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Loans to city from agency are subject of probe

The Urban Renewal Agency will hire its own accountant and the cash-strapped City of Olean will pay the $1,600 legal fee for an investigation of the city's unauthorized borrowing of more than $387,000 in agency funds.

"Our investigation determined that the basic cause of the problem was a misunderstanding of the legal status of the URA," said a Jan. 10 report by Hodgson Russ Attorney Daniel A. Spitzer.

Spitzer examined City Auditor Steve Pachla's five separate fund transfers and repayments, carried out between December 2004 and September 2005, and concluded these were unauthorized by the agency or the Common Council, and they were not allowed by law.

The report stated the problem has been resolved and recommended the city and agency formalize any shared services agreements and costs. The city also was advised to review its borrowing policies to ensure the local finance law is being followed.

"It's obvious there wasn't any malice or bad intent here. The report implies it wasn't," said agency attorney John M. Hart.

Spitzer's report was ordered by former Mayor William Quinlan shortly after agency board members, looking over several financial reports in 2005, noticed $287,406.74 was due from the city. The money was repaid the next day by Pachla, who said the money was taken to meet city expenses.

But Spitzer's report notes another $100,000 was diverted to pay for the Allegheny River Trail Capital Project in four transactions between Dec. 21, 2004, and Aug. 31, 2005.

The report concludes that Pachla, the city's auditor since 2001 and the custodian of agency funds, mistakenly believed the agency was part of the city and its funds could be used to meet the city's cash-flow needs. But the agency is not part of the city and the law says it cannot loan money to the city. Any agency investments must be authorized by its board.

In his conclusions, Spitzer said the agency's payments of the city's 20 percent share of URA land sales has in some cases been withheld for more than a year and that neither entity charged interest to the other for their tardy payments.

In response to this, the agency board voted to forgive the city's interest on the five transfers and Mayor David J. Carucci said he would sponsor a resolution for the Council to do the same, thereby offsetting any outstanding balance for the shared services.

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