rehabilitation, was surprised at some of the documents presented at the meeting, saying, “I’ve seen the state employment security report before, but I’ve never seen the federal Department of Labor review until today.”

That report was presented to management at an on-site meeting at the WDC offices Nov. 4, 2005.

Leslie Somes of Wells Fargo Bank told the board, “We need to do a better job of working together. ... I was very surprised over the last couple of weeks. ... We’ve got to be transparent here. ... We’ve done some wonderful things, but let’s figure out where we’re going wrong here, move ahead and be effective for the public out there.”

Phil McConnell, with Work Opportunities Inc., was incensed by the board briefing on the state and federal reports.

“I didn’t know what the findings were with the ESD report; this is the first time I’ve seen this. There apparently is a smaller circle of people meeting and making decisions that affect all of us. With a big event like (the Tom Peters Business Excellence program), the whole board should know about it ahead of time,” McConnell said.

“The problem we’ve had with this board is that we’re still having meetings that don’t comply with the open meetings act, meetings that some of us are invited to and others aren’t,” he said, adding that he “tried to crash one last week and other meetings and was told he couldn’t come. ... Are executive committee meetings open to all board members?”

More on ‘whistle-blower’ lawsuit To provide more details of the operational problems that have surfaced in Snohomish County Workforce Development Council operations, here are excerpts and summaries about the “whistle-blower” lawsuit for wrongful job termination filed by the WDC’s former financial director, Deborah Anderson. Civil action “whistle-blower” suit filed in U.S. District Court, Seattle, September 2005 by former Snohomish County Workforce Development Council Finance Director Deborah Anderson against the Snohomish County WDC and President/CEO Lorinda Causey for retaliatory job termination: Hired in June 2003 as a grant consultant, promoted soon afterward to finance manager, later to director of finance for the WDC, Anderson received an annual performance review from Causey in June 2004, citing her as “a tremendous asset to the WDC. … It was hugely to your credit that we were able to answer public accountability for our operations and be found as fiscally solid.” In April 2005, Anderson met with Causey to compile the WDC’s preliminary 2005-2006 budget, which was then balanced, as required by law, and approved by the WDC board and executive committee. In May 2005, the lawsuit claims, Anderson said Causey asked her to prepare a second budget with a 25 percent to 30 percent increase in operating expenses, informing Anderson she intended to “present a new, balanced budget to the WDC board of directors, but actually operate the WDC off a second, inflated budget.” At that time, Anderson contacted the WDC’s outside auditors, Hascal Sjoholm & Co. in Everett, about the legality of that request; they referred her to a board member. Anderson chose Janelle Sgrignoli, who is director of Snohomish County Human Services. On June 8, 2005, Snohomish County Executive Aaron Reardon revealed the substance of Anderson’s allegations of unlawful conduct in a letter addressed to a member of that board (Louise Stanton-Masten, president/CEO of the Everett Area Chamber of Commerce). Afterward, the letter was distributed to all board members. Anderson said she was “subjected to an increasingly hostile work environment in retaliation for her protected activity” then was placed on paid administrative leave July 13 and terminated from her employment Aug. 5.

When he was told “no” by then-board Chair Liz Marks, McConnell said, “The right answer is ‘yes,’ because they act on behalf of the board, any board member should be able to attend.”

In a May 18 follow-up article by Bryan Corliss, business staff writer at The Herald, officials with the Snohomish County Workforce Development Council defended their record, saying their critics are overstating routine problems found by preliminary audits, perhaps because of political motivation.

“This is an attack on Snohomish County business that also jeopardizes the fortunes of workers,” wrote council board member Kurt McVay in a letter to Snohomish County Executive Aaron Reardon. “There are no shortages of opportunistic critics, most with dismal board attendance records.”

However, state officials say that while it’s not unusual for auditors to find some spending that falls outside strict rules for work-force development funds, the gaps found by the Snohomish County audit this year were far beyond the norm.

The total in question at the state level is more than $100,000, said Sheryl Hutchison, a spokeswoman for the state’s Employment Security Department, which oversees local work-force councils around the state.

“They’re not the amount — rarely, if ever — that this one was,” she said. “It’s not routine.”

“This is a normal, annual review process that occurs with every work-force board across the state and the country,” the WDC rebuttal statement by Marks said. In particular, “federal reviewers have indicated that the issues they have focused on in Snohomish County are fairly common across the country and are a result of conflicting messages within the law.”

The development council called whistle-blower claims by former WDC Finance Director Deborah Anderson “completely untrue,” saying that Anderson was first placed on administrative leave after “complaints by several ... staff members regarding her inappropriate workplace conduct.”

She was fired, the council statement said, after an outside investigation found Anderson had “violated (development council) policies and procedures” and “engaged in activities ... which could potentially create legal liability.”

McVay’s letter says that Anderson’s suit and the labor council’s intense interest in it are “the real driving force behind this assault. ... The labor council is putting its political agenda ahead of its duties and responsibilities to the work-force development system.”

Mike Sells, Snohomish County Labor Council secretary, said he didn’t want to comment on the specifics of McVay’s letter, but said his “sense of it is that they’re not beyond deflecting blame. ... They need to get beyond that and solve some problems instead of circling the wagons.”

Board member and South Snohomish County Chamber of Commerce President/CEO Jean Hales said after the May 23 meeting that “there are a bunch of clients out there that don’t want any disruption in service, so it’s critical that we make it work and take care of it, not just because labor has pulled out but because we want a healthy organization. ... What we’re doing now is determining the next step.”

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