Documents show more questionable spending at Raleigh incubator

ccampbell@newsobserver.comAugust 10, 2013 

  • About the incubator

    The Raleigh Business and Technology Center opened in 2000 after more than a decade of planning. A partnership of governments and Southeast Raleigh colleges built the 18,000-square-foot building at the corner of South Wilmington Street and Martin Luther King Jr. Boulevard. The incubator holds 30 small office suites and resources to help startups get going. The city’s contribution, including land, was $920,000. Wake County, Shaw and St. Augustine’s universities, and a federal grant took care of the remaining $1.5 million.

— Set up in 2000 to nurture small businesses in Southeast Raleigh, the Raleigh Business and Technology Center has received more than $3 million in support from the City of Raleigh, local universities, Wake County and the federal government to run a minority small-business incubator.

Its leaders, however, strayed from their mission, a News & Observer review of financial records and interviews with people involved show. Findings include:

• Incubator director Bob Robinson founded a separate organization called the National Youth Chamber of Commerce, giving it at least $290,000 from the incubator’s budget. City auditors can’t figure out where the money went, and the youth chamber is struggling, too.

• Several incubator tenants were primarily doing work, such as marketing or accounting, for the incubator. Other tenants included nonprofits or out-of-town firms enjoying cheap rent.

• The incubator’s first director, retired UNC system Vice President E. Walton Jones, received annual payments of more than $66,000 after he stepped down.

• Family members of Lawrence Wray, a retired Raleigh assistant city manager who helped found the incubator, also did paid work there.

The incubator has bled money for years and is fighting for its life after a scathing city audit released last month. The audit reported more than $65,000 in cash is missing and found other irregularities.

Raleigh police officials have launched an investigation and city leaders have ordered the incubator out of its city-owned building, though the eviction is being contested in court. A judge continued the case Friday and allowed the incubator to stay until the matter is settled.

“It was shocking and disturbing,” Councilwoman Mary-Ann Baldwin said of the audit findings. “I felt somewhat ill when I read it.”

A separate nonprofit, the incubator pays no rent to the city, which provided $162,000 in funding last year through a contract that got little scrutiny before the audit. The incubator was running a deficit as early as 2001, and its annual audits from 2008 to 2011 expressed concerns that the agency wasn’t financially viable – operating hundreds of thousands of dollars in the red and borrowing money.

At times, the organization has gotten behind on its electric bills and taken loans from board members.

The city’s four-month audit process reviewed check registers, payments and contracts from 2010 to 2012. Robinson, the incubator’s longtime director, resigned after auditors found he’d drawn $65,000 in teller checks from the incubator.

In some cases, Robinson was withdrawing up to $9,000 cash from the incubator’s accounts with little explanation beyond memo lines such as “Academy Construction.” City auditors asked for more information and didn’t get it, lead auditor Martin Petherbridge said.

“There wasn’t full satisfaction on our side – there were still plenty of transactions they were not able to provide documentation for,” Petherbridge said.

Raleigh police are still investigating possible fraud; they seized computers and files from Robinson and three other incubator staffers. Reached last week, Robinson declined to comment, citing advice from a lawyer.

Funding temp work?

City auditors were particularly concerned by $290,000 in payments over two years to a group called the National Youth Chamber of Commerce. Robinson founded the organization in 2010, initially running it out of the business incubator. Incubator board member Joe Sansom, who is also on the board of the youth chamber, declined to comment.

Early on, the group partnered with schools to set up clubs for teens interested in business. But through a partnership with the incubator, the youth chamber evolved into a temporary employment agency.

The incubator had a federal grant to employ 40 disadvantaged workers doing weatherization work on Raleigh homes. That work fell through, Robinson told auditors, and he instead forged a partnership with Chapel Hill-based Strata Solar to provide solar panel installers.

Robinson says the project was outsourced to the Youth Chamber of Commerce, with related money transferred to the other group. Youth chamber leaders say they’ve employed up to 500 workers at a time for Strata at job sites across the state. But auditors found no documentation to support the $290,000 payment from the incubator to the youth chamber.

A spokesperson for Strata said no public money was used in the project and referred questions to Vincent Taylor, a workforce development specialist who oversees the Strata contract and recruits workers for the project through his firm, Gregorian. Taylor says he insisted on becoming chairman of the youth chamber in April when he discovered financial problems, including missing board minutes and insufficient funding.

“They didn’t evolve,” Taylor said. “Not everyone is built to handle a larger firm.”

Taylor fired Lorrinda Michieka, a former incubator tenant, who’d handled finances and served as chief operating officer for the youth chamber. He replaced Michieka with Jamie Godfrey, who had worked as the incubator’s accountant until Robinson’s departure.

Taylor says the Youth Chamber of Commerce is operating as a nonprofit, but its federal tax-exempt status is still pending. Financial records provided by Michieka, however, suggest that the Strata Solar project was producing large payments to three partners.

Michieka showed an N&O reporter computer printouts showing that Taylor, Michieka and Bob Robinson’s sister, Donna, each received a share of the proceeds once workers and expenses were paid. Over a two-year period, Michieka said, Taylor received $540,000, Michieka got $484,000 and Donna Robinson’s firm got $175,000.

Michieka said money has been tight in recent months, and she couldn’t pay the partners on several occasions. She says that “set off World War IV” and she’d been planning to leave after growing concerned by the group’s “raggedy” practices.

Taylor said he’s skeptical of Michieka’s records and is having a forensic audit conducted on the youth chamber’s accounting records. He says his payments were roughly half the $540,000 shown, and some of his payments went toward equipment and staffing costs.

“There was very bad accounting practices,” he said. “The numbers are very skewed.”

‘He’s very debonair’

The ouster ended Michieka’s years of work with Robinson’s projects. She says she first heard about the Raleigh Business and Technology Center from a neighbor who worked there. Michieka had just been laid off from another job, and the neighbor suggested she talk with Robinson – a former Wake Tech trainer – about starting a small business.

Michieka said she was taken with the incubator director, who offered office space for her fledgling marketing firm Move My Mountain. “He is charming, he is articulate, and he’s smart,” she said. “He’s very debonair.” Taylor agreed with Michieka’s description of Robinson.

Soon Robinson offered Move My Mountain an opportunity to perform work for the incubator, including a new design for the group’s website. She received $36,532 in 2011 and 2012, the audit found.

In 2010, Robinson asked Michieka to help with the Youth Chamber of Commerce. She says she was quickly sold on its mission of providing jobs and workforce training to disadvantaged teens and young adults.

As Strata Solar sought an increasing number of workers, Michieka’s duties got so extensive she hired two assistants. That’s also when Robinson brought in his sister to help, she said.

Now that she’s been fired from the youth chamber, Michieka has laid off her workers and is left with a pile of mail and files for the organization. Taylor said she has refused to give up the records.

Taking care of tenants

Michieka was one of several tenants who did extensive work for the incubator. Kimberly McClain’s Community Connect LLC was paid about $25,000 in 2011 and 2012.

That contract details administrative work for the weatherization program that incubator leaders say never got off the ground. It’s unclear what duties McClain’s firm was performing. She did not return calls.

Godfrey’s Genuine Accounting Services was paid nearly double her contracted amount, netting more than $43,000 in a two-year period, according to the audit. Records show $23,753 in accounting costs was charged to the city-funded Pacesetters business training program last year; by contrast, the program’s instructor was paid $22,995.

Both Community Connect and Genuine Accounting Services were kicked out of the incubator shortly after Robinson’s departure. Lawrence Wray, the incubator board chairman, says that’s because he discovered they hadn’t paid rent in years, and they still haven’t settled up.

Another incubator insider still received payments long after he left the agency. Dr. E. Walton Jones served as director from 2000 to 2003 and pushed for the organization’s creation for more than a decade. Jones, who died in 2010, was also a former UNC system vice president and an adviser to Gov. Jim Hunt.

Jones’ pay didn’t stop when he left the incubator. Wray said that Jones received annual checks from his 2003 retirement until 2010, the year he died. Audit records show the payments ranged from $66,000 to $74,000.

Wray said he approved the payments and was upset that Robinson stopped cutting the checks. “(Jones) worked for us when we were creating this building, ... and we didn’t have the money to pay him all his money for the services provided,” Wray said.

In the red

The incubator has been operating at an annual loss of $100,000 to $200,000 since 2007. Wray and other board members offered loans to make up the shortfall.

The group’s auditors reported each year that the incubator’s continued operation “will be difficult without contributions, grants or forgiveness of debt.” The audits were conducted by an accounting firm owned by Robinson’s landlord.

Given that much of the incubator’s revenue comes from rent payments from the building provided by the city and its partners, auditors estimated that the city was indirectly responsible for up to 80 percent of the budget.

Last October, the incubator had a fundraiser that could have helped plug the hole. With sponsorship from Duke Energy, the organization held its first awards banquet at the North Raleigh Hilton. Tickets were priced at $125 per person, with attendees and sponsors being promised that their contribution would “support the RBTC’s mission to support minority business owners and young entrepreneurs.”

The $16,695 in banquet proceeds didn’t cover the $35,697 cost of the event, according to the incubator’s financial records.

Family ties

Auditors found numerous payments to tenants and associates of the incubator during its three-year review period, but the web of connections dates back further.

Wray, the nonprofit’s current chairman, had family members working for the incubator on multiple occasions. His former wife, Shelia Noble Wray, was one of two incubator employees in 2004. That’s the same year the couple had a high-profile divorce, briefly landing Lawrence Wray in jail for failing to follow a court order to reveal his assets.

“She was working at the incubator but not for any connection that I had,” Lawrence Wray said. “I suggested they not hire her.”

More recently, Wray’s singing sisters were paid $200 to perform at the incubator’s awards banquet last fall. His brother, Donald, got $600 to trim the incubator’s trees in November and December. And his son, Lawrence Wray III, received $150 for landscaping work, according to city audit records.

Robinson defended the hirings in an April 30 email to auditors. “They are professional singers and are noted musicians,” he wrote. “Donald Wray is one of a few small-business tree services. He was the low bid.”

Wray oversaw the city’s relationship with the incubator until he retired as assistant city manager in 2011. He was heavily involved in the city’s decision to fund the project.

A second chance?

Despite the critical audit, Wray thinks his organization should get another chance. He’s fighting Raleigh’s eviction order in court, arguing that an unsigned lease runs through December.

Wray and remaining board members have developed a restructuring plan to address city concerns. But it’s a smaller board: Dr. Dorothy Yancy, the president of Shaw University, said she resigned after reading the audit. So did Charles Francis, a local lawyer who served on the board.

The proposal calls for new board members, including two City Council appointees, and board subcommittees to review operations in more detail. The incubator has already hired new accountants from The Tennie Group to oversee all finances. The Tennie Group has also done accounting work for the National Youth Chamber of Commerce.

The incubator also plans to review tenant leases more frequently, regain its federal nonprofit status – lost earlier this year after no one filed required paperwork – and add programs with help from the Triangle’s largest employers.

“Yes, there were some mistakes made down here,” Wray said. “We found out before the city auditor ever got here. ... We feel like we ought to have an opportunity to restructure. We believe that we can do a credible job.”

Baldwin, the councilwoman, says she’d rather the city set up a new program to provide incubator services. “There is in my mind a trust issue now,” she said. “I really feel like it’s time to look for some new options and really re-envision the incubator.”

Campbell: 919-829-4802 or twitter.com/RaleighReporter

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