The Association of Bay Area Governments will meet Tuesday morning to determine options for reimbursing its stolen $1.3 million in bond money. The agency's insurance could potentially cover the loss.
ABAG will also disclose which law enforcement agency will investigate the case, according to a person close toABAG.
Clarke Howatt, the former director of financial services at ABAG, has been linked to the disappearance of $1.3 million meant for public improvements in South of Market. Howattresigned from the agency and has retained a defense attorney, Mary McNamara.
Howatt will likely be charged with wire fraud, so a federal enforcement agency will likely be involved, said the person. ABAG also plans a “full forensic audit" of Howatt's work, said the person.
A 20-year veteran of ABAG, Howatt gained "trusted" status and familiarity with the allocation of bond funding, which enabled him to allegedly steal the funds. It wasn't clear how sophisticated his methods were from reports, said A. Christine Davis, director and practice leader of forensic accounting and litigation support at DZH Phillips LLP, a San Francisco accounting firm.
“Most fraud can be attributed to a circumvention of existing controls by someone in a position to override controls, or the absence of strong controls," said Davis. “Weak controls provide an opening — the opportunity — for fraud to occur."
Potential defenses against future fraud would be splitting the duties of requesting, processing and approving wire transfers of money, said Davis. Another control would be carefully reviewing and scrutinizing documents tied to wire transfers.
“He's really the quintessential bureaucrat," said Kennedy.
The Oakland-based agency over the weekend issued a lengthy statement regarding itsongoing probe into the alleged theft. The funds, earmarked for street and public-park improvements in San Francisco's SoMa neighborhood, were under the control of ABAG's Finance Authority for Nonprofits, or FAN.
Last month, a routine audit of the South of Market Community Stabilization Fund revealed that funds had gone missing. The fund is a pool where city and developer money is directed to be used for public improvements. When city staff members contacted ABAG, which acted as trustee for the fund, they were told that $1.3 million had been wired to a bank account in San Diego controlled by an entity called Urban West for Rincon Developers, the San Francisco Chronicle first reported.
That entity requested a refund for streetscape improvements associated with the One Rincon Hill luxury highrise project, sources told the Chronicle. With many large projects, developers will make public infrastructure improvements and then be reimbursed for those costs. But in this case, the actual One Rincon Hill developer, Urban West Associates, never made such improvements and said it never requested or received a refund.
Howatt "executed a sophisticated scheme to defraud the agency by creating illegitimate documents, creating false identities, and deceiving the FAN board and bank trustees to wire these funds," ABAG said in a statement sent to the San Francisco Business Times. "ABAGand FAN continue to work collaboratively with law enforcement and other municipal agencies in an effort to resolve the apparent embezzlement."
Howatt has resigned, ABAG said. "I'll try my best to get the money replaced as soon as I can," he reportedly said in his resignation letter to the agency.
The agency said Howatt acted alone and had no access to any other funds within the ABAGorganization.
Requests for comment from Howatt and his lawyer on Monday weren't immediately returned.
Also on Monday, it was reported that Howatt bought a five-bedroom home in Pacific City on the Oregon coast for $1.53 million in 2014, according to the San Francisco Chronicle, renaming it "Rincon Hill." As of Feb. 1, a Craigslist ad listed its availability for rent at nearly $800 a night starting on April 1.