Mill Creek officials’ expenses catch auditors’ attention

MILL CREEK — When three city leaders from Mill Creek met with developers last year, they treated them to lunch at Barolo Ristorante in downtown Seattle.

The bill for the party of five came out to $199.19. City manager Rebecca Polizzotto charged the meal to her city-issued credit card and marked the receipt “developer luncheon.”

Expenses of that sort caught the attention of state auditors who looked over Mill Creek’s books for a regular inspection. It wasn’t an isolated incident; they found a dozen cases during the past couple of years where Mill Creek employees bought meals for people who didn’t work for the city, a tab that totaled more than $900.

Gift-giving at the city also gave the auditors pause. Mill Creek city employees regularly received jewelry, store gift cards and other public service awards costing a couple of hundred dollars or more a pop. State auditors identified $3,535 worth of such rewards in 2015 and 2016, calling them “a potential gift of funds or prohibited extra compensation.”

The spending on meals and gifts may seem minor alongside the city’s two-year budget of more than $25 million, but records suggest that it was rife, institutionalized and treated as something of a casual perk for the government workforce.

None of the spending posed an obvious violation of city rules. That’s partly because Mill Creek hasn’t updated its policies for city credit cards in more than a quarter century.

For employee recognition, the city had no policy at all.

“The city is really going through a major growth and development phase right now,” Polizzotto said. “It’s just a lot of growth and evolution but it’s a lot of catch-up.”

The financial questions first came up during a regular state accountability audit of Mill Creek last year. The Auditor’s Office detailed them and potential fixes in a March 16 management letter to the City Council. The letter noted issues that deserve the city’s attention, mentioning possible conflicts with state law and government accounting norms. It stopped short of issuing any findings, a more serious step.

Auditors flagged two instances where the city compensated volunteers for a basketball tournament with gift cards and food totaling $845. They said the city reviews credit card purchases, but the system isn’t adequate to determine whether each purchase was valid.

The letter also detailed some hiccups in the Mill Creek Police Department’s transition to a new software system, a challenge that other local departments have faced.

City finance director Peggy Lauerman addressed the audit during Tuesday’s City Council meeting.

Polizzotto, through a city spokeswoman, defended her meal purchases as normal business practice. The lunch at Barolo, for example, was authorized by the City Council to discuss “brick and mortar development opportunities” and was held in Seattle “because it was convenient to the developers.”

The city manager said she’s trying to revamp a host of policies for credit cards and more. Polizzotto said she has already changed employee recognition to focus on workplace philosophy and values.

She also suggested her attempts at reform are what have drawn the ire of some employees in the relatively young city that’s home to about 20,000 people.

“I recognize that change is hard,” she said. “What I didn’t expect is that things that are standard practice in the rest of the universe would be met with such resistance.”

Polizzotto is the highest-paid employee in a town that’s tied with Lynnwood for the highest sales-tax rate in Washington, at 10.4 cents on the dollar. Her annual salary of $157,500 tops all countywide elected officials, except for the county executive, prosecuting attorney, county judges, and all statewide elected officials, except for the governor, attorney general and state judges. She oversees a staff of more than 50 full-time employees as well as 13 others who are part time, hourly or seasonal. About half of city staff work for the police department.

A lawyer with a master’s degree in public administration, Polizzotto previously worked as an assistant attorney general in Alaska and managed a small city near Atlanta.

Her tenure in Mill Creek has earned praise from most of the City Council, who laud her success at whipping the city’s balance sheet into shape. But some former city workers and ex-council members say her conduct has contributed to an exodus of longtime employees and other problems, claims she attributes to the cultural change she’s trying to usher in and a byproduct of ongoing union negotiations. Last fall, some in the community tried unsuccessfully to force the City Council to initiate an independent personnel investigation of her conduct.

The city’s culture of gift-giving long predates Polizzotto’s arrival.

A request for public records turned up regular examples in the years before 2015. The city provided hundreds of records that the newspaper never requested. Polizzotto said that was done to provide context.

A table drawn up by an employee recognition committee detailed what gifts an employee could receive at each five-year milestone. It started with a pen at five years, a $200 gift at 10 years and culminated with a $300 gift at 25 years of service.

An employee in 2012 picked a designer handbag to mark 10 years of service. Others picked a $100 Starbucks gift card and a silver necklace. Police employees at various times received a custom wood baton, a pocket watch and fancy knives.

Polizzotto said she believes the program was “a true expression of appreciation,” but she had to end it.

“The focus was more on a personal enrichment versus an employee recognition program that was focused on solidifying the workplace values,” Polizzotto said. “I realize that’s a difficult transition if you’ve been here for a long time.”

Those gifts, she said, would be more appropriate for a friend or family member to provide.

After three City Council members lost elections in 2013, they all received parting gifts at the expense of Mill Creek taxpayers. Orders for $100 Central Market gift cards were placed for outgoing City Council members Lynn Sordel and Kathy Nielsen. A $100 gift card to University Book Store’s Mill Creek branch was ordered for outgoing Councilman Bart Masterson.

The city manager pointed to cases where she confronted employees over gifts. In 2015, she told police department administrators not to order a necklace for an employee as an anniversary gift. They did it anyway.

“I found that to be gross insubordination,” she said.

The lack of any formal employee-recognition policy poses problems, said Jim Doherty, the legal manager for the Municipal Research and Services Center, a Seattle-based nonprofit that advises local governments.

“Have a policy in place before doing employee recognition,” Doherty said. “Every employer wants to recognize employees who are doing good work, because it helps morale. But it has to be done in the right way.”

A plaque or something else of nominal value is fine, he said. A city can do more than that, but they “have to have a policy in place.” Otherwise, the award could be questioned as an improper gift.

Other local cities have such policies in place. Marysville employees receive a certificate signed by the mayor and a lapel pin. They are invited to be recognized at a City Council meeting.

During the first half of 2016, Polizzotto charged more than $1,300 in business lunches and other food purchases to her city credit card. The tabs at restaurants and stores in and around Mill Creek coincided with business meetings, interviews and staff meetings, receipts indicate. That figure excludes travel expenses.

For an employee holiday party in 2015, she signed off on buying $350 in custom ornaments from Lasered Design, a company run by the adult son and daughter of Mill Creek Councilman Mike Todd.

Polizzotto noted that the purchase included 40 ornaments given to employees. The decision on buying the gifts, she said, had nothing to do with the city councilman’s family relationship. She said the purchase complied with federal accounting rules.

“Again, we’re talking about an $8 item,” she said.

Todd said in a lengthy email he had no role in approving the purchase. He emphasized that his job as a lawmaker doesn’t entail reviewing individual receipts.

Todd said he gave Polizzotto and another employee ornaments with the city logo as personal gifts. She liked what she saw, and asked him for contact information, he said.

The ornaments might not fly in Everett, where policies caution employees against using city money to buy anything that might appear to pose a conflict of interest.

Last year, Polizzotto charged $73.90 on a city credit card to buy get-well flowers for City Councilman Vince Cavaleri. However noble a gesture, many cities would frown on that. Everett’s policies prohibit buying flowers, gifts or refreshments for retirements, illness or “other co-worker social courtesies.” Everett employees are supposed to pay back purchases that aren’t allowed or aren’t documented properly.

State auditors said Mill Creek’s credit card policies haven’t been updated for 26 years.

Polizzotto said they’re a work in progress. It’s something she said she’s able to address, now that she’s tackled bigger issues. Those include reorganizing city government through moves such as eliminating the in-house attorney and merging some high-level management jobs.

“I feel very good about the decisions that are being made and I can look myself in the mirror just fine every day,” she said.

Noah Haglund: 425-339-3465; Twitter:@NWhaglund.

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