The City is continuing to press the agencies involved with the investigations on Rate Search and missing city funds. Staff has been in contact with IRS investigators and will be providing additional information to assist their investigations. Additionally, staff has been in contact with the League of City assigned attorneys following up on the possible identification of the missing CDs and potential locations. As the investigations continue and more information becomes available, we will continue to reassess the City’s course of action taken to this point, make changes when prudent, and take the most forceful action that brings some probable level of success, success being the protection of City assets and the recovery of City funds if possible.

Collusion is difficult to maintain because there is NO honor among thieves--you can bet that the Rate Search people would be screaming bloody murder if they had some one to blame or drag down with them.

I agree with David--the city’s inaction is inexcusable--if you consider your options too long they will all be gone. Just because there are a lot of victims doesn’t mean you shouldn’t get your name on the list--if everyone who sues recovers 10% of their losses, it is more than they would get if they didn’t sue.

Northfield is willing to spend all kinds of money on all kinds of maybe lawsuits where they have NO chance of recovering any money, such as Roder’s maybe lawsuit for termination when he quit or for a report on whether or not it is legal for them to make an expensive, wasteful decision-but they are not willing to proceed when it will be the ONLY chance of recovering their invested funds. Go figure.

According to a Sept. 26, 2007, article in the St. Louis Daily Record, the American Society of Appraisers had also filed suit against Rate Search in the the St. Louis County Circuit Court. “Watkins, the attorney for Rate Search, said the suits filed by the state bar of Nevada and the American Association of Appraisers are nearing resolution, although the entities may still seek court judgments against the broker, he said.”

So why hasn’t the city filed suit? The general rule on judgment liens is first in time, first in right. By the time our fearless leaders get around to taking legal action, there may not be any meat left on the bones of Rate Search.

Once again, the city government’s incompetence is compounded by inaction.

Now I’m wondering who in town first hooked up with these guys, and how high a person would have to be, and on what, to trust them with four million dollars.

My lunch companion from yesterday wondered, “Is the State of Minnesota providing any support to Northfield in following up on this matter?”

- Ross

For those of us with too much time on our hands, here’s a couple of links that did pop up:

Scott Luster from Rate Search at a benefit dinner:

http://64.233.167.104/search?q=cache:St1_ejsgZJwJ:www.bethanyplace.org/photoTemplate.html+%22Scott+Luster%22+Rate+Search&hl=en&ct=clnk&cd=6&gl=us

An order to cease and desist from the State of Missouri:

http://www.sos.mo.gov/securities/orders/AP-08-10.asp

A very sketchy report saying Luster was guilty of theft before Rate Search:

http://www.ripoffreport.com/reports/0/327/RipOff0327322.htm

He brought up this topic, remarked that the current citizens didn’t seem as upset as he would have expected, noted that our leaders acted helpless in the face of these modern day James-Younger gangsters, and asked if State of Minnesota resources had been brought in to address both the original cause and current results of the event.

Anyone have an update?

Yes, some time ago I realized that it appeared that the three levels of protection that two different financial professionals had described to me had, in this case, been inadequate to protect Northfield taxpayers money.

Suzy Rook and Curt Benson were right, I was wrong.

- Ross

The City Council is being asked to formally approve the accounting transactions needed to record the investment write-off to the books for the loss associated with the Rate Search embezzlement. The transactions would be reflected in the City’s financial statements as of 12/31/07. The net loss to be recorded is $2,258,000, reflecting the receipt of $100,000 insurance reimbursement. The transfer amount from the Capital Reserve Fund is $680,937.

The resolution also directs the Finance Director to develop a plan that establishes the framework for the elimination of the remaining deficit in the Insurance Fund and to provide annual updates to the Council.

I was upset with your comment. As a former mayor, I want to know everything about how this happened, and also the chain of command as to who was responsible. Was there adequate policy or lack of personal responsibility?

Auditors are not insureres. They cannot guarantee against fraud. Our society wants to place blame, and the first to get it are the auditors. The auditors are not paid to dig out fraud. For one, cities won’t pay that much, as it requires that you “go fishing” for problems.

I do agree that everyone should know WAY MORE about this problem. The city should be forthcoming and the auditors could explain why they didn’t discover this fraud.

However, as soon as they explain, you will have the public placing blame on the auditors anyway and second guessing the explanation.

This problem would have been avoided if the perpetrator had not committed a crime. How do you expect the auditors to get the guy in St. Louis to not be a crook? It also appears that the crook was not a crook at first, but turned into a crook. How would the auditors know when that happened?

In other words, sometimes the best the auditors can do is identify the loss after it happens--they come in after the fact, not before the transaction. You can’t hold them accountable for what they don’t control.

I would like to know if there were some way they could have identified the problem before it got to 4 million smackers.

“Finding fraud. Conducting a performance audit in accordance with standards provides reasonable assurance – but no guarantee – that auditors will detect illegal acts or fraud related to the audit objective”

Quit slamming the Northfield auditors. They did not do fraud, and they aren’t going to catch a good con (confidence, not convict.)

They do not guarantee against fraud. Northfield could not afford an audit that guarantees against fraud, as they would have to be present every working day.

Kiffi, I do think it probably impractical to invest all funds locally if you want to maximize investment return. Northfield would probably have to hire one more full-time clerk if they did that (which would be preferable to being ripped-off.)

I am sure all the municipalities scammed by Rate Search, including Northfield, have new, better procedures to confirm the existence of their investments.

When 4 million bucks go missing one would think that at the very least the auditors should refund any monies they accepted for conducting audits. I would think Northfield should be looking into the auditor’s liability and how their malpractice insurance looks.

Is it just too big a hunk of money to consider anything but the ultimate best return?

I have 28 years of experience in business and governmental accounting. My educated guess is that there was a little of both--loose procedures and fraudulent documents.

Also, I would guess that McBride was removing the funds as they matured. Due to the fraud, it was like a house of cards--when you pull out enough of the base, the top tumbles. It appears that the investment firm was claiming the same CD’s for multiple municipalities--there seems to be one particular villain (and a couple of lackeys) who are under scrutiny (and indictment?)

It also shows that the investment firm failed to incorporate procedures to safeguard their clients money. The firm is also liable, but good luck getting any money from them.

I think it is unwise to accuse Northfield staff of ANY wrong doing. Staff would be following the procedures in place (which worked great for many years.) It seems that there was a procedural weakness, which I WOULD criticize the auditors for failing to identify.

It is very difficult to prevent 100% of fraud, but procedures should be in place to identify fraud before it grows to 2.3 million or even more than $100,000. I would be very concerned that auditors did not identify the procedural weakness--but I bet you they have a new procedure they are recommending to all of their other municipal clients. (Auditors do learn to not make the same mistake twice. Something that cannot be claimed by many other professions.)

As to investing all of Northfield’s money in Northfield or Rice County, that is probably not practical. The investment firms place money on a daily basis to maximize return, and that is their responsibility. To restrict the city’s money to one locale would make it difficult to maximize the return, and more likely to repeat a problem by keeping all the eggs in one bank.

Where were the regulators? Probably the same place they were when the sub-prime market exploded and imploded.

I would think the city council should consider hiring someone private asap to aggressively look for the missing $2.3 as this is really a lot of money to lose and just waiting for the FBI and post office might reduce any chance of recovery.

Is there any reason not to use local banks, other than caution to distribute the investments fairly?