Duggan administration argues watchdog report on Motor City Match 'not in step with reality'

Detroit — Mayor Mike Duggan's administration on Tuesday sought to tamp down a watchdog report that found excessive spending and a lack of oversight in a city program designed to help jump-start small businesses, arguing the report was "not in step with reality." 

Detroit's Office of Inspector General on Jan. 4 released a report from its nearly 18-month investigation into Duggan's Motor City Match program. The review uncovered weak controls in the program for issuing payments. It also found that an abnormally high number of businesses in the grant-funded effort to support Detroit entrepreneurs failed.

Inspector General Ellen Ha stressed Tuesday during a discussion about the report with Detroit's City Council that "We did not make up any of these numbers," and "We were very specific."

The investigation stemmed from a now ex-employee Kennedy Shannon, who filed a complaint in May 2019 over the program's administrative process arguing it didn't comply with U.S. Department of Housing and Urban Development rules.

Ha said her office's report doesn't claim that Motor City Match is a "bad program." But, the successes of any businesses involved in the program "doesn't negate program waste."

Ha agreed with an assessment from the administration that the report reflects a small picture of the overall program. The findings and conclusions, she said, are based on data provided by the city and the quasi-governmental Detroit Economic Growth Corp., which administers the program.

About $21 million has been allocated for the program since 2015, including $9.1 million from federal block grants, $6.2 million from Detroit's general fund and about $6 million from philanthropic partners. Ha on Tuesday said the investigation focused on $8 million in funding from HUD, the majority of which didn't go to Motor City Match businesses. 

Rather, 31.2% of the money went to DEGC staff and 49.9% went to vendors that provided marketing, advertising, legal and other services, Ha told the council Tuesday.

"These expenses are for the overall administration of the program, not direct assistances to businesses."

Her office, she said, was able to determine that just less than 19% of the money was used for direct assistance for businesses in the program. 

The investigation also concluded that nearly 77% of the businesses in the program failed. An error in the calculations, Ha noted Tuesday, changed the failure rate to about 74%. 

"Our report speaks for itself," she said. "Everyone can do the math."

Donald Rencher, group executive in Detroit for Housing, Planning and Development said Motor City Match has helped 119 businesses. Only eight have shut their doors, he said. 

"We all agree that we need to create opportunities for small businesses in the city of Detroit, specifically in our neighborhoods right now," Rencher said Tuesday. "DEGC, through the Motor City Match program, has done exactly that."

Rencher says he's disappointed in Ha's characterization of some of the businesses as "failures." Some of those conclusions, he said, are incorrect.

"It just shows you the mischaracterization of the OIG not understanding technical, federal regulations," he contends. "Not only did they make determinations on what is eligible based on HUD guidelines - and I believe they are not correct - they are also taking shots at the delivery of the service of the Motor City Match program and question how much goes to businesses and they also question about the failure rate, which are not in step with reality of the Motor City Match program. That's my big issue with the OIG report."

Detroit Councilman Gabe Leland was among the council members to weigh in saying, with large programs like Motor City Match, "We have to be extra careful when it comes to our accounting."

"We're here today and it is unfortunate," he said. 

Motor City Match launched in the spring of 2015 with the aim of lending federal cash grants and other resources to help start small businesses. The program is administered through the Detroit Economic Growth Corporation on behalf of the city. 

The city had urged Ha's office to hold off on releasing her report until a separate audit being conducted by HUD is complete. But Ha on Tuesday reiterated she had a deadline to produce the report.

DEGC President Kevin Johnson said the match program has a 93% success rate, with women and minorities leading the way, and "We'll take that."

"Business owners in the city, largely Black and women, continue to face hurdles that put them at a competitive disadvantage," Johnson said. "...you can see just how desperately our emerging entrepreneurs need a program like Motor City Match."

Beverly Murray, who led the investigation for the inspector general's office, argued the administration's 93% success figure is "misleading" and "Not a true number."

Not enough detail has been provided, she noted, on how many businesses were assisted and successfully opened. 

Councilwoman Raquel Castaneda-Lopez said Tuesday she doesn't deem the findings "egregious," just that documentation was not provided in a timely manner.

Castaneda-Lopez said the administration's defensive response "undermines" the power and authority of the inspector general. 

"There was for me no alarming claim, it was simply a lack of documentation submitted in a timely manner," she said.

Rencher said documentation was provided to the inspector general's office as it was requested. Major concerns identified in the report have spurred policy and procedure changes, he said, and Detroit didn't give any money back to HUD. 

The inspector general's office is an independent agency empowered under Detroit's City Charter to investigate allegations of waste, fraud, corruption and abuse.

Motor City Match is one of two programs lauded by Duggan under investigation by the Michigan Attorney General's Office.

Attorney General Dana Nessel's Public Integrity Unit is reviewing whether Motor City Match is complying with regulations, as well as allegations of preferential treatment by the city to the nonprofit Make Your Date, a group that works to combat premature births. 

The Motor City Match probe was referred to the Office of Inspector General for the U.S. Department of Homeland Security because that program is funded with federal dollars.

Motor City Match has been under watch by HUD over record keeping and whether funds were used appropriately.

Shannon was fired and filed a whistleblower lawsuit in July 2019 claiming she was terminated that spring for flagging the federal government about her concerns over the city's administration of the program. The lawsuit is ongoing. 

cferretti@detroitnews.com