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Detroit Public Library system scammed for $685,000; dispute ensues


Detroit — The Detroit Public Library system had $685,000 of its money stolen in an email and wire fraud scam, according to city officials and documents obtained by The Detroit News. Now city officials and the Detroit Library Commission are fighting over who should be compensated for the pilfered cash.

The alleged wire fraud appeared to involve at least one person who used a Detroit Public Library email address requesting to transfer money from the library's bank accounts, said Stephanie Davis, a spokeswoman for Detroit Chief Financial Officer Jay Rising.

Through a series of emails, bank officials were asked to transfer money, in some cases more than six figures, from public library accounts to various private bank accounts, according to the city documents obtained by The News. The documents list the names of two men who had access to the bank accounts that received the library money.

Between December 2020 and January 2021, a total of $685,221 in library money was stolen through various transfers of varying amounts, from $92,000 to $259,000. The city has recovered $277,795 while $407,426 remains uncovered, according to the city's Office of the Chief Financial Officer. The library is not insured for the theft, Davis said.

The crime was only made public this month by library officials.

"Law enforcement has been involved but has not provided details on their activities other than to inform us that they identified an individual they believe to be involved," Rising said in a statement.

Rising's office said to their knowledge no city employees were involved. The two names listed in the documents were not city employees, they added.

"We maintain that the Detroit Public Library was the victim of wire fraud by someone using the email of a DPL employee to send fraudulent wire instructions to the City to transfer DPL funds to an account that was not controlled by the DPL," Rising's office said.

The city's Office of Innovation and Technology tracked the fraudulent emails in the library email account and determined the IP address from where the emails were sent was in Malaysia. But the Office of Innovation and Technology noted "that it could have been from anywhere routed through Malaysia," according to the city documents.

City documents detailing the fraud were provided to The News by an individual familiar with the investigation but did not have permission to share the documents.

The documents show a city official filed a report with the Detroit Police Department in January 2021. The FBI and the U.S. Secret Service have also been notified, according to the documents. It's unclear if those federal law agencies are investigating. FBI Detroit spokeswoman Mara Schneider said, "Unfortunately, I can neither confirm nor deny the existence of an FBI investigation into this matter."

The sophisticated attack coincided with a rise in computer crimes nationwide. In February 2022, Grand Rapids Public Schools faced the same attack and lost $2.8 million.

Who should compensate the library?

Beyond the criminal investigation, there is a dispute between the library commission and the administration of Mayor Mike Duggan over who should be compensated for the stolen money since it can not be recouped through insurance, according to city officials and two library commissioners. The commission is the ruling body of the Detroit Public Library system, DPL.

Russ Bellant, whose term on the library commission ended in December, said he believes it is the city's responsibility to compensate the library system since the city controls the library's funds. "The library did not establish nor does it have direct control over these accounts," Bellant said. "State law puts those responsibilities on the City of Detroit."

The alleged thefts, which occurred two years ago, were made public by Bellant recently during at a City Council meeting. Last Tuesday, during the library commission's first meeting of the year, Commissioner Franklin Jackson said: "Funds were stolen from the library through the city, our fiduciary. It was not our doing, and this was not our procedure that failed."

Both Franklin and Bellant said the apparent thefts were part of a much larger pattern of mistreatment of the library system by the city. They added the commission was not informed of the theft until a year later and has never been inquired by police.

Rising said his office "engaged in discussions with DPL administration about sharing liability for the loss and reached an agreement with DPL management, but the Library Commission objected. The city has expressed its willingness to resume discussions with DPL regarding their loss from two years ago."

A battle with the century-old institution

The library is managed by a unique hybrid system. The city government controls the public library's finances, including its budgeting and accounting, according to state law. The library commission is an independent municipal corporation governed by seven members appointed by the Detroit Public Schools Board of Education. Ownership, maintenance and governance of the library's properties and its collections are handled by the library commission.

The theft is the latest battle in a years-long contention by some library officials that the city is careless with the library’s money. For years, various officials of the library district have sought ways to gain more control of its budget but the city says it will take acts by the state Legislature to change the funding formula. That’s led to a variety of accusations from both sides of negligence.  

City Council's Legislative Policy Division (LPD) released a 10-year fiscal review earlier this month on the Detroit Public Library, at request of city council members, following library leaders' outcries that the city is mismanaging its finances. The city's 152-page review outlines the decade of back-and-forth argument about financial and overall control over the library system.

"We have been treated rather shabby by our fiduciary, by the city of Detroit,” Jackson said. "There were communications from the city that this is the way things were and are going to be in the future and that we should just get used to this kind of theft.”

Meanwhile, public libraries are struggling. Three neighborhood branches have been closed since the COVID-19 lockdown in March 2020 as the library system is unable to pay for upgrades in its aging buildings. The library system is more than 150 years old.

The library system depends mainly on city property tax revenue for its funding. For fiscal year 2024, revenues from property taxes total $28.9 million.

For years, the library system and the city have debated how many millions the city can divert annually from the library. The practice is called Tax Increment Financing, TIF. It allows municipalities to “capture” the additional taxes from property as it increases in value. A portion of those extra tax dollars that come from higher property values would usually go to the library. But the city, through TIF, instead takes some of that extra tax money to fund developments.

Since 2017, the amount of captured millage revenue has annually exceeded the voter-approved 5% cap in Proposal L. The city contends state law doesn't allow that percentage gap. The proposal was passed for 10 years and expires June 30, 2025.

According to the fiscal year 2024 budget, the projected tax capture amount is $4.3 million. It is estimated to rise every year through 2027, with the City of Detroit's total projected tax capture amount totaling about $18 million over four years.

Two City Council members are seeking to change the system that has been in place since 1873. In April, City Council President Mary Sheffield drafted a resolution urging a change in the state law so that the library system is excluded from tax abatements and captures.

Since last spring, District 3 Councilman Scott Benson has been exploring ways to change the governance of the library system to the City of Detroit.

“We now stand at a situation where the library system is no longer sustainable,” Benson told The News.

"In my conversations, I believe there's culpability on both sides. I know there have been conversations about (the stolen funds) and I believe that this situation will be resolved amicably in the future," Benson said.

This isn't the first time the library has been at the center of financial controversy.

About a decade ago, former Detroit Public Library Official Timothy Cromer plead guilty to bribery. Cromer was charged with taking more than $1.4 million in bribes and kickbacks from contractors of the library while he served as the library's Chief Administrative and Technology Officer from 2006 to 2013.

"It's a shame that people choose to target public institutions, especially ones that serve our most vulnerable like the Detroit Public Library," Benson said.

In December, the library system had 325 budgeted positions, 221 active employees and 104 vacant positions. Before the pandemic, the library system served more than 3 million customers annually.

srahal@detroitnews.com

Twitter: @SarahRahal_

laguilar@detroitnews.com

Twitter: @DetroitAguilar