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Curmudgeon's Corner: 38 Studios fiasco shows need for independent auditing (OPINION)

June 6, 2012

You may recall that it was raining last Tuesday. I decided to spend the morning in the woods anyway since it was the last day of the spring turkey hunting season.
After getting fairly wet in spite of the rain gear I was wearing and not seeing or hearing a gobbler, I decided to explore an old roadway I had never been on before. I came upon a family cemetery in the middle of the woods in West Greenwich.
Unlike some of the family plots scattered about the state, this cemetery was not overgrown with bull briars, poison ivy and other flora. I suspect some of the graves went back to the colonial era since they were black with age and illegible. Others had fallen over.
My eye caught a white gravestone, still upright off in a corner. There was a rusted metal marker in front of it. The inscription on the stone was still clearly visible.
It read: “Samuel King Pvt. RI Militia Revolutionary War.” What amazed me were the dates on the stone, “1745-1829.” Veteran King, who had fought for our independence, not only survived the Revolutionary War but had lived to the incredible age of 84.
Last Saturday morning, on Memorial Day Weekend, I hiked back into the woods and placed an American flag on Private King’s grave. It seemed the least I could do.
On Memorial Day, someone else felt compelled to go to the south lawn of the State House and scrawl an obscenity on the monument to those –including my son- who have made the ultimate sacrifice for our country in the war on terrorism.

n Recently, Gov. Lincoln Chafee went on talk radio and complained that 38 Studios and Curt Schilling were “stonewalling” him. During an interview the same day, General Treasurer Gina Raimondo wondered “how has the state been monitoring its investment; how and what has the governor and his staff, in conjunction with the EDC…how have they been working the deal?”
The governor responded by telling her to stay out of the 38 Studios situation and focus on helping him with the failing municipal pension plans. Meanwhile, Economic Development Commission minutes show that during dozens of meetings after $75 million in bonds were issued, 38 Studios –the EDC’s biggest account- was barely mentioned.
A few days later 38 Studios laid off all its employees and is, in effect, out of business. Gov. Chafee called for a forensic audit to determine whether Curt Shilling has any skin in the game. For his part, Schilling claims the governor’s comments and inaction by the EDC on granting 38 Studios film tax credits is why his company is belly up.
Contrast this with Gov. Chafee’s proposal in his original budget to eliminate the state’s Bureau of Audits. Director of Administration Richard Licht informed the head of the audit bureau, Chris Der Vartanian, in January that his agency was being “defunded” and that the 10 staff members might be transferred to a new department which would perform “some” of the bureau’s functions. Mr. Der Vartanian, a 21-year state employee, resigned his post in protest.
The president of the Rhode Island Society of CPAs has come out in opposition to this scheme. So has former state auditor general and president of the American Institute of Certified Public Accountants, Ernest Almonte.
In a letter to the state’s largest daily newspaper, Director of Administration Richard Licht maintained that this reorganization would “provide more transparency and accountability in state government.” I believe it represents a step backwards toward opaqueness and lack of accountability.
I presented this situation to the board of directors of Operation Clean Government at their May meeting. OCG’s directors voted unanimously to oppose eliminating the Bureau of Audits and the creation of a new bureaucracy within the executive branch.
Perhaps in response to these criticisms and Mr. Almonte’s announcement that he is a candidate for governor in 2014, Gov. Chafee came out with a half-a-loaf proposal to fund five audit positions in next year’s budget. To what department they would belong, to whom these persons would report and what their duties would be was unstated.
Wouldn’t it be nice to have a state official with the expertise to figure out just what the financial condition of 38 Studios is and what happened to the money the EDC gave it? And what if that official had the power to audit 38 Studios without waiting for a request from the governor or anyone else? And just suppose that the results of that audit were open to the public.
Legislation (S2924) introduced by Sen. Frank Ciccone would create a chief of the Bureau of Audits reporting to a five-member, non-compensated committee serving staggered three-year terms appointed by the Speaker of the House and Senate President. This committee would be comprised of persons with auditing or financial experience “so that the committee’s composition reflects a range and diversity of skills.” Current and former legislators and employees of the Legislature would be barred from serving on this committee.
The chief of the bureau would have the power “to conduct audits of any state department, agency, quasi-public corporation, or private entity that is a recipient of state funding or state grants.” [Emphasis mine.]
With the approval of the bureau of audits committee, this chief auditor would have the authority to go into 38 Studios and conduct an examination including attendance at executive sessions and access to minutes of executive sessions and board meetings.
Director Licht writes that “budgeting in our [state] government has been more of an accounting exercise rather than the task to order the state’s priorities.” His proposal eliminates the Bureau of Audits and creates an Office of Management and Budgets which would focus on “performance” (not financial) audits.
One is hard pressed to see how a state’s budget officer should be charged with setting Rhode Island’s priorities. That is what we elect a governor to do. It’s called leadership.

Richard August is a North Kingstown resident and a regular contributor to the Standard Times. He served for six years on North Kingstown’s Audit Committee and was its chairman for the last two. His opinions are his own.

Southern Rhode Island Newspapers
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