Tooele County taxpayers may have lost at least $11.1 million through the county’s mishandling of the sale of Utah Motorsports Campus.
That’s one of the findings of a performance audit of the sale completed by the Office of the Legislative Auditor General.
The Audit Subcommittee of the Legislative Management Committee heard a report on a performance audit of Tooele County’s sale of the Utah Motorsports Campus during the committee’s meeting on Tuesday afternoon in the House Building at the Utah State Capitol.
The audit was requested by Rep. Doug Sagers, R-Tooele, and prepared by the Legislative Auditor General.
Tooele County not only mishandled the sale of UMC, the auditors also found that the Tooele County Commission did not fulfill its responsibility to oversee the raceway’s finances.
“We don’t disagree with the the county’s decision to sell the property, who they sold it to, or the decision to operate it during the interim time period,” said Ben Buys, audit manager. “Our concerns with the county’s sale was not who they sold it to, but rather the process that they followed that we feel left them with little to defend themselves when the sales decision was taken to court.”
Tooele County Commission Chairman Tom Tripp responded to the audit report on behalf of the county.
“Tooele County strives to be a trusted steward of public resources and welcomes the audit recommendations as a means of improving our operations,” Tripp said. “We are actively working to adhere to all recommendations. Even before the audit process began, the County had recently taken steps to conduct our work with more openness and transparency, but we acknowledge that we can always do better.”
Buys noted that the auditors were “pleased with the county’s willingness to implement the recommendations.”
Buys said that the outcome of the lawsuit that overturned the county’s original decision to sell the raceway to Mitime Investments for $20 million, may have been better if the county had followed “best practices” for selling public property.
“We don’t pretend to know the court outcome had they followed the best practices, but we do feel it would have been better and they would have had more defense had they followed them,” Buys said.
Best practices for selling public property, according to the auditor, include: the use of an appraiser to establish fair market value, publicly announce the property is for sale, listing the required contents of a qualified proposal, identifying the criteria that will be used to evaluate proposals, creating an independent panel to review proposals, and documenting the decision-making process.
The county could not have followed all six best practices because of time constraints on the original sale, according to a letter to the auditors from Tooele County Commissioner Shawn Milne and Tooele County Attorney Scott Broadhead — the only current elected officials who were in office during the sale process.
Broadhead and Milne wrote a response to the audit’s narrative section, raising several objections.
The county found out on May 11, 2015, that the Miller Group was not going to renew the lease for the raceway. On June 10, 2015, the Ford Performance Racing School — the largest single revenue source at the raceway — notified the county that a buyer needed to be selected by mid-July or they would leave the facility, according to the Broadhead/Milne letter.
“The Commission decided to expedite the sale process to accommodate Ford’s demand and retain as much value as possible,” they wrote.
The auditors also criticised the County Commission for not providing adequate oversight of the raceway’s financial management during the interim period. Those two things contributed to the county receiving millions less than it could have from the sale of the raceway, according to the audit report.
The auditors reported that they found no evidence of improper business dealings between the Tooele County Commission and UMC, and no connections between the commission and companies doing business with UMC.
But, by not following best practices and by not documenting the decision-making process, the county left themselves open to criticism, the audit report stated.
Of the $18.55 million final sales price — after subtracting $9.19 million for operating losses, asset purchases, interest expense, start up costs, management fee, and closing costs — the county received $9.19 million from the sale.
Reducing the sales price by another $1.83 million for the cost of litigation, including a $1.55 million payout to the spurned high bidder, left the county with $7.36 million in net proceeds from the sale, according to the audit report.
Milne and Broadhead point out that the auditor’s calculation of the net sale proceeds doesn’t take into account the impact and benefits of keeping the race track open during the litigation, including the retention of 150 direct jobs and other indirect jobs associated with the raceway.
Broadhead and Milne also referred to the calculated loss and net proceeds as “sensational,” and said it involves speculation as what legal conclusions the court might have drawn.
The audit report listed five recommendations for Tooele County to adopt as a result of the audit. Those recommendations are listed below with responses from the county:
— We recommend Tooele County adopt a policy regarding when to hold closed administrative meetings.
“A three-member county commission may perform both legislative and administrative functions. … Drafting policy, budgets, and ordinances are legislative functions, they must be conducted in a public setting. … It is debatable whether decisions regarding the sale of the raceway are legislative or administrative matters. … The sale could be considered a legislative action and subject to Utah’s Open and Public Meetings Act,” reads the audit report.
“Tooele County will formulate a policy to guide commission meetings protocol and explain how meetings will be regarded either as administrative or legislative in nature,” reads the official response from the county.
Broadhead and Milne added in their letter, “It was difficult to balance the public’s right for free information with the need of maintaining the privacy of the budget to protect the sale value of the raceway.”
— We recommend that Tooele County adopt a records retention policy that guides the retention of emails related to county business.
“Tooele County could not provide us with documentation of the process that was used to sell the raceway. … As mentioned, the lack of documentation of the commission’s official action, including the sale of a major piece of county property, is not consistent with the requirements of state law. … Even when we asked for email correspondence regarding the sale, we were told the much of that information was not available,” reads the audit report.
“It is the County’s intent to follow the recommendations of the Utah State Archives for retention of emails as well as other provisions of the State’s record retention policy,” states the county’s response.
— We recommend Tooele County adopt sufficient internal controls to ensure all relevant financial information is represented in the county’s annual financial statements and that the information is accurate.
“We found the following: misleading financial reporting impeded accountability, financial statements did not disclose raceway liabilities, financial statements overstated raceway sale proceeds. … We asked the county’s outside auditors to explain why the raceway was not included in the county’s annual budgets and all relevant financial statements. They said they were not informed that the raceway was being operated by UMC in behalf of the county and were not aware of this arrangement until we told them. The auditors said that if they had known this, they would have recommended that the raceway be listed as an enterprise fund on the county’s books,” read the audit report.
“The County recognizes the importance of accurate financial information to allow responsible management of public funds. The newly installed financial team has already made progress by adding staff experienced in government accounting practices,” states the county’s response.
Broadhead and Milne added, “Tooele County agrees that it failed to adequately convey accurate information among those with financial responsibility, but denies that there was any intent to deceive.”
— We recommend Tooele County address budgeting weaknesses by adopting adequate internal controls for budgetary oversight so that expenditures do not exceed appropriated amounts.
“The county’s poor budget practices were not limited to its lack of oversight of the raceway. The county’s outside auditors reported concerns with budgetary practices in other areas of county government as well. For this reason, we recommend that the county take steps to improve its use of the budget as a tool for controlling spending,” wrote the auditors.
“The purchasing policy of the county has been revised, adding provisions for additional direction for review, competitive bidding, record retention and has restricted exemptions for competitive bidding,” reads the county’s response.
— We recommend Tooele County undergo a comprehensive external audit of their internal controls and management practices.
“Problems with the county financial statements were not limited to the misreported debts owed UMC. Tooele County’s outside auditors also noted four material weaknesses in county practices that could lead to misstatements in the county’s financial statements. The causes of these deficiencies were the same: lack of internal control processes and insufficient oversight,” the auditors wrote.
“The external audit for 2018 is already underway based on a desire to address weaknesses detected by the external audit of 2017. The audit firm has been directed to focus on internal controls and management practices,” reads the county’s response.
Rep. Brad Wilson, R-Salt Lake City, speaker of the House, and co-chair of the Audit Subcommittee, issued a written statement in response to the audit:
“I appreciate Representative Sagers for his dedication to public service, being a watchdog for the taxpayers of his district, expressing concerns around this issue, and requesting this audit. I think that everyone agrees that what was discovered, related to how Tooele County handled the sale of the Utah Motorsports Campus, should never happen again. However, our auditors have also provided some good recommendations on how Tooele County can improve in the future, and I trust they will take the proper steps to implement them. Finally, I appreciate the work of our legislative auditors who always operate with integrity and are solely focused on helping entities identify areas for improving their performance.”
The Audit Subcommittee referred the audit report to the Infrastructure and General Government Appropriations Subcommittee and Political Subdivisions Interim Committee for further review and study.