Agenda 03/27/2018 Item #13B03/27/2018
EXECUTIVE SUMMARY
To provide the Board of County Commissioners the Clerk of the Circuit Court and Comptroller’s
Draft Internal Audit Report 2018-2 Economic Incubators, Inc. and the Business and Economic
Development Division, issued on March 21, 2018.
OBJECTIVE: To provide the Board of County Commissioners (Board) the issued current Draft Audit
Report 2018-2.
Internal Audit will deliver the current Draft Audit Report to the Board on Wednesday, March 21, 2018, at
which time it will become a public record. It will be available electronically on the Clerk of Courts
website:
https://www.collierclerk.com/finance/internal-audit/published-reports/
If EII, Inc., or County staff make a public presentation regarding this matter, the Clerk reserves the right
to respond at the public meeting.
GROWTH MANAGEMENT IMPACT: None
FISCAL IMPACT: None
RECOMMENDATION: That the Clerk’s draft Audit Report 2018-2 Economic Incubators, Inc., and
Business and Economic Development Division be entered into the record.
Prepared by: James D. Molenaar, Esq., Internal Audit Manager
Clerk of the Circuit Court and Comptroller
Prepared Date: Thursday, March 21, 2018
ATTACHMENT(S)
1. Draft 3-21-2018 (2) (PDF)
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03/27/2018
COLLIER COUNTY
Board of County Commissioners
Item Number: 13.B
Doc ID: 5136
Item Summary: To provide the Board of County Commissioners the Clerk of the Circuit Court
and Comptroller’s Draft Internal Audit Report 2018-2 Economic Incubators, Inc. Business and Economic
Development Division, issued on March 21, 2018. (This item is a Companion to Item 11I)
Meeting Date: 03/27/2018
Prepared by:
Title: – Clerk of the Circuit Court
Name: Mark Pasek
03/21/2018 1:20 PM
Submitted by:
Title: Senior Staff Assistant – Clerk of the Circuit Court
Name: Jennifer Milum
03/21/2018 1:20 PM
Approved By:
Review:
Office of Management and Budget MaryJo Brock Level 3 OMB Gatekeeper Review Skipped 03/21/2018 1:23 PM
County Attorney's Office Jeffrey A. Klatzkow Level 3 County Attorney's Office Review Completed 03/21/2018 2:08 PM
Clerk of the Circuit Court Derek Johnssen Additional Reviewer Completed 03/21/2018 4:41 PM
County Manager's Office Leo E. Ochs Level 4 County Manager Review Completed 03/21/2018 7:23 PM
Board of County Commissioners MaryJo Brock Meeting Pending 03/27/2018 9:00 AM
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Internal Audit Department
Draft Audit #2018-2
Economic Incubators, Inc.
Business and
Economic Development Division
March 21, 2018
Dwight E. Brock
Clerk of the Circuit Court
3299 Tamiami Trail East
Suite #402
Naples, FL 34112-5746
www.collierclerk.com
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Prepared by: James D. Molenaar, Internal Audit Manager
Timothy Lo, Internal Auditor
Gabriela Molina, Internal Auditor
Mark Pasek, Internal Auditor
Report Distribution: Board of County Commissioners
Leo Ochs, Jr., County Manager
Jace Kentner, Director of Office of Business and Economic
Development
Justin Loeb, Manager of Collier County Airport Authority
Board of Directors of Economic Incubators, Inc.
Dr. Marshall Goodman, CEO of Economic Incubators, Inc.
CC: Dwight E. Brock, Clerk of the Circuit Court
Crystal K. Kinzel, Chief Deputy Clerk
TABLE OF CONTENTS
BACKGROUND 2
SUMMARY OF FINDINGS 3
SCOPE 5
MANAGEMENT COMMENTS 6
FINDINGS DETAIL (OBSERVATIONS, CONCLUSIONS & RESPONSES) 12
SUMMARY 117
APPENDIX 119
The files and draft versions of audit reports remain confidential and protected from public records requests
during an active audit under Nicolai v. Baldwin (Aug. 28, 1998 DCA of FL, 5th District) and Florida Statute
119.0713. Workpapers supporting the observations noted within this report are public record and can be
requested upon release of the final audit report.
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BACKGROUND
To date over $5 million has been spent for which the project has generated 19 validated jobs (3
of which are EII staff) with an additional $2.6 million projected by EII staff through 2021 , totaling
over $7.6 million in taxpayer support.
The $1.2 million Florida Department of Economic Opportunity (DEO) grant awards spent include:
Falsified documents submitted to DEO
Tasks not completed on time, e.g. Immokalee Accelerator
Bidding irregularities for the commercial kitchen equipment
Over $1 million spent on payments to EII’s three personnel without quantifiable results.
Over $10 million in grant funds identified as a future need for the “successful” completion of the
accelerator projects.
Internal Audit uncovered numerous instances of misrepresentations, general malfeasance, and
possible fraud.
Contrary to the 2015 assertion of self-sustainability within 2 years, EII continues to fall short of
revenue projections and continues to exponentially increase reliance on taxpayer funding.
The Clerk of the Circuit Court and Comptroller Internal Audit Department (Clerk) conducted a
review of the contracts and transactions surrounding payment requests submitted for
reimbursement by EII. The Board of County Commissioner’s Office of Business and Economic
Development (BED) is the county’s Fiscal Agent to the Agreement(s) and Economic Incubators,
Inc. (EII) is the contracted vendor.
Economic Incubators, Inc. was contracted to operate The Naples Accelerator, located at 3510
Kraft Road in Naples, FL and the Florida Culinary Accelerator @ Immokalee, not yet opened. The
Naples Accelerator provides companies with offices, conference rooms, and office equipment.
The Naples Accelerator was also intended to provide networking, mentoring and training to grow
startups and small businesses. The Florida Culinary Accelerator @ Immokalee, while not
operational, is located across from the Immokalee Regional Airport in Immokalee, FL. EII has a
Board of Directors along with the executive staff of Dr. Marshall Goodman as the Chief Executive
Officer (CEO) and Ms. Jennifer Pellechio, Chief Operating Officer (COO).
This review is published after numerous meetings and discussions with EII’s Board of Directors,
EII’s executive staff, and County staff regarding continuing inconsistencies with pay requests and
grant deliverables.
Overview
The Clerk reviewed policies, procedures, and transactions regarding many of EII’s operations as
the vendor contracted by the Board of County Commissioners (BCC) to carry out the accelerator
projects in Collier County.
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The Clerk found that EII knowingly submitted false information t o a grantor agency, Florida DEO.
In addition, the Clerk has identified instances where EII and BED have made numerous
misrepresentations to Grantor Agencies, the BCC, and the taxpayers.
EII’s seemingly deceptive practices and failure to manage the accelerator projects gives the Clerk
great concern. So much so, that the Clerk recommends the BCC evaluate its options regarding
the FY2018 Agreement with EII, and take whatever actions it deems necessary.
Many of the assertions made in this audit report regarding Dr. Goodman’s actions as President
and CEO of Economic Incubators, Inc. (EII) appear to be similar to the findings in a 2012 USF Audit
Report involving University of South Florida-Polytechnic. The 2012 report, in its entirety, is
included in Appendix A of this report. Dr. Goodman’s representations to the Florida Department
of Economic Opportunity (DEO) in 2017 appear to be consistent with the circumstances
surrounding Dr. Goodman’s departure from University of South Florida-Polytechnic in 2012. The
assertions made against Dr. Goodman in 2012 included financial mismanagement, improper
accounting of building improvements, and potential side deals with the owner of the USF-
Polytechnic incubator facility, in total the report lists eleven violations of USF policies and
procedures by the former USF Regional Chancellor. The report is presented merely as
background for current findings.
SUMMARY OF FINDINGS
Findings List
The following findings have all been communicated to EII Board Members, EII staff, and the BED
over the past four years. EII and the BED have failed to address many of these deficiencies when
they were identified.
1.EII misrepresented expenditures and project status of Grant #SL025 to the DEO, the BCC,
and the Clerk to obtain payments for contracts with State and Federal Grant deliverables.
EII reported completion of projects not complete, misrepresented payments made, and
submitted false invoices to elicit payments by DEO.
2.Irregularities found in Solicitation 17-7167 for the procurement of the Kitchen Equipment
for the Florida Culinary Accelerator @ Immokalee include possible bid rigging,
misrepresentation of solicitation budget and use of potentially misleading commodity
codes.
3.EII and the BED misrepresented Grant #SL007 Deliverables to DEO and the BCC on the
Annual Accomplishment Reports, asserting unverified jobs created and capital
investment obtained.
4.The BED failed to provide oversight and fiscal controls to protect taxpayer funds regarding
EII, creating an environment that fosters improper salary payments, improper travel
expenditures, reduced revenues, undocumented “bartering” transactions, unbudgeted
executive bonuses, increased financial liabilities, and jeopardizes the sustainability of
both the Naples and Immokalee accelerator projects.
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5. EII, with the consent of the BED, has discounted their Program Income with
“promotional” rents while claiming cash flow concerns and not meeting revenue targets.
6. EII failed to meet the Business Income and Private Contributions targets in FY2017
pursuant to the Agreement between the BCC and EII.
7. EII failed to meet their revenue target for the first quarter of Fiscal Year 2018 based on
continued rent promotions, un-sustained participation, failure to collect budgeted private
contributions, and the failure to open the Immokalee facility.
8. EII, the BED, and owners of Kraft Office Center, LLC have failed to correct a zoning
violation that has hindered the accelerator participants from registering as businesses
and obtaining required business tax receipts in Collier County.
9. EII failed to timely and accurately file IRS Form 990 tax returns for fiscal years 2015, 2016
and 2017, thereby jeopardizing their tax-exempt status.
10. EII has failed to follow the business plan approved by the BCC on May 13, 2014 by failing
to become self-sustaining, instead exponentially escalating taxpayer funds, annually, for
years 2014 – 2018.
11. EII’s revised business plan fails to: identify measurable performance including job creation
or capital investment; identify specific marketing strategies; provide a revenue structure
for sufficient operating income to be successful without dependence on taxpayer funds;
address deficiencies in prior performance; or identify the additional equipment for
successful operation of the accelerator projects.
12. The Airport Manager and BED failed to monitor BCC approved 2017 and 2018 leases and
they allowed over $1 million dollars of improvements to a county airport property
without payment on the lease; $37,522.80 in rents remain uncollected and unpaid.
13. Mismanagement of Woodstock’s Micro-Market including licensing, accounting, and
inventory controls.
14. Multiple potential conflicts of interest exist within EII’s organization including self-dealing,
President of EII’s Board of Directors is the owner of the Naples Accelerator facility, an d
potentially improper rental arrangements.
15. EII has failed to become a financially viable business entity and shows little or no progress
in that direction.
16. EII and BED have failed to meet contract and facility deliverables during Fiscal Year 2018.
17. EII and BED have made numerous misrepresentations to the BCC, the Clerk, and the
taxpayers including jobs created, capital investments made, project completion dates,
and financial and budget status.
18. BED approved $1,631.96 in unauthorized and unbudgeted expenditures on behalf of EII
for the Immokalee Accelerator Project.
19. EII failed to facilitate Capital Investments, assist in creation of viable business plans for
participants, provide assistance in accelerating client independence.
20. EII and the BED have consistently failed to submit pay requests and contract deliverables
in a timely manner.
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REVIEW DETAIL
Scope
The objective of this review was to identify and report ongoing accounting, grant, and
operational irregularities identified in EII’s pay requests to the Clerk and the State of Florida.
Time period: September 10, 2013 to present (February 2018)
Discussions were held with:
All Board of County Commissioners and the County Manager
EII Board of Director members
EII CEO – Dr. Marshall Goodman
EII COO – Jennifer Pellechio
Administrative Assistant – Nicole Kreuzer
BED Director – Jace Kentner
BED Accounting Technician – Phyllis Kraft-Hendrick
Executive Director of Corporate Business Operations – Tim Durham
The majority of the Naples Accelerator participants
Accelerator volunteers
DEO current and former staff
Nicole Temperton, Controller for TriMark Strategic
The following documents were the basis for the review:
All agreements between EII and Collier County
All grant agreements
Reimbursement requests to Grantor Agencies
Annual Accomplishment Reports submitted to Grantor Agencies
The County’s agreement with USDA
EII Executive Board and Board of Directors meeting minutes
Payroll Reimbursement Requests FY17 and FY18
Financial reports, ledgers, and statements submitted to Collier County as supporting
documentation for reimbursement requests
Email correspondence provided by EII as requested by the Clerk’s Internal Audit staff
Records on Sunbiz.org website
Accelerator Participant User Agreements
EII’s webpage for the Naples Accelerator
Newspaper articles and other publications related to the accelerators
Board Minutes and Records
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Management Comments
The Draft Audit was submitted for management’s comments on February 27, 2018.
Limitations:
The Clerk’s Internal Audit staff has encountered considerable resistance when requesting records from
EII and BED.
Over the course of the last year, we have held numerous meetings and phone calls with EII staff and EII
Board members outlining the findings now identified in this report. The Chief Deputy Clerk worked with
the Director of BED to identify process deadlines to specifically meet the March 27, 2018 BCC meeting.
Additionally, the Clerk’s Internal Audit staff made numerous offers to meet with the Director of BED
after this report was transmitted to him on February 27, 2018. The Clerk’s Internal Audit staff offered
unlimited time to meet to review the work-papers and answer any questions.
Late On Friday, March 9, 2018, The Director of BED called the Chief Deputy Clerk to schedule a time to
meet. The Chief Deputy Clerk offered Sunday, March 11, 2018, but the BED Director was not available.
The Chief Deputy Clerk offered Monday, March 12, 2018, but the BED Director was n ot available. The
Chief Deputy Clerk then offered Tuesday, March 13, 2018, at 8:00 am before the scheduled BCC meeting,
BED Director tentatively accepted pending his meeting on Monday with Dr. Marshall Goodman.
Finally, late on Monday March 12, 2018, th e Director of BED scheduled a meeting at the Office of
Business & Economic Development for the following day, Tuesday March 13, 2018 (fourteen calendar
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days/ten business days later) and only for a period of 90 minutes.
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The Director of BED nor EII representatives had any written responses to the findings and did not provide
any supporting documentation that is contrary to the findings in this report. The Director of BED stated
at this meeting that he does not have authorization fro m the County Manager to respond at this time.
The Director of BED requested the following changes:
1. Request for additional time before the Clerk presents this Audit to the BCC on March 27, 2018.
The three reasons given for the request are that the two weeks is not enough time to respond
and EII’s Board of Directors are out of the Country until March 30, 2018. Additionally, the Grand
Opening of the Culinary Accelerator @ Immokalee will be on March 28, 2018, the day after the
Clerk’s scheduled presentation to the BCC. The Director has concerns of the political fall-out that
will cloud this event and possibly dissuade political dignitaries from attending.
Internal Audit response: Refer to timeline discussed in the emails above
2. Request for the narrowing of the Scope. The Director of BED stated that the Scope is
“undefined?” and appears to go all the way back to the creation of EII.
Internal Audit response: The Scope includes on-going identified audit concerns from inception
to present.
3. Request for a change to the “tone and toxic language.” The Director of BED objects to the use of
the terms fraud, misuse, and misrepresentation.
Internal Audit response: The tone of the audit is not intended to be “toxic” but factual and
informative. We have been cautious not to assert fraud and have specifically referenced possible
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fraud for further review as warranted.
4. Request to remove the April 9, 2012 USF Audit Report from the Appendix. The Director of BED
stated that this report will “will draw fire that does not need to be drawn” and is outside the
scope of the audit.
Internal Audit response: The report and assertions have not been validated by the Clerk and is
presented in the appendix as background for current findings.
5. Request that all emails cited in the findings be presented in full in the appendix.
Internal Audit response: Internal Audit has agreed to include all referenced emails, in full, within
the body of the report, work papers and/or the appendix.
The CEO of EII also suggested the following, while not authorized from EII’s Board of Directors to respond
to any of the findings:
1. The report is too one-sided, it does not include any of EII’s accomplishments.
Internal Audit response: The audit is not intended to be sided in any direction, but to identify
audit concerns.
2. The report does not include the improvements to the operation that have been implemented.
Internal Audit response: Improvements to the operation, if any, should be included in the
management’s written response.
3. The report does not include the added-value realized by the Immokalee Airport facility by having
EII’s accelerator located there.
Internal Audit response: Any perceived value-added should be included in management’s
written response.
4. The report only shows the present value (actual dollar cost) of the money spent by EII, not the
full breadth and width of the economic value that will be realized in the years to come.
Internal Audit response: Any perceived breadth and width economic value to be realized in
future years should be included in management’s written response.
5. The Clerk should conduct an Econometric Analysis of EII’s operations to provide a more balanced
view of benefits generated to Collier County.
Internal Audit response: It is not the Clerk’s role to create an Econometric analysis for EII. Should
EII provide any models or supporting documentation, Internal Audit will receive and analyze the
information. Upon Internal Audit’s review, the Clerk’s staff will report the findings to the BCC
and the taxpayers.
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Please note that while the CEO of EII has not been authorized by EII’s Board of Directors to respond as
of March 13, 2018, he indicated disagreement with all of the findings .
County Management and EII Responses as of March 16, 2018
The Draft Audit 2018-2 was submitted for management response on February 27, 2018. At the time of
the meeting on March 13, 2018, the Director of BED did not have authorization from the County Manager
to provide a written response to these findings.
The CEO of EII stated that EII staff had reviewed the Draft Audit 2018-2 at the offices of the Director of
BED. EII also requested and received permission to provide a copy of the Draft Audit Report to the
Chairman of EII’s Board of Directors, Mr. Fred Pezeshkan and to the Vice-Chairman of EII’s Board of
Directors, Mr. Dick Grant.
The Director of BED and representatives of EII were asked if any finding presented in this report was
inaccurate, incomplete, or incorrect.
The Director of BED provided comments for three findings; Finding #1, Finding #14, and Finding
#18. The Director of BED did not provide comments for the remaining seventeen findings.
The CEO, COO, and Volunteer Accountant of EII provided comments for three findings; Finding
#4, Finding #12, Finding#13, and Finding #17.
The Director of BED and EII’s verbal comments from the March 13, 2018 meeting have been included in
this report. As of Friday March 16, 2018, County Management and staff have not provided a written
response to these findings.
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Findings
1) EII misrepresented expenditures and project status of Grant #SL025 to the DEO, the
BCC, and the Clerk to obtain payments for contracts with State and Federal Grant
deliverables. EII reported completion of projects not complete, misrepresented
payments made, and submitted false invoices to elicit payments by DEO.
EII misrepresented expenditures and project status to the Florida Department of Economic Opportunity
(DEO), the BCC, and the Clerk to obtain payments for contracts with State and Federal Grant del iverables.
In July of 2016, EII entered into Grant Agreement #SL025 with the Florida Department of Economic
Opportunity. Deliverable #3 of this grant, the Development of the Immokalee Culinary Arts & Service
Incubator Facility, included six sub-tasks associated with the construction and space setup. In two
invoices submittal packages to DEO, invoice submittal #13 on June 1, 2017 and submittal #14 on June
15, 2017, EII represented the six sub-tasks at various stages of completion. On June 28, 2017, EII then
submitted invoice submittal #16, included in Appendix B, in which each sub-task and the overall
Deliverable #3 is claimed to be 100% complete, with an invoice total of $1,200,000. The grant end date
was June 30, 2017, The Florida Culinary Accelerator @ Immokalee was not complete as of January 15,
2018.
Internal Audit performed a review of invoice submittal packages #13, #14, and #16 in regards to
Deliverable #3 and has made the following observations:
1. On June 1 and June 15, 2017 EII submitted Invoices #13 and #14 to DEO.
2. On June 19, 2017 DEO Program Manager rejected these invoices because the Immokalee project
was not 100% complete.
3.
Exhibit 1-A: Email from Katie Smith at DEO to COO Jennifer Pellechio at EII, on June 19, 2017.
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4. On June 29, 2017 Dr. Marshall Goodman, President and CEO of EII submitted Invoice Package #16
to DEO, knowingly misrepresenting 100% completion of the Immokalee Accelerator and all
associated sub-tasks when:
The final invoice represented completion of all d eliverables in order to receive the
balance of the $1,200,000 in DEO Grant funds.
Exhibit 1-B: Invoice #16 dated June 28, 2017, signed by Dr. Marshall Goodman, and submitted to
DEO on June 29, 2017.
Missing Certification Statement pursuant to
Grant Agreement, pg. 32, Section A. v.
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None of the culinary equipment was received as of June 28, 2017 when Dr. Goodman
claims 100% completion.
August 3, 2017
Exhibit 1-C: Photograph of the Immokalee facility on August 3, 2017, before delivery of
culinary equipment beginning on August 10, 2017.
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The CEO of EII knowingly submitted an unsigned AIA Architect’s Certification
($441,374.10) representing completion of work that was not complete.
Compass Construction knowingly provided a false Application and Certification for
Payment (AIA Document G702) to EII, missing the Architect’s signature; EII included this
certification as supporting documentation on Invoice Submittal Package #16.
Exhibit 1-D: DEO Grant #SL025, Page 32, Section A. x., requires certification by a licensed
engineer using AIA forms G702 and G703.
Certified by Compass Construction on June 28, 2017
“The undersigned Contractor certifies to the best of the Contractor’s knowledge,
information and belief the Work covered by this Application for Payment has been
completed in accordance with the Contract Documents, that all accounts have been
paid by the Contractor for work for which previous Certificates of Payment were
issued and payments received from the Owner, and that current payment shown
herein is now due.”
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Exhibit 1-E: AIA Architect’s Certification included in Invoice Submittal Package #16 with
signature of Architect missing.
Certified by Compass Construction on June 28, 2017
Missing Architect’s Signature
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5. EII submitted false invoices as evidence of payment in order to receive reimbursement by DEO
before the close of the grant on June 30, 2017. The false invoices represented the County’s
Purchase Order number as the “Invoice” number compared to an act ual invoice submitted to
County by the Vendor in August 2017 (Exhibit 1-F, page 10) after the majority of the equipment
was actually delivered.
Exhibit 1-F: False Invoices included in Invoice Submittal Package #16. Please note that these
‘invoices’ are missing dates.
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Exhibit 1-G: TriMark Strategic Invoice, validated, submitted to County for payment, dated August
25, 2017, with the County’s Purchase Orders appropriately referenced on July 6, 2017.
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6. EII wrote $974,439.08 in checks to it’s vendors, held the checks without issuing them to the
vendors, and presented un-tendered photocopies of the checks to DEO as proof of payment to
vendors. The presentation of the checks to DEO to elicit payment, in our opinion, may be fraud
based on Florida Statutes 812.014 and 837.06.
EII wrote the checks for payment to it’s vendors between the dates of June 26 and June
29, 2017, four days prior to the grant expiration.
The checks were not presented to the vendors until after receipt of DEO funds, contrary
to the reimbursable grant requirements.
*
Exhibit 1-H: EII’s Accountant’s, Noack & Company, Comments on July 17, 2017 explaining that
$957,154.72 negative balance in EII’s State Grant Account. “The State grant money was deposited
before the checks were mailed to payees. The checks were written prior to the required closing
date of the Grant, June 30.”
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Exhibit 1-I: EII’s Reconciliation Report for the account known as ‘State Grant’ dated July 17, 2017.
(1.) As of July 2, 2017 there was -$974,439.08 in Un-Cleared Transactions. (2.) Un-Cleared Checks
and Payments as of July 2, 2017, showing checks written between the dates of June 26 to June 29,
2017. The Highlighted check numbers appear in Invoice Submittal Package #16 as supporting
documentation. (3.) On July 17, 2017 EII deposits $872,237.00 from the State of Florida
Department of Economic Opportunity.
(1.)
(2.)
(3.)
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7. Dr. Goodman knowingly submitted copies of the checks to DEO as proof of payment when he
knew that the checks were not going to be se nt to their vendors until after EII received the
payment from DEO. The following has been determined:
• Copies of checks presented to DEO were not cancelled checks, as required in the Grant
Agreement, and as EII had submitted in prior invoice submittals.
• EII received payment from DEO on July 17, 2017, and subsequently released the checks
to their vendors and the County.
8. Dr. Goodman failed to include the required certification statement above the signature block
attesting to the completion of the project.
9. EII did not submit photographs of the post-construction and remodeling, as required in the grant
agreement.
Exhibit 1-J: DEO Grant #SL025, Page 32, Section A. ii., requires a cancelled check, electronic transfer
or, a copy of the check and the bank statement highlighting the cancelled check.
Exhibit 1-L: DEO Grant #SL025, Page 32, Section A. ix., requires site work photographs of the pre
and post construction and remodeling.
Exhibit 1-K: DEO Grant #SL025, Page 32, Section A. v., requires a certification statement above the
signature block.
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*** Pictures of this space were NOT submitted to DEO with Invoice #16 on June 29,
2017, as required***
Exhibit 1-M: Photo of Immokalee facility interior space, under construction, submitted on the
June 15, 2017 Invoice Submittal Package #14.
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July 7, 2017
August 3, 2017
Exhibit 1-N: Photo of Immokalee facility interior space, under construction, during Internal Audit
Site Visit on July 7, 2017.
Exhibit 1-O: Photo of Immokalee facility interior space, under construction, during Internal Audit
Site Visit on August 3, 2017.
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10. On June 29, 2017, EII staff falsely claimed 100% completion and the acquisition of all necessary
state and local permits. Whereas, the permit history for the Florida Culinary Accelerator @
Immokalee that was confirmed by Mrs. Claudine Auclair, the Business Center Manager for Collier
County Operations and Regulatory M anagement, shows the first permit was applied for on
September 30, 2016 and the first Temporary Certificate of Occupancy was issued in December
2017. Below is the history of the permits for this project:
Permit was applied for on September 30, 2016
First Temporary Certificate of Occupancy was not issued until December 2017
Temporary Certificate of Occupancy was extended on January 9, 2018
Final Certificate of Occupancy was issued on January 17, 2018
State Licensing from the Department of Business and Professional Regulation, applied for
on or about January 19, 2018 was subsequently approved on February 7, 2018
Lessons Learned from the Lost Funding from Grant #SL007
In a previous situation, the County’s Grant #SL007 with DEO, the time ran out for completion of the
Naples Accelerator and the County lost grant funding . Grant #SL007 was only awarded $723,000 out of
$2.5 million in approved funding. $350k was spent on furniture using expired tax-exempt certificates,
and irregular bidding and solicitation processes were identified under the Naples Accelerator project.
Since Grant #SL025 is a Cost Reimbursement Grant, EII had to spend the money and complete the
deliverables before the close of the grant period on June 30, 2017, in order to receive reimbu rsement
from DEO. Therefore, EII provided as part of Invoice Submittal Package #16 false statements of 100%
completion, falsified invoices, un-cleared checks, and un-signed Architect’s statement AIA G702. EII also
failed to submit pre and post construction photos and did not include the required certification above
the signature block.
Exhibit 1-P: Page 1 of Agreement #SL025 defining the type of agreement as a cost reimbursement
agreement.
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DEO Refuses to Provide Assurances to the Clerk
On October 5, 2017, the Clerk had scheduled a conference call with Katie Smith, Greg Britton, and Adam
Calloway from DEO. The County Manager, County staff, EII Board members, EII Executive staff, and the
Clerk’s Internal Audit team were also present. During the conference call with DEO, the Clerk repeatedly
asked DEO if Invoice Submittal Package #16 which included falsified supporting documentation was
sufficient, even though the equipment was not received, that false invoices had been submitted, and
that the checks provided were not cancelled or cashed?
Katie Smith and Greg Britton from DEO stated numerous times, “We relied upon the documents we
were given.”
After the Clerk raised additional questions and concerns, DEO staff continued to state, “We relied upon
the documents we were given.” The Clerk then asked if DEO staff would put in writing that DEO would
not request payback of grant funds. Greg Britton responded with, “Why do you need it?”
In a follow-up email on October 9, 2017, the Clerk requested a written assurance from DEO regarding
the Clerk’s concerns that were communicated to DEO on October 5, 2017.
On October 12, 2017, Peter L. Penrod, General Counsel for DEO, responded to the Clerk’s request by
stating, “I am, however, unaware of any legal requirement for DEO to provide you or your office with
its [DEO’s] position on this matter. As such, DEO is not inclined to provide a written position at this
time.” Mr. Penrod additionally stated, “[DEO does not] agree with your premise in your concluding
paragraph that DEO is somehow required to provide your office with ‘assurances’ of any kind.”
Conclusion:
The Immokalee Accelerator was not 100% complete on June 29, 2017, as claimed by EII’s invoice
submittal, according to documentation, observations, and p hotographs obtained. EII made false
statements and submitted falsified documents to the Grantor Agency, Florida DEO. DEO has been made
aware of the Clerk’s findings and refuses to provide assurances that they will not recover funds. The
Florida Culinary Accelerator @ Immokalee has not opened as of February 1, 2018. EII’s actions have
created a risk that is no less than $1,200,000 in potential claw-backs and jeopardizes future grant
opportunities. The BED failed to monitor the actions of the county’s vendor, EII.
Recommendations:
The Board of County Commissioners should consider their alternatives in regards to the contract
with EII and notify them of potential reimbursements that may be required to State of Florida
and Federal grantors and/or the County taxpayers.
The BED needs to provide proper oversight and monitoring of County vendors.
The BED should monitor, evaluate, and review vendor actions and the County Manager should
report to the BCC any deficiencies.
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County Management Response:
At the March 13, 2018 meeting between BED, County staff, EII staff and the Clerk’s Internal Audit team,
the Director of BED stated that he is unaware of what the problem is, “DEO approved this, the filing was
sufficient, DEO said this to your boss (The Clerk) four times during our conversation.”
The Clerk’s Internal Audit staff then asked the Director of BED if there was anything specific he objected
to or if he could provide any documentation that is contrary to this finding. The Director of BED replied,
“no.”
Internal Audit Response to County Management Comments:
The Director of BED was referencing the conference call on October 5, 2017 in which the Clerk explained
to DEO that the documents DEO relied upon as sufficient were falsified, the work was not completed,
and that goods had not been received before the end of DEO’s Fiscal Year (June 30, 2017).
At least one month before the close of the grant on June 30, 2017, EII had known, or should have known,
that the delivery of the equipment and the completion of the construction of the Immokalee fa cility
would not be complete on time. Particularly since the County Purchase Order for the equipment was
not issued until June 27, 2017 and not received by TriMark until July 6, 2017 (see Exhibit 1-N and 1-O).
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Exhibit 1-Q: Grant #SL025, page 32, detailing supporting documentation required to be submitted
by Grantee.
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On May 26, 2017, about one month before the close of DEO’s Fiscal Year, the COO of EII explains to EII’s
external accountant that the state grant is not an advance grant, it is a r eimbursable grant. Jennifer
Pellechio stated in the May 26, 2017 email, “We must spend the $ - cut the check, invoice the state,
then we are reimbursed.” See Exhibit 1-Q below.
Exhibit 1-R: Email from Jennifer Pellechio to Janet Noack on May 26, 2017. This email was
provided to the Clerk’s Internal Audit on March 8, 2018, after numerous requests for supporting
documentation. The full email is included in the appendix.
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On June 19, 2017, Katie Smith from DEO rejected Invoice Submittal Package #13 & #14 and instructed
EII, “Please resubmit the invoice(s) showing 100% completion of the individual subtasks for payment.”
Six minutes later, the COO of EII responded back to Katie Smith, “We understand and will resubmit
invoices shortly.” Please note that the COO of EII does n ot allude to how EII will be 100% complete in
the next nine days.
Exhibit 1-A: Email from Katie Smith at DEO to COO Jennifer Pellechio at EII on June 19, 2017.
Exhibit 1-S: Email response from COO Jennifer Pellechio at EII to Katie Smith at DEO, six minutes
later on June 19, 2017 at 3:37 PM.
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During the conference call on October 5, 2017, the Clerk asked DEO’s attorney if he was of the opinion
that the invoice submitted was legal?
DEO’s attorney, Mr. Greg Britton, responded, “the attorney has not had the opportunity to review the
invoice for legality.”
The Internal Audit Manager, James Molenaar, asked Greg Britton, “When will there be a time when the
attorney will review the invoices and grant agreement?”
Mr. Greg Britton responded, “It is not under the attorney’s purview and the attorney renders no
opinion.”
Ms. Katie Smith and Mr. Greg Britton both stated that they, “relied on the invoice DEO received on June
28th, 2017” despite the fact that the Mr. James Molenaar and Mrs. Crystal Kinzel had previously informed
Ms. Katie Smith that TriMark confirmed that this was not their co mpany invoice.
The Clerk asserted “the Invoice (submitted) cannot be correct because the goods had not yet been
received and it was not the company [an official TRIMARK generated invoice] who created the
invoices.” The “invoice” was provided by Stacy Parrish, a Project Coordinator for TriMark Strategic, and
not the Billing Department for TriMark as confirmed by Nicole Temperton, Controller.
This means that DEO is knowledgeable of the false statements and falsified documents submitted for
reimbursement in Invoice Submittal Package #16, in which case DEO has refused to offer a legal opinion
as to legality. The reimbursement by DEO to EII does not appear to be legal, nor in compliance with
contract requirements (see Exhibit 1-Q).
The failure by DEO’s legal counsel to affirmatively state the reimbursement payment made by DEO to EII
was legal is not necessarily indicative of the preclusion of a future finding of theft, fraud, or official
misconduct.
It is well known that the Florida Commission on Ethics (Commission) investigates matters involving the
Misuse of Public Position by governmental employees. Moreover, public employees are prohibited from
corruptly using or attempting to use their official positions or the resources thereof to obtain a special
privilege or benefit for themselves or others. [Sec. 112.313(6), Fla. Stat.]. Therefore, this matter may be
ripe for a sworn complaint to be filed with the Commission office for further investigation and if
applicable a public hearing. Ultimately, after a public hearing, the administrative law judge may
recommend to the Governor that the public employee can be dismissed, suspended, demoted,
censured, and/or fined in an amount of up to $10,000 per charge.
Additionally, this matter may be ripe for a sworn complaint to be filed with an appropriate Law
Enforcement Agency for further investigation and if applicable a public prosecution of any and all crimes
by any public employee or person, including EII Employee(s)/Director(s). The complaint may contain
allegations of Theft, Official Misconduct, and participating in a Sch eme to Defraud. The Scheme to
Defraud statutes prohibits two types of frauds:
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1. Systematic, ongoing course of conduct with the intend to defraud one or more persons,
whether or not any specific misrepresentation is made;
2. Systematic, ongoing course of conduct with the intent to obtain property from one or more
persons by false or fraudulent pretenses, representations, or promises.
A statement or representation is “false” or “fraudulent” if it relates to material facts and is known to be
untrue or is made with reckless indifference as to the truth or falsity, and is made or caused to be made
with the intent to defraud. A statement or representation may also be “false’ or “fraudulent” when it
constitutes a half-truth, or effectively conceals a material fact, with the intent to defraud.
Under the law, every agent or employee representing or working for someone else, the employer, has a
duty called a fiduciary duty to act honestly and faithfully in all of his dealings with the employer, and to
transact business in the best interest of the employer, including a duty to make a full and fair disclosure
to the employer of any personal interest or profit the employee expects to derive or has derived from
any transaction in which he participates in the course of the employment. If, instead, the employee acts
to make his personal decisions based upon his own personal interests such as, embezzling money,
falsifying documents and/or making false statements regarding a grant, or even receiving a personal
benefit from conflict of interest, the employee has defrauded the employer of the employee’s honest
services and/or loyal services.
Should a prosecution occur for the crime of a Scheme to Defraud, the prosecution must prove that the
employee/person intended to breach a fiduciary duty, and that the employee foresaw, or reasonably
should have foreseen, that the employer might suffer economic harm (such as claw back of grant funds)
as a result of that breach. It is not necessary for the prosecution to prove that the defend ant/employee
was actually successful in defrauding anyone or successful in obtaining property by means of false or
fraudulent pretenses, representations or promises. Nor does the prosecution need to prove that anyone
or entity lost any money or property as a result of the scheme. An unsuccessful scheme is as illegal as a
scheme or plan that is ultimately successful. One must recognize that under the common law doctrine
of Vicarious Liability, each member of a Scheme to Defraud is responsible for the actio ns of the other
co-schemers performed during the course of and in furtherance of the scheme.
County Management, the Director of BED, and EII staff have been aware of above concerns as early as
the July 14, 2017 meeting with the Clerk’s staff. County Management has been in receipt of the Draft
Audit for over two weeks and has not provided written comment through March 16, 2018.
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2) Irregularities found in Solicitation 17-7167 for the procurement of the Kitchen
Equipment for the Florida Culinary Accelerator @ Immokalee include possible bid
rigging, misrepresentation of solicitation budget and use of potentially misleading
commodity codes.
The Value of the Solicitation Was Misrepresented to Possible Vendors.
The invitation to bid (Solicitation 17-7167 Florida Culinary Accelerator@ Immokalee) was issued on May
23, 2017 for the procurement and installation of a list of kitchen equipment to be funded by a United
States Department of Agriculture Rural Development (USDA) Rural Business Development Grant (RBDG)
for the Florida Culinary Accelerator @ Immokalee (Bid invitation document 17-7167).
The funds for procurement were to be available from USDA and matc hed with funds from EII’s Grant
with DEO. WH Reynolds / TriMark Strategic was the only subsequent bid received for this solicitation
and was ultimately awarded the bid.
The bid invitation was requested by BED specifying that the BCC had approved a grant application to the
USDA RGDB for $112,536. The bidding process took place electronically through the Collier County
Online Bidding System “Bidding System” starting on May 26, 2017 with a solicitation deadline for June
9, 2017 at 3:00 PM. The bid invitation’s Public Notice stated that “All questions regarding the ITB must
be submitted online on the Bidding System website” and “All solicitation responses” must be made on
the official ITB response forms…” through the website. The Collier County Online Bidding system
received one bid even though thirty three vendors downloaded the specifications .
The Commodity Codes Posted on the Collier County’s Bidding System Did Not
Correspond to Kitchen Equipment.
The invitation to bid included the following commodity codes: 28500 – Electrical Equipment, 28500 –
Furniture, General, and 28500 – Millwork and Cabinetry. The invitation to bid used only one commodity
code, 28500, for three different categories and did not utilize Food Service Distributor/Products as a
category even though this is the primary description of what was being solicited. 28500 appears to be
the code for Electrical Equipment however, it IS not the code for Furniture, General nor Millwork and
Cabinetry. The code for Furniture, General is 42000 and the code for Millwork and Cabinetry is 91007.
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Exhibit 2-A: Collier County Solicitation #17-7167 for the Florida Culinary Accelerator at Immokalee
Kitchen showing Commodity Codes 28500.
Exhibit 2-B: The Commodity Code 42000 for Furniture, General.
Exhibit 2-C: Commodity 91007 for Millwork and Cabinetry.
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Questions and Answers section
On June 6, 2017, a question was submitted to the County’s online bidding system, w ith a subsequent
response on June 8, 2017:
The response of $112,000 failed to disclose the additional match funds of $111,424 from EII’s grant with
DEO. The answer to the bid questions may have dissuaded other vendors (plan holders) from submitting
bids. The equipment list and brands were uploaded to the bidding system and the vendors had the
ability to add up the costs and calculate that they were potentially twice as high as the budget indicated
by the County. Information about the additional funding was not included in the documents provided
on the Invitation to Bid.
BED States in an award letter to addressed to Marshall Goodman of EII, dated June 20, 2017, that BED
will make a recommendation to award the contract to the sole bidder, W.H. Reynolds, in the amount of
$223,960.
Exhibit 2-D: Commodity Code 39300 for Food Service Distributors/Products, which was available,
but not used in Solicitation #17-7167.
Exhibit 2-E: Incorrect cost estimate or budget given in response to a question.
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Undisclosed Matching Funds
The above-mentioned response in Exhibit 3-C is incorrect, the actual budget for the equipment was
higher than just $112,000 and BED failed to fully disclose all available funding sources. The first source
is the USDA RBDG grant for $112,536 and the second source is a “local match” from EII in the amount of
$111,424 which originated from DEO Grant #SL025 (Finding #1 above).
On June 20, 2017, BED notified EII that Collier County was awarded a $112,536 grant from the U.S.
Department of Agriculture’s Rural Business Development Program and that EII would need to remit
funding in the amount of $111,424 ‘as soon as possible.’ EII and BED submitted funding to the Clerk’s
Finance Department on July 27, 2017, thirty-seven days later.
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Please note the following:
1. “The county will issue a purchase order in the amount of $223,960 on or about June 27, 2017 ,”
which is two days before Dr. Goodman claims 100% completion of the project (see Finding #1
above); and
2. The funds were remitted to the Clerk’s Finance Department on July 27, 2017 , which is after EII
received the DEO reimbursement on July 17, 2017 (see also Exhibit 1-G above).
Exhibit 2-F: Letter from the Director of BED, Jace Kentner, instructing EII to remit $111,424 to the
County for the purchase of the kitchen equipment. This document was remitted to the Clerk’s
Finance Department on July 27, 2017, after EII received the reimbursement from DEO.
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Bid awarded to WH Reynolds TriMark Strategic
The bid awarded to a single bidder, WH Reynolds TriMark Strategic, for $223,960.
Conclusion
The use of incorrect commodity codes and the under -valuation of the specific equipment could have
easily dissuaded possible bidders. Of the thirty-three vendors that downloaded the specifications, only
one vendor submitted a bid, WH Reynolds TriMark Strategic.
Recommendation:
The Board of County Commissioners should consider referral to law enforcement and conduct
an investigation into a possible bid-rigging scheme.
County Management Response:
As of March 16, 2018, neither the Director of BED nor representatives of EII have provided a response
to this finding.
Exhibit 2-G: Only bid received, in the amount of $223,960, which is the amount of the USDA RBDG
Grant of $112,536 plus the matching funds of $111,424.
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3) EII and the BED misrepresented Grant #SL007 Deliverables to DEO and the BCC on
the Annual Accomplishment Reports, asserting unverified jobs created and capital
investment obtained.
EII and Collier County reported unsubstantiated numbers regarding Jobs Created and Capital Investment
& Expenditures to the Grantor Agency, DEO, for Grant #SL007 in the annual report covering Fiscal Year
2016 and Fiscal Year 2017.
In November 2014, Collier County entered into Grant Agreement #SL007 with the Florida Department
of Economic Opportunity for the purpose of creating the Collier County Soft Landing Accelerator. Collier
County Office of Business and Economic Development the Grantee (BED for the project) has contracted
with Economic Incubators, Inc., the vendor, to serve as the Project’s Administrative Entity. It should be
noted that the Agreement between EII and the County does not require EII to be responsible for the
Creation of Jobs or Capital Investment, EII is merely responsible for reporting the number of jobs created
and amount of capital investments made within the accelerator projects. The County is required to
submit quarterly and annual reports for each of the f ive years to document and report the County’s
progress towards meeting the grant deliverables.
What this means to the taxpayers of Collier County is that even though EII is paid to track and report
Jobs and Capital Investments, the failure to create jobs and/or capital rests solely on the pocketbook of
the taxpayers of Collier County.
The two primary County deliverables for grant #SL007 are the creation of 208 “Job Year Equivalents” or
the demonstration of $12,500,000 in private sec tor capital expenditures or venture investment by June
30, 2019. (Note: there was an amendment to the DEO grant agreement to reduce these requirements
based on the reduced first year funding, as approved on the BCC Agenda of February 13, 2018.)
EII provided the following data to the BED, the BED relied on this data and purportedly validated the
information prior to submitting their report to DEO. Internal Audit reviewed the supporting documents
assembled by the BED, as submitted to DEO, Supporting Documentation DEO SL007 Annual Report Parts
1, 2, & 3; as well as the attached master spreadsheets for Fiscal Year 2016 dated 9/30/2016 and for Fiscal
Year 2017 dated 11/9/2017.
In Fiscal Year 2017, EII asserts their job claims are supported by 52 I-9’s. However, in the supporting
documentation, as submitted to DEO, 52 I-9’s are not present. Furthermore, Page 24 of Grant #SL007
identifies the Florida UCT 6 Form, IRS Form 1099, and IRS Schedule K-1 as acceptable verification and
does not indicate the I-9 as an acceptable form of documentation.
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Further review of Grant #SL007, and subsequent amendments, does not indicate that an I-9 Employment
Eligibility Verification is acceptable supporting documentation. Additional review of EII’s agreements
with Collier County also do not give instruction to use an I-9 for the purpose of validating a Job Year
Equivalent.
EII does not have documentation to support all of the claims about jobs and investments. According to
Dr. Goodman, he can’t get documentation from participants, and as he describes it, because it is like
herding cats. Dr. Goodman often refers to this as the “Start-up Culture.”
In the course of the review, Internal Audit noted several discrepancies, inaccuracies, missing supporting
documentation, as well as other irregularities.
The summaries for Fiscal Year 2016 are provided as Table 1 and Fiscal Year 2017 as Table 2, below:
Exhibit 3-A: Grant #SL007, version date July 1, 2014, Scope of Work 2.g.i., page 24.
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Table 1 - Details of Claims Made by EII and BED compared to Internal Audit Validation for
Fiscal Year 2016
Detailed Items EII and BED
Reported to DEO
Internal Audit Validated Supporting
Documentation as Submitted to DEO
Active Accelerator Participants 25 26
Total Accelerator Participants 37 37
Departures 12 11
Number of Entrepreneurs that
Stay in the Region
37 35 (At least 1 company moved out of
Florida)
Claimed Jobs 51 11 (including EII staff of 3)
Job Year Equivalents Not Reported BED Failed to Report
Capital Investment $600,800.00 $90,000 Validated
Venture Investment $3,619,652 $530,370 Validated
Capital Expenditures Not Reported Not Documented
Foreign Direct Investment Not Reported Not Documented
Fiscal Year 2016
Exhibit 3-B: Annual Accomplishment Report as of September 30, 2016.
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Table 2 - Details of Claims Made by EII and BED compared to Internal Audit Validation for
Fiscal Year 2017
Detailed Items EII and BED
Reported to DEO
Internal Audit Validated Supporting
Documentation as Submitted to DEO
Active Accelerator
Participants
37 35
Total Accelerator Participants 68 67
Departures 31 32
Number of Entrepreneurs
that Stay in the Region
30 Internal Audit has found at least 2
companies that have relocated outside
of Florida that EII has failed to report.
Validated Jobs 64 19 (including EII staff of 3)
I9’s in FY16 51 - I9’s claimed 1 - I9 provided in the Supporting
Documentation
I9’s in FY17 52 – I9’s claimed 7 – I9’s provided in the Supporting
Documentation
Job Year Equivalents 51.83 10.823
Capital Investment Not Reported $0.00
Venture Investment $12,268,626 $5,875,567.80
Capital Expenditures Not Reported $0.00
Foreign Direct Investment Not Reported $0.00
Fiscal Year 2017
Exhibit 3-C: Annual Accomplishment Report as of September 30, 2017, revised November 8, 2017.
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EII continues to have difficulty reporting accurate and verifiable information as evidenced by the most
recent Fiscal Year 2018 Quarterly Accomplishment Report.
Exhibit 3-D: Email from BED on January 29, 2018, notifying EII of errors Quarterly Accomplishment
Report and unverified jobs and venture capital reported.
As of January 29, 2018
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Conclusion:
EII has failed to capture accurate and relevant data regarding participants in the accelerator projects
since the inception of the project, and BED reported this inaccurate data to the Grantor Agency. The
BED failed to validate the data presented to them by EII before reporting to the Grantor Agency.
EII lacks the managerial capacity and internal controls to effectively manage and to accurately report on
the performance of the accelerator projects, as required by the Grant Agreements. The BED, as well,
has failed to enforce the duties and responsibilities of the vendor, EII, in carrying out the administration
of the accelerator projects.
Failure by BED to accurately report progress to the Grantor Agency or to meet the Deliverables to Grant
#SL007 creates financial risk to Collier County and jeopardizes future grant opportunities.
Recommendations:
The Board of County Commissioners should consider their alternatives in regards to the contract
with EII and notify them of potential reimbursements that may be required to State of Florida
and Federal grantors and/or the County taxpayers.
The BED needs to provide proper oversight and monitoring of County vendors.
Sufficient controls should be in place to capture, record, and validate reportable Grant requirements.
County Management Response:
As of March 16, 2018, neither the Director of BED nor representatives of EII have provided a response
to this finding.
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4) The BED failed to provide oversight and fiscal controls to protect taxpayer funds
regarding EII, creating an environment that fosters improper salary payments, improper
travel expenditures, reduced revenues, undocumented “bartering” transactions,
unbudgeted executive bonuses, increased financial liabilities, and jeopardizes the
sustainability of both the Naples and Immokalee accelerator projects .
The BED failed to provide oversight and fiscal control to protect taxpayer funds regarding EII, creating
an environment that fosters improper salary payments, unbudgeted executive bonuses, improper travel
expenditures, overspent personnel costs, reduced revenues (see #4 below), undocumented “bartering”
transactions, increased financial liabilities, risk of lost grant funds, all of which endanger the
sustainability of the Naples accelerator project.
Table 3 - Total Compensation Paid to EII Staff for Fiscal Year 2017
Salary 401k Match (Validated
as of 8/15/2017)*
Bonus** Travel
Allowance
Total
Compensation
Dr. Marshall
Goodman
$165,375 $5,494 $12,009 $9,000 $191,878
Jennifer Pellechio $90,000 $2,814 $4,992 $3,600 $101,406
Nicole Kruezer $40,000 $1,249 $593 - $41,842
Payroll Taxes,
401k, and other
costs
$2,516.90
Totals $295,375 $9,557 $20,112.05 $12,600 $337,644.05
*The Clerk has Pay Records as of August 15, 2017, the point where EII expended the entire personnel cost
budget of $309,800 six weeks before the end of the fiscal year on September 30, 2017.
**The Clerk has records showing the allocation of $17,594 of the total amount of $20,112.05 to each member of
the EII staff. $2,516.90 were categorized as Payroll Taxes, 401k Contributions, other costs associated with
administering the bonuses.
Salary and Additional Compensation
EII’s CEO’s base salary was $165,375 during FY2017, and at least $191,878 with additional compensation.
EII’s COO’s base salary was $90,000 during FY2017, and at least $101,406 with additional compensation.
EII’s FY2018 budget included a 2.9% pay increase for all of EII’s staff. After the January 9, 2018 BCC
meeting approval of continuing funds, EII provided December 2017 invoices reflecting the pay raises as
paid retroactive to October 1, 2017. This is at the same time that EII has failed to establish reserve funds
pursuant to Agreement with the Collier County. EII continues the escalation of discretionary
expenditures, all while claiming fiscal constraints.
Unauthorized Matching 401k Contribution
EII paid a matching 401k contribution as a fringe benefit during FY2017. The payment of a matching
401k contribution is not an authorized use of the funds provided by the County , (see Exhibit 4-A below).
This additional compensation was validated as $9,557 a s of August 15, 2017, in which EII requested and
received from Collier County in their Payroll Reimbursement Requests.
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Exhibit 4-A: Article IV of the Fiscal Year 2017 Agreement between Collier County and EII. Article
IV details allowable personnel costs, which does not include a matching 401K contribution.
Exhibit 4-B: EII’s Executive Committee Meeting minutes from October 31, 2017 discussing the
matching 401k contribution. The COO of EII was not able to find the minutes for the EII’s bo ard
action.
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Following EII’s Executive Committee meeting on October 31, 2017, BED inserted “matching 401K
contributions up to 5%” into the FY2018 Agreement, which was presented to the BCC on November 14,
2017.
Improper Bonuses Paid
EII’s Executive Committee and Board of Directors awarded a bonus to the staff of EII on December 7,
2016. The bonuses were not initially recorded in the financial statements, were not initially disclosed
on Quarterly Revenue Reuse Plans filed with the County, and were paid with Program Income that was
not sufficient to pay bonuses.
On February 1, 2018, Dr. Goodman stated that there was no supporting documentation, no available
research, and that no budget analysis was performed to show the fiscal impact of paying out the
bonuses.
Furthermore, EII is unable to fully account for bonus payments made during Fiscal Year 2017. Please see
Table 4, below, compared to Exhibits 4-D and 4-E:
Table 4 - Bonus Payments to EII staff during Fiscal Year 2017.
Bonus Payments – FY2017
Dr. Marshall Goodman, CEO $12,009.38
Jennifer Pellechio, COO $4,992.27
Nicole Kruezer, Administrative Assistant $593.50
Payroll Taxes, 401k, and other costs $2,516.90
Total $20,112.05
Exhibit 4-C: Article IV of the Fiscal Year 2018 Agreement between Collier County and EII. This
Agreement in 2018 now includes “matching 401k contributions up to 5%”
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Per phone conversation on August 31, 2017 between Clerk’s Internal Audit staff and the COO of EII, "the
bonuses were recorded incorrectly, at first. The bonuses were paid out of donations, I believe, funds
may have been borrowed out of other accounts. Bonuses [payments to TriNet] came directly out of the
Operating Account because they didn't want to change anything from how regular salaries are paid.”
On a conference call on October 11, 2017 at 2:30pm, COCC Internal Audit asked the CEO of EII additional
questions about the Bonuses. Marshall stated, “bonuses are allowable under the contract, and that
some of the money may have come from Business Income but it came from Private Donations. Records
will show that it may have been borrowed but paid back.” Please note that Exhibit 4-E shows
$20,112.05 was paid from Business Income while there is no entry under Private Donations.
Exhibit 4-D: Email from EII’s COO on February 8, 2018, showing the calculations for the bonuses in
addition to payroll taxes and the 401k match.
Exhibit 4-E: Year End Financial Statements (unaudited) Dated October 13, 2017 showing total
‘Payroll-Additional Comp-Non Reimb’ in the amount of $20,112.05.
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The BED Director claims that he was unaware of the bonus payments as late as July 2017 and therefore
did not provide proper oversight of their vendor, EII. The bonuses were not properly budgeted in Fiscal
Year 2017, were neither approved by nor reported to the BCC, and contributed to EII’s self-described
cash flow constraints. Bonuses are again not budgeted for in 2018 and EII made no indication that they
planned to make bonus payments in Fiscal Year 2018 when they made their presentation to the BCC on
November 14, 2017.
EII paid the above-mentioned bonuses, while at the same time, claiming fiscal constraints. If the money
was not spent on bonuses, it could have been used to establish a reserve fund, pursuant to the
Agreement. As a consequence, the bonus payments negatively affected the cash flow and sustainability
of the accelerator projects.
Date
Issued
Reporting
Period Revised
Bonuses
Paid
Included
in Report
Approved by Director of
BED
2/2/2017 Q1 New No Tuesday, January 31, 2017
2/9/2017 Q1 Revised No Thursday, February 9, 2017
4/7/2017 Q2 New N/A Tuesday, April 18, 2017
5/5/2017 Q1 Revised No Friday, May 5, 2017
5/5/2017 Q2 Revised N/A Friday, May 5, 2017
6/1/2017 Q1 Revised Yes Missing
6/1/2017 Q2 Revised Yes Missing
6/24/2017 Q1 Revised Yes Missing
6/24/2017 Q2 Revised Yes Missing
7/17/2017 Q3 New Yes Missing
10/12/2017 Q1 Revised Yes Missing
10/12/2017 Q2 Revised Yes Missing
10/12/2017 Q3 Revised Yes Missing
10/12/2017 Q4 New Yes Missing
Exhibit 4-F: Summary of all Revenue Reuse Plans approved by the Director of BED showing that
he failed to approve any submissions or revisions on or after June 1, 2017.
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Travel Allowances as Additional Executive Compensation
EII’s executive staff are paid a Travel Allowance from Program Income generated by the Accelerator, in
addition to their salaries and benefits. The CEO is given a $750 allowance monthly and the COO is given
$300 allowance monthly. During Fiscal Year 2017, EII paid $12,600 in Travel Allowances to the Executive
staff. The Travel Allowances are paid directly to EII staff from Program Income, bypassing the existing
payroll administration service and without taxes being withheld. The Travel Allowance should therefore
be considered additional executive compensation.
On October 9, 2017, COO Jennifer Pellechio provided their external accountant’s response to the Clerk’s
questions about how the Travel Allowances are administered. EII’s external accountant repeatedly
warned EII’s Executive staff that the IRS would not view this as an “accountable” plan and that the
allowances would have to be recognized as income and reported on their W2’s.
On February 11, 2018, Jennifer Pellechio provided her mileage logs and supporting documentation for
Fiscal Year 2017. EII provided the 2017 Form 1099 showing $9,000 paid to Dr. Goodman, without a
mileage log or receipts.
October 9, 2017 email provided by COO Jennifer
Pellechio
Exhibit 4-G: Email from EII’s external accountant stating that EII’s T ravel Policy requires receipts
and mileage logs to be considered an “accountable” plan.
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Overspent Personnel Costs
The FY2017 Agreement included a budget of $309,800 to pay the personnel costs for 3 Full Time
Equivalent (FTE’s) accelerator staff for the period of October 1, 2016 to September 30, 2017 . The
$309,800 was intended to cover salaries, benefits, payroll taxes and other personnel related costs
through September 30, 2017 . Contrary to the FY2017 Agreement, EII’s executive staff budgeted for
$376,734 (not including bonuses and the Travel Allowances paid). See EII’s 2017 Draft budget below:
Please note that EII’s Draft budget included an allocation of $15,094 for “Retirement,” which is a
matching 401k Account Contribution. The FY2017 Agreement does not include retirement account
contributions as an allowable personnel related cost (see Exhibit 4-A above).
Over the course of FY2017, EII expended a total of $355,075.89, which is $45,275 over budget from the
$309,800 in County funding, and was paid from Program Income.
Exhibit 4-H: Draft version of EII’s Proposed Budget for FY 2017. This budget details how EII plans
to spend $376,734 on personnel related costs and notes that Collier County will only reimburse
up to $309,800.
Exhibit 4-I: Statement of Activity October 2016 – September 2017 for Economic Incubators, Inc.,
prepared by Noack & Company on October 13, 2017 (un-audited).
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Reduced Revenues
EII, with the consent of the BED , presented the FY2018 budget that contains the provision for a rental
discount. The BCC approved the budget, with the included discount, on November 14, 2017. EII
continues to give away as much as 40% of the total Rental Income in the form of “promotional”
discounted rents to accelerator participants.
In Fiscal Year 2017, EII discounted $95,772, or (37.2%) of $256,808 in Membership/Business Income
revenue. EII missed their revenue targets in 2017 due in part to the discount. EII is continuing with the
same policy in Fiscal Year 2018. Annual cost of rent paid directly by the County to Kraft Office Center,
LLC. is $197,900 for Fiscal Year 2018.
For the First Quarter of FY2018, October through December 2017, EII has discounted $19,400 or (36.3%)
of $53,400 in Membership/Business Income revenue. The discounted rents have reduced revenues to
$34,000 for this period.
The Fiscal Year 2018 Budget anticipates significant future increase to revenues previously unrealized,
this repeats significant over-estimates of budgeted revenues from prior years.
Undocumented “Bartering” Transactions
EII engaged in un-documented bartering practices with accelerator participants. For example, EII
exchanged the use of office space for advertising credits in Fit Nation Magazine, an accelerator
participant. EII failed to document the barter and lost the opportunity to collect revenue from this
participant.
Increased Financial Liabilities
EII’s failure to submit reimbursement requests in a timely manner have caused EII to utilize a Letter of
Credit established with First Florida Integrity Bank. The interest and fees charged on the Letter of Credit
are not reimbursable but are being paid by Program Income generated by sub-leasing the accelerator
space that is paid for by the taxpayers.
Conclusion:
EII’s internal controls are woefully inadequate, or non-existent and led to the misuse of at least $76,850
of Program Income during Fiscal Year 2017. EII misused Program Income by paying $20,112 in executive
bonuses, $11,463 in Travel Allowances, and $45,275 in over-spent personnel related costs contributing
to EII’s Net Loss of ($27,069.65) from operations for fiscal year 2017 (unaudited).
The overall lack of fiscal controls led to reduced revenues, undocumented “bartering” transactions, and
increased financial liabilities.
The BED failed to monitor the activities of their vendor, EII. EII’s misapplication of Program Income,
failure to properly manage the administration of the accelerator projects clearly indicate EII’s inability
to sustain the accelerator projects.
On February 1, 2018, Dr. Goodman stated that he and COO Jennifer Pellechio do not have
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financial/accounting/bookkeeping backgrounds and that this function is not in their job descriptions.
The Clerk’s Office, on an ongoing basis, has provided EII with training and assistance regarding
documentation and reporting; in addition to EII’s use of an external accountant and external auditor. EII
continues to submit inaccurate reports in an untimely manner.
Recommendations:
The Board of County Commissioners should consider their alternatives in regards to the contract
with EII and notify them of potential reimbursements that may be required to State of Florida
and Federal grantors and/or the County taxpayers.
The BED should review contract terms to insure they include deliverables that are measurable,
verifiable, and provide deadlines for performance of intended goals, e.g. the number of jobs they
should be able to report, or should be re quired to create.
The BED should increase the overall level of monitoring of vendor’s operations.
The BED should mandate the implementation of appropriate internal controls.
The BED should monitor, evaluate, and review vendor actions and report to the BCC any contract
deficiencies.
County Management Response:
As of March 16, 2018, the Director of BED has not provided a response to this finding.
Fred Krieger, Volunteer for EII, provided additional supporting documentation regarding the calculation
of the Bonuses in Table #4, above, during the meeting on March 13, 2018. The documents included the
TriNet invoices dated 12/27/2016 and 4/10/2017, which provide the full detail of the additional benefits
that are associated in the bonus described. After Mr. Krieger explained the accrual of the associated
expenses for employment taxes, matching 401k contributions, service fees, and workman’s
compensation, the COO of EII stated that, “(she) did not include these invoices in the email I sent to
them (the Clerk).”
Internal Audit Response to County Management Response:
After numerous requests, by the Clerk’s Internal Audit staff, for supporting documentation that detailed
the payout of the bonuses, the COO of EII finally provided the invoices with the previously requested
information on March 13, 2018, well after the Audit Report had been issued for management response.
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5) EII, with the consent of the BED, has discounted their Program Income with
“promotional” rents while claiming cash flow concerns and not meeting revenue
targets.
EII and the BED included a provision in the FY2018 Agreement that allows EII to discount the rent charged
to accelerator participants by as much as 50% of EII’s budgeted Program Income.
EII has a published fee schedule for membership pricing that details the monthly rent for different office
spaces available at the Naples Accelerator. EII offers a promotional rental discount of 50% for the first
six months to attract participants to the accelerator.
EII’s COO stated that, “the promotional rent is only granted to a participant for the first six months they
are in the accelerator.” Internal Audit has found numerous instances where the promotional rent was
granted to participants for more than one six -month period. Multiple discount periods to the same
participant indicates a lack of internal controls. EII has been made aware of t his lack of controls and
continues to grant the discounts (note: HyperTeam has received the 50% discounted rent multiple
times over 2 years while collecting $437,500 in County contracts).
Table 5 below shows some of the Naples Accelerator Participants that have received the 50% discount
more than once. While this list is not a comprehensive listing of all participants and all lease periods, it
clearly shows that EII lacks internal controls regarding the application of the promotional discount.
Table 5: Naples Accelerator Participants Discounts
Participant Time Period Gross Rent Discount
Wegner Law PLLC 9/1/16 – 2/28/17 $750/month $375
Wegner Law PLLC 3/1/17 – 8/31/17 $750/month $375
Wegner Law PLLC 9/1/17 – 8/31/17 $750/month $375
Golf Life Navigators 12/1/16 – 5/31/17 $3000/month $1500
Golf Life Navigators 6/1/17 – 11/30/17 $3000/month $1500
Golf Life Navigators 12/1/17 – 1/31/18 $3000/month $1500
SeaWay Studios/5th Ave Films 8/1/16 – 1/1/17 $3000/month $1500
5th Avenue Films 1/1/17 – 6/30/17 $500/month $250
5th Avenue Films 7/1/17 – 9/30/17 $500/month $250
5th Avenue Films 10/1/17 – 9/30/18 n/a $250
The promotional rents prevent EII from collecting maximum rents. For FY2018, EII is projecting $250,000
in gross rent from the Naples Accelerator, less the promotional discount of $100,000 (40% of $250,000),
leaving only $150,000 in potential participant income. The County is paying $197,891.98 in rent for
FY2018. This amounts to an almost $50,000 net loss in EII’s rental income compared to the amount the
County pays.
The rental discount policy dates back prior to FY 2017. However, on October 25, 2016, EII’s Board of
Directors approved an additional policy authorizing Dr. Goodman to determine flexible membership
rates. Dr. Goodman states, “the selling point is due to the facility rent that is covered now by the
County.” This means that rents collected are not expected to cover costs (please see Exhibit 5-A).
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In addition, even though we found no legal authority for EII to discount county funds, this was presented
to the BCC in easily understood terms as part of the FY2018 Agreement Budget, which was approved.
This un-controlled policy affects EII’s ability to become sustainable.
Exhibit 5-A: October 25, 2016 Board of Directors meeting minutes where Dr. Goodman requests
authorization from the EII Board to offer flexible rental rates because the facility rent is now
covered by the County.
Exhibit 5-B: EII’s fee schedule, publicly available on their website:
https://naplesaccelerator.com/memberships/
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Conclusion:
EII is not following their own published Fee Schedule resulting in lost revenues. The BCC and the
taxpayers are paying 100% of EII’s rent, EII is sub -leasing the space at a net loss, and then uses the
generated rental income to cover unauthorized costs, such as employee bonuses.
The BED failed to mandate EII operate as a viable and sustainable entity over the past four years pursuant
to EII’s Agreements with the BCC.
Recommendations:
The Board of County Commissioners should consider their alternatives in regards to the contract
with EII and notify them of potential reimbursements that may be required to State of Florida
and Federal grantors and/or the County taxpayers.
The BED needs to provide proper oversight and monitoring of economic programs.
The BED should require county vendors to meet the approved business plan and contract.
County Management Response:
As of March 16, 2018, neither the Director of BED nor representatives of EII have provided a response
to this finding.
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6) EII failed to meet the Business Income and Private Contributions targets in FY2017
pursuant to the Agreement between the BCC and EII.
Pursuant to the Fiscal Year 2017 Agreement between EII and Collier County, EII was required to meet a
funding target of $165,200 from the operation of the accelerator proje cts. $115,000 was projected to
come from Business Income (primarily from the subleasing of County rented space) and $50,000 was
projected to come from Private Contributions. EII is required, per the Agreement, to report Business
Income and Private Contributions quarterly to the County, on the Quarterly Revenue Reuse Plan. For
FY2017, EII reported the following:
Table 6 - Summary of EII Quarterly Revenue Reuse Reports (NET) as of 10/12/2017 -
Revised and Final
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total
Net Business Income $20,325 $17,635 ($-24,674) $10,278 $23,564
Net Private Contributions $0 $24,618 ($-4,362) $0 $20,256
Total $20,325 $42,253 ($-29,036) $10,278 $43,820
EII was required to generate $165,200 from operations during FY2017 but was only able to generate
$43,820, a revenue shortfall of ($121,380) Cash.
EII has countered this result by claiming Private In-Kind Donations made up the shortfall and that EII did
in fact meet their revenue target for the year. However, EII did not track and report the Private In-Kind
Donations until the 4th Quarter of 2017 making retroactive allocation of NON-CASH time equivalents.
It is worth noting that Private In-Kind Donations are from individuals volunteering time, not money, to
EII. Additionally, Private In-Kind Donations as of 10/12/2017 is un-audited. Please see Table 7 below:
Table 7 - Summary of EII Reported Private In-Kind Donations as of 10/12/2017 – Revised
and Final (unaudited)
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total
NON-CASH Private In-Kind
Donations
23,020 14,145 19,145 36,645 92,955
According to Article XXIX of the Agreement, EII was supposed to report, on a quarterly basis, their
progress towards reaching the $165,200 budget. In the event EII fails to reach seventy percent (70%),
which is $28,910 per quarter, BED is authorized to seek BCC ap proval of an adjusted budget.
On October 12, 2017, EII reported 92,955 in Non-Cash Private In-Kind Contributions. EII then reported
a combined $136,775 with which they claim exceeds the seventy percent target of $115,640.
This is contrary to representations made by EII Board Chairman Fred Pezeshkan and Vice Chairman Dick
Grant to the Clerk when they stated that EII does not count volunteer time as income.
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Budget Amendment
The Director of BED requested a Budget Amendment on July 11, 2017, in the amount of $137,965 ,
knowing that EII was failing to meet projected revenues . The Budget Amendment, Item 16F2, states
that the additional funding is for the Florida Culinary Accelerator @ Immokalee and fails to identify the
shortfall in Program Income at the Naples Accelerator or the overspending of personnel costs.
While on the agenda, the Clerk’s staff brought EII’s issues to the BCC’s attention, and the item was pulled
from the agenda. Upon further review, Internal Audit found the following discrepancies with the
proposed Budget Amendment:
1) Start-up funding for the Immokalee accelerator requested in July 2017. The Director of BED knew
that the Immokalee accelerator was not complet e at the time of the requested Budget
Amendment in July. The intended use of the funds was to cover the misallocation of Personnel
Cost Reimbursements described in Finding #4, see Exhibit 4-H on page 50.
2) Misrepresentation of 71 companies and 86 Job Year Equivalent publicly submitted to the BCC in
July 2017. The Director of BED explained the misrepresentation was due to a miscalculation in
the spreadsheets. The companies and jobs claimed by the Director of BED in July 2017 contradict
BED’s deliverable reported to DEO for Grant #SL007 described in Finding #3 on page 38, see
Exhibit 3-C and Table 2.
3) The Director of BED knowingly and intentionally misrepresented to the BCC in July 2017 that
construction of the Immokalee Accelerator is now complete (see Exhibits 1-C, 1-N, and 1-O in
Finding #1).
4) The Director of BED requested funding for Rent and Insurance, on behalf of EII, for a lease that
EII has failed to pay during FY2017 and that the Director of BED failed to route for signatures (see
and Exhibit 12-B on page 85).
5) The Director of BED publicly submits to the BCC in July 2017 language in the proposed Budget
Amendment that would eliminate the Exhibit G Roles and Responsibilities of Admin istrative
Entity from the existing Agreement between Collier County and EII. This is another example of
the systematic and on-going course of conduct by the Director of BED to minimize performance
requirements for EII while increasing the financial burden of EII to the taxpayers.
Please see Exhibit 6-A, below.
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Exhibit 6-A: Item 16F2, Budget Amendment of $137,965 for Economic Incubators, Inc. dated July
11, 2017.
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Since Private In-Kind Donations are not cash, it is appropriate to say the EII only generated $43,820 in
cash from operations, which is Program Income. This money should have been held in a reserve account
to carry forward the operations into the next period, pursuant to their contract. However, as detailed
in the observations above, EII’s Board of Directors and EII’s Executive staff used the funds to pay for such
expenditures as bonuses, travel allowances, and over-allocated personnel costs.
Conclusion:
EII, in their numerous appearances before the BCC, failed to report the extent and reasons for their cash
flow issues, failed to produce accurate Quarterly Revenue Reuses Reports, and failed to seek an adjusted
budget in accordance with the Agreement.
The BED failed to monitor the vendor, EII, that was entrusted with taxpayer funds to carry out the
accelerator projects.
Recommendations:
The Board of County Commissioners should consider their alternatives in regards to the contract
with EII and notify them of potential reimbursements that may be required to State of Florida
and Federal grantors and/or the County taxpayers.
The BED should provide proper oversight and monitoring of economic programs.
The BED should require county vendors to meet the BCC approved business plan and contract
County Management Response:
As of March 16, 2018, neither the Director of BED nor representatives of EII have provided a response
to this finding.
Date Issued
Reporting
Period Revised
Bonuses Paid
Included in
Report
Combined
Business/
Private
Donation Net
Income
Exceeded
Target % of
Business
Income and
Private
Contributions
Net Business
Income
Reported
Exceeded
Target % of
Business
Income
Net Private
Contributions
Reported
Exceeded
Target % of
Private
Contribution
In-Kind
Contributions
Reported
Combined Net
Private
Contribution
and In-Kind
Contributions
Exceeded
Target % of
Private
Contribution
and In-Kind
2/2/2017 Q1 New No N/A
2/9/2017 Q1 Revised No 42,132.09$ Yes 42,132.09$ Yes -$ No -$ -$ No
4/7/2017 Q2 New N/A 71,055.11$ Yes 39,032.11$ Yes 32,023.00$ Yes -$ 32,023.00$ Yes
5/5/2017 Q1 Revised No 42,132.09$ Yes 42,132.09$ Yes -$ No -$ -$ No
5/5/2017 Q2 Revised N/A 71,055.11$ Yes 39,032.11$ Yes 32,023.00$ Yes -$ -$ No
6/1/2017 Q1 Revised Yes 7,455.00$ No 7,455.00$ No -$ No -$ -$ No
6/1/2017 Q2 Revised Yes 42,252.00$ Yes 17,634.00$ No 24,618.00$ Yes -$ 24,618.00$ Yes
6/24/2017 Q1 Revised Yes 20,325.00$ No 20,325.00$ Yes -$ No -$ -$ No
6/24/2017 Q2 Revised Yes 42,253.00$ Yes 17,635.00$ No 24,618.00$ Yes -$ 42,253.00$ Yes
7/17/2017 Q3 New Yes (29,036.00)$ No (24,674.00)$ No (4,362.00)$ No -$ (29,036.00)$ No
10/12/2017 Q1 Revised Yes 43,345.00$ Yes 20,325.00$ Yes -$ No 23,020.00$ 23,020.00$ Yes
10/12/2017 Q2 Revised Yes 56,398.00$ Yes 17,635.00$ No 24,618.00$ Yes 14,145.00$ 38,763.00$ Yes
10/12/2017 Q3 Revised Yes (9,891.00)$ No (24,674.00)$ No (4,362.00)$ No 19,145.00$ 14,783.00$ Yes
10/12/2017 Q4 New Yes 46,923.00$ Yes 10,278.00$ No -$ No 36,645.00$ 36,645.00$ Yes
Exhibit 6-B: Summary of all Revenue Reuse Plans submitted by EII to the County for FY2017,
showing that In-Kind Contributions were not recorded or reported until October 12, 2017.
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7) EII failed to meet their revenue target for the first quarter of Fiscal Year 2018 based
on continued rent promotions, un-sustained participation, failure to collect budgeted
private contributions, and the failure to open the Immokalee facility.
Net Business Income (rents and private contributions) received by EII for the First Quarter of Fiscal Year
2018 was $35,285, net of promotional discounts; which is an average of $11,761 per month. The First
Quarter Net Business Income was budgeted at $61,443 according to EII’s “monthly calendarization
budget”. EII missed this budget by $26,158.
However, using the straight-line budget for the First Quarter, the budget would be $72,800 ($291,200 /
4 = $72,800). EII missed the First Quarter straight line budget by $37,515.
Use of the FY2017 revenues associated with rental agreements that may no longer be in place can be
overstating revenue, budget should be based upon existing agreements for the budget year, not prior
year agreement revenues that are no longer in effect. Use of a single year’s rental activity does not
provide enough data to reliably predict the seasonality of EII’s business cycle, especially considering that
EII does not appear to have complete and accurate records of their participant leases.
One of the contributing causes of the budget shortfall was due to EII failing to collect budgeted Private
Contributions during the first quarter. EII collected less than $1,000 of the $20,000 budget for private
contributions for the first quarter of 2018 (see Append ix C and D).
An additional cause of the budget shortfall was due to EII failing to open the Florida Culinary Accelerator
@ Immokalee as of January 15, 2018. The Immokalee facility, was to open in 2016 according to the 2014
Exhibit 7-A: Email from Fred Krieger on January 2, 2018, explaining the calendarization budget
compared to the straight-line budget.
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Business Plan, was later reported to open in November 2017, then early January 2018, now March 2018.
The BCC approved budget shows that the Immokalee Accelerator will not be open during October and
November, therefore $0 revenue is budgeted for these two months. The Immokalee accelerator was
budgeted to generate $2,500 in revenue in the month of December, but is still not operational as of
February 26, 2018.
Exhibit 7-B: Budget vs. Actual during the First Quarter of FY2018 showing the monthly net
income budgeted using EII’s calendarization budget.
Exhibit 7-C: Budget vs. Actual during the First Quarter of FY2018 showing the monthly net
income budgeted to the straight line method ($291,200 / 12 months = $24,266)
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Failure to Collect Budgeted Private Contributions.
On February 1, 2018, Dr. Marshall Goodman and COO Jennifer Pellechio informed the Clerk’s Internal
Audit staff that the anticipated $20,000 donation from Century Link will probably not be received this
fiscal year. COO Jennifer Pellechio explained that EII followed up with Century Link and was informed
that original pledge was only for three years, FY2015, FY2016, and FY2017. COO Jennifer Pellechio
further explained that since EII has incomplete records prior to her joining EII, that they were unaware
that FY2017 was the last year of the pledge. Therefore, EII is not likely to receive the $20,000 Private
Contribution, as EII was planning on for the first quarter of FY2018. Furthermore, COO Jennifer Pellechio
stated that they do not have a record of FY2015’s donation, that record “may be” with Southwest
Workforce Development Board.
Internal Audit requested supporting documentation for the three -year pledge from Century Link. Dr.
Goodman explained, “There isn’t any.”
EII’s Explanation for Revenue Shortfalls
EII continues to attribute “Cash flow issues for payroll” as an on -going problem. Since EII’s salaries are
covered 100% by county funding, there is no basis for this claim. However, EII and BED have failed to
submit payroll reimbursement requests in a timely manner (See Finding #16, pg. 81).
It is also worth noting that EII fails to identify the cause of any operation cash flow shortages or how EII
plans to correct these shortfalls. EII does not discuss their failure to collect the budgeted Private
Contributions.
Exhibit 7-D: EII’s Pay Request #FY18-06 submitted on January 19, 2018 describing the new
anticipated schedule as late January 2018 – Early February 2018.
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Exhibit 7-E: EII’s Pay Request #FY18-08 submitted on February 9, 2018 describing, “the Naples
Accelerator new active participants were at a low.” Additionally, “The Florida Culinary
Accelerator @ Immokalee has not come online yet.”
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Failure to open the Immokalee Accelerator on time
In August 2016, EII reported the Immokalee accelerator was a year late but they were pushing forward
to complete the incubator. As of February 9, 2018, the Immokalee accelerator is still not open for the
proposed business (see Exhibit 7-F below).
Conclusion:
EII has failed to generate sufficient revenues from operations. EII continues to overstate revenue
potential, is unable to collect estimated private contributions, and is unable to generate revenues
necessary to sustain operations, relying instead on taxpayer dollars.
EII has continually misrepresented plans and accomplishments to continue funding.
Recommendations:
The Board of County Commissioners should consider their alternatives in regards to the contract
with EII and notify them of potential reimbursements that may be required to State of Florida
and Federal grantors and/or the County taxpayers.
The BED should review documents submitted as deliverables and report deficiencies to the BCC.
The BED needs to increase their level of monitoring and reporting of EII’s operations .
County Management Response:
As of March 16, 2018, neither the Director of BED nor representatives of EII have provided a response
to this finding.
Exhibit 7-F: Naples Daily News article titled “Immokalee business accelerator taking clients”
dated August 24, 2016. In 2016, the accelerator was already “more than one year late.”
http://nplsne.ws/2bkDZry
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8) EII, the BED, and owners of Kraft Office Center, LLC have failed to correct a zoning
violation that has hindered the accelerator participants from registering as businesses
and obtaining required business tax receipts in Collier County.
The space occupied by the Naples Accelerator at 3510 Kraft Road, Naples, Florida is not properly zoned
for current use, as verified by the appropriate county staff and the EII’s Vice Chairman, a Board Certified
Real Estate attorney who also represents the owner of the property, the President of EII’s Board Mr.
Fred Pezeshkan.
EII does not pay the rent for the facility that houses the Naples Accelerator. The rent is paid directly by
Collier County to Kraft Center, LLC in the amount of $197,891.98 for FY2018. See table 7, below.
Table 7 - Lease with Kraft Center, LLC
Year Rent – Base Rent of $192,128.14
with 3% Annual Increases
2017 $192,128.14
2018 $197,891.98
2019 $203,828.74
2020 $209,943.60
2021 $216,241.91
Total $1,020,034.37
This has become problematic because a violation of the Zoning may hinder the Accelerator participants
(tenants/incubator start-up companies) from obtaining the appropriate business tax receipts from the
Collier County Tax Collector. EII’s failure to comply with these laws is an impediment to the success of
the Accelerator and participants, by an entity funded to facilitate other business’s compliance with
business regulations.
Conclusion:
EII is occupying and the county is paying rent on a property that is not zoned for the current use. As a
result, participants may be unable to obtain business tax receipts as required by law.
EII, BED, and the owners’ of Kraft Office Center, LLC were made aware of this issue in March 2017 and
have failed to resolve this issue.
Recommendations:
EII and the owners of the property need to seek the appropriate remedies from Collier County to
correct the zoning issue.
County Management Response:
As of March 16, 2018, neither the Director of BED nor representatives of EII have provided a response
to this finding.
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9) EII failed to timely and accurately file IRS Form 990 tax returns for fiscal years 2015,
2016 and 2017, thereby jeopardizing their tax-exempt status.
EII’s Board of Directors Failed to Disclose the Number of Contributed Hours.
The 990’s for FY2015 and FY 2016 reflect that none of the Directors received any benefits or contributed
hours worked. On numerous occasions, individual members of EII’s Board of Directors have represented
to the BCC and Clerk’s staff the amount of time (number of hours worked) spent working on “making EII
a success.” EII has claimed numerous volunteer hours as donations but failed to document any in either
FY2015 or FY2016.
Exhibit 9-A: Page 7 of EII’s Revised 990, resubmitted on or about January 6, 2018, for Fiscal Year
2016 showing the Board of Directors received no benefits or contributed no hours.
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EII’s Board of Directors Failed to Disclose Conflicts of Interest or Direct Dealings
Mr. Fred Pezeshkan, the Vice President Director of Economic Incubators, Inc. (EII) Board of Directors
during Fiscal Year 2016, is considered by IRS Code to be an Interested Person for the purpose of reporting
transactions on the 990 and 990 Schedule L.
Mr. Fred Pezeshkan is also the Manger of Kraft Office Center, LLC, which is the owner of the property
that the Board of County Commissioners of Collie r County leases for EII use. Therefore, Kraft Office
Center, LLC is controlled by Mr. Fred Pezeshkan.
Part IV. Line 28 (a) is the disclosure for business transactions with current or former officer, director,
trustee, or key employee. Line 28 (c) is the disclosure for a transaction with an entity that is controlled
by a current or former officer, director, trustee, or key employee. The reporting threshold for business
transactions with an interested person is $100,000.
Yes / No
Exhibit 9-B: Page 4 of EII’s Revised 990 showing that EII claimed “NO” for any related party
transactions.
Exhibit 9-C: Rent Payments to Kraft Office Center, LLC from October 2015 through September
2016 showing $118,510.72 in payments, which is above the $100,000 minimum reporting level.
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In Fiscal Year 2016, Kraft Office Center, LLC received $118,510 in lease payments from Collier County on
behalf of EII, which meets the minimum reporting requirement for entity controlled by an interested
person. The arrangement of the BCC paying rent on behalf of EII, directly to Kraft Office Center, LLC may
impact required disclosures.
EII Filed 990’s Late, After Extension Deadlines.
EII was late to file the Fiscal Year 2015 IRS Form 990. The form was due on February 15, 2016 but was
not received by the IRS until November 7, 2016. EII claims to have filed the appropriate extension
requests. However, the extension is for three months and a second three-month extension is available
if needed. Two extensions would have made EII’s due date August 15, 2016. (Note: The IRS made a
change to the extensions, now there is only one six -month extension instead of two three-month
extensions.)
EII was also late to file the Fiscal Year 2016 IRS Form 990. EII’s due date was February 15, 2017, August
15, 2017 with extensions. EII was late and did not submit the return until on or about October 5, 2017.
Internal Audit reviewed EII’s tax returns for FY2015 and FY2016 and found many inaccuracies, errors,
and omissions. Internal Audit communicated these concerns to EII staff and the BED.
EII then revised and re-submitted the FY2016 IRS Form 990 on or about January 6, 2018. Internal Audit
has not yet performed a full review of the newly revised tax return, however it appears that changes to
prior filings are restating the entity’s status and circumstances still not corrected and certainly not
accurate for prior years, e.g. policies and procedures.
EII falsely claims to have the flowing policies and procedures.
Exhibit 9-D: EII’s Revised 990 for Fiscal Year 2016 where EII answers “YES” to having specific
policies in place.
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On January 8, 2018, COO Jennifer Pellechio indicated that these policies only exist in draft form and have
not yet been adopted by EII’s Board of Directors. As of February 1, 2018, EII’s Board of Directors has not
adopted these policies.
After 4 years of operations, EII does not appear to have approved policies and procedures.
Exhibit 9-E: Email reply from COO Jennifer Pellechio on January 8, 2018, stating that these
policies exist in draft format and have not been adopted by EII’s Board of D irectors as of February
1, 2018.
Exhibit 9-E: Email reply from COO Jennifer Pellechio on January 8, 2018 stating research on
compensation has not been completed.
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Conclusion:
EII appears to lack the managerial capacity to accurately file their entity’s business tax returns in a timely
manner. Failure to accurately and timely file tax returns with the IRS may result in EII losing their tax -
exempt 501(c)3 status, jeopardizing grant funding and hindering the ability to generate private
donations, further reducing the entity’s ability to become self-sustaining.
EII had to file for an extension for the FY2017 tax returns, due to the incomplete audit and not enough
time for EII’s Board of Directors to review and approve before the February 15th due date. EII has not
provided the Fiscal Year 2017 IRS Form 900 filing nor evidence of the required extension.
Recommendations:
The Clerk suggests that ALL reports be filed timely and without extensions.
County Management Response:
As of March 16, 2018, neither the Director of BED nor representatives of EII have provided a response
to this finding.
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10) EII has failed to follow the business plan approved by the BCC on May 13, 2014 by
failing to become self-sustaining, instead exponentially escalating taxpayer funds,
annually, for years 2014 – 2018.
Internal Audit conducted a review of A Business Plan for Collier County Innovation Accelerators written
by Dr. Marshall Goodman (of W3 Consultants at that time) on March 31, 2014. This plan was presented
to the BCC on May 13, 2014 where it was approved for implementation.
Dr. Goodman explains, “It is recommended that Collier County serve as the fiscal agent for the
Accelerator Project. All State, Federal, and Grant funds received for this project should be received by
Collier Board of County Commission and processed by the County Clerk’s office.”
EII failed to abide by this recommendation when their CEO, Dr. Marshall Goodman, directly entered into
the Agreement for Grant SL025 between Florida DEO (Grantor Agency) and Economic Incubators, Inc.
Exhibit 10-A: A Business Plan for Collier County Innovation Accelerators Page 9, recommending all
grants should go through the BCC and processed by the Clerk’s Office.
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(Grantee).
The business plan details the Pro Forma Assumptions which include a sustaining pledge $100,000 per
year for fiscal years 2016-2023 (pg. 19.). Assumption #4 states, “Hired staff would need to recognize
that after the 2 year period of seed money is utilized that their employment tenure is dependent on
the Accelerators meeting their financial milestones.”
Although the business plan only called for a sustaining pledge of $100,000 per year for Fiscal Years 2016
to 2023, EII has received $484,000 in FY2016, $505,000 in FY2017, and $800,000 for FY2018.
Furthermore, EII indicated at the November 14, 2017 BCC meeting that EII will require $2,300,000 in the
county assistance over the next four years.
Conclusion:
At the November 14, 2017 BCC meeting, EII indicated a 50% reduction in county funds over the next four
years. EII failed to advise the Board that the 2018 fundin g is 8 times ($800,000 compared to $100,000)
what they told the BCC they would need according to the 10 year approved business plan on May 13,
2014. Additionally, EII’s presentation to the BCC indicates future required county funding of $2,300,000
over the next four years.
According to Dr. Goodman in the Business Plan approved by the BCC on May 13, 2014, Collier County’s
Exhibit 10-B: A Business Plan for Collier County Innovation Accelerators, Page 20.
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matching funds were only supposed to be $1,300,000 (total) over ten years ending in FY2023. The
Accelerators were supposed to generate $9,532,369 in lease income over the same ten years ending in
FY2023 with a positive Fund Balance of $2,460,326 in cash.
EII appears to lack the managerial capacity to operate the entity as proposed in the business plan
approved by the BCC almost 4 years ago. At the direction of the BCC, as requested by Commissioner
Saunders, EII was directed to update their business plan no later than the second BCC meeting in January
2018. EII submitted a revised business plan to select individuals, however the plan has not been publicly
presented to nor approved by the BCC. (See revised Business Plan in the appendix.)
Recommendations:
The Board of County Commissioners should consider their alternatives in regards to the contract
with EII.
County Management Response:
As of March 16, 2018, neither the Director of BED nor representatives of EII have provided a response
to this finding.
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11) EII’s revised business plan fails to: identify measurable performance including job
creation or capital investment; identify specific marketing strategies; provide a revenue
structure for sufficient operating income to be successful without dependence on
taxpayer funds; address deficiencies in prior performance; or identify the additional
equipment for successful operation of the accelerator projects.
The proposed revised business plan was submitted to select individuals for review on or about January
3, 2018. The revision to the business plan is the result of the BCC requesting an update as part of the
FY2018 Agreement. EII has not publicly made available the revised business plan, nor has the BCC
accepted the revised plan. The Business Plan is included in Appendix E.
The 2018 EII revised business plan fails to provide measurable, verifiable, or quantifiable goals that EII
will pursue, which, by their own 2014 Business Plan, said was an important first step (Exhibit 11-A below).
This plan conspicuously fails to detail any accomplishments or successes from the past 4 years that EII
will continue to build upon. Dr. Goodman, the plans author , has also failed to identify, discuss, and
propose solutions for any of the operational deficiencies discovered in the past 4 years. He has failed to
provide any detail regarding who EII’s target markets are, failed to describe what business services they
will provide to attract more participants, and failed to articulate EII’s compe titive advantage. Moreover,
in the past 4 years and over $5 million of taxpayer money has failed to explain the need for the
additional $2,300,000 of County funding through 2021. EII’s Board of Directors, volunteers, and staff
claim to recognize the need to reduce dependency on government funding, but the plan fails to describe
how EII will meet increased revenue projections that to date have been unmet.
Milestones
EII has failed to meet many of the milestones identified in the original business plan in the past four
years of operating the accelerator projects. The newly revised business plan fails to identify any of the
past milestones that were missed and failed to identify the causes or corrections for these failures.
The most prominent example is the failure to open the Florida Culinary Accelerator @ Immokalee. The
Immokalee Accelerator was originally to be open in 2015, according to Dr. Goodman’s statements to the
public and the BCC. Failure to complete deliverables for Grant #SL007 caused the County to lose the
grant funding. EII then received grant funds to complete the Immokalee Accelerator, this time by June
30, 2017. EII publicly stated to the BCC that it will be opened in November 2017, then early January
2018, and now March 28, 2018.
The newly revised business plan shows that EII has apparently changed the stated mission of the
accelerators from creating jobs or economic benefits to providing educational opportunities with
millions in continued government funding. In fact, EII’s approved mission of job creation does not appear
in the new business plan.
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Exhibit 11-A: A Business Plan for Collier County Innovation Accelerators by Marshall Goodman,
Ph.D., dated March 31, 2014 and approved by the BCC on May 13, 2014.
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Financial Plan Revised 2018
Page 20 of the draft Business Plan includes the schedule Financial Plan FY2018 – FY2021. The schedule
is presented with “$ in thousands” for each entry. The line item for County Funds for each year shows
800.0, 600.0, 500.0, and 400.0, this means $800,000 in FY2018, $600,000 in FY2019, $500,000 in FY2020,
and $400,000 in FY2021. EII is thereby indicating to the BCC that they will be asking for $2,300,000
Collier County taxpayer funds through FY2021.
While the draft budget shows declining County funding into the future, it fails to articulate how EII will
more than double its revenue in Fiscal Year 2019 and more than triple its revenue by Fiscal Year 2021.
Exhibit 11-B: Page 20 of the 2018 Draft Business Plan.
Business Income is proposed to increase by
124% in one year, yet EII has failed to meet
revenue projections to date.
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Target Market
EII has failed to identify a target market, instead EII simply identified the entire population of the six
counties that make up Southwest Florida.
EII does not identify the number of potential users for either facility, benchmarks for occupancy, or other
specifics as would be commonly expected of a business plan.
Competitors
EII characterizes their competitors as office space rentals without business start -up or acceleration
services. Internal Audit conducted a review of the listed competitors that feature Venture X Naples, The
Rocket Lounge, and Your Pro Kitchen .
The Naples Accelerator
Exhibit 11-C: Page 10 of the 2018 Draft Business Plan shows that the Target Market for is the
entire six county region of Southwest Florida.
Exhibit 11-D: Naples Accelerator Pricing - http://naplesaccelerator.com/memberships/
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Venture X offers a similar mix of virtual offices, co-working spaces, and offices along with similar
amenities. Venture X Naples fee schedule shows competitive, if not lower, prices than EII is charging.
EII failed to mention in the revised business plan, and to the BCC, that EII discounts up to 50% of the
rents being charged to participants, which are already subsidized 100% by the taxpayers. In addition, EII
has struggled to collect rent from participants, another detail EII failed to mention or offer a rem edy or
a solution as part of the revised business plan.
Venture X Naples
Exhibit 11-E: Venture X Naples Pricing - https://www.venturex.com/locations/florida/naples/
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The Rocket Lounge in Ft. Myers was created by a former Naples Accelerator participant and offers Co -
Working Spaces, Accelerator Services, and Soft-Landing Services; seemingly in direct competition with
the Naples Accelerator.
Commercial Kitchen Similar to the Florida Culinary Accelerator @ Immokalee
EII cited ‘Your Pro Kitchen’ as a competitor to the Immokalee accelerator, and even notated that this
competitor had closed. Internal Audit spoke to the owner of Your Pro Kitchen about the market for
commercial kitchen space in southwest Florida. The owner explained that over the course of five years
they only had 56 food-based companies join their kitchen. The food handler and food service manager
certification process was cumbersome. The owner then explained how most of her clients would join at
the lowest priced membership level, obtain their certifications, then do the majority of their cooking
from home. This made sustaining revenues difficult to collect, and brings into questio n the proposed
business model for the Immokalee culinary project.
While the commercial culinary accelerator has been successful in other markets, it appears to not be
viable in Southwest Florida. The EII business plan offers no remedy to this failure or insight to
overcoming the issues stated, other than the apparent shift to a taxpayer supported educational facility.
Exhibit 11-E: Rocket Lounge, Founded by former Naples Accelerator participant Dieter Kondek -
http://therocketlounge.com/about/
The Rocket Lounge
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Additional Findings on the Revised Business Plan
Commissioner Saunders requested the revised business plan no later than one week before th e Board’s
second meeting in January of 2018. EII provided a revised business plan for 2018 on January 3, 2018 to
selected individuals. The revised business plan has not been accepted nor approved as of February 26,
2018. Internal Audit has reviewed the business plan and notes the following deficiencies:
1. The date on the business is January 3, 2017. The date inside the footer is January 2017, it should be
2018.
2. Goals and Objectives are not measurable or verifiable, as called for in the original business plan
approved by the BCC on May 13, 2014. The only clearly stated objective in the proposed business plan
is to hire more people with on -going taxpayer support.
3. The business plan states EII’s Board of Directors “serve the critical management oversight and
control role of the organization.”
EII’s Board of Directors did not require audited financial statements until they were requested by
the Clerk.
EII’s Board of Directors provided no hours of support for Fiscal Years 2015 and 2016, according
to the IRS Form 990’s filed for those years.
EII’s Board of Directors have business transactions involving interested persons that have not
been disclosed on the IRS Form 990 for Fiscal Year 2016. (see Finding #12 to follow)
4. “Expect to enhance capability with additional equipment purchases.” EII fails to describe the use
and need for the equipment purchases, fails to identify the costs or expected revenue increases, and
fails to provide a cost/benefit analysis of these purchases.
5. EII is proposing cooking classes and other educational uses for the Immokalee facility. The Immokalee
facility does not appear to be zoned for educational use.
6. EII states a planned “Made in Immokalee” campaign on page 16. EII has not identified nor described
the planned “Made in Immokalee” campaign, nor have they identified the expected costs to the
taxpayers.
7. EII failed to describe and state the current status of the Hazardous Analysis and Critical Control Points
(HACCP) Plan cited in the Critical Path to Open the Culinary Accelerator on page 18. The HAACP Plan is
required to obtain FDA and USDA certifications for processing juices and meats in the facility.
8. The Financial Plan begins on page 19. The Fee Income Revenue Drivers section cites demand to be
“strong” and “very high” for co-working spaces in Southwest Florida. EII failed to identify their capacity
for co-working spaces or office space in general, in fact, the Naples Accelerator has not been to capacity
since opening. EII failed to identify revenues at full capacity, the variable expenses at any level of
capacity, and failed to describe how EII will make up any shortfalls in revenue.
9. The business plan fails to identify corrective actions to mitigate Woodstock’s ongoing losses,
($3,373.08) from operations through November 30, 2018. EII failed to disclose sales information or a
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break-even analysis for the micro-market.
Recommendations:
The Board of County Commissioners should consider their alternatives regarding their contract
with EII.
County Management Response:
As of March 16, 2018, neither the Director of BED nor representatives of EII have provided a response
to this finding.
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12) The Airport Manager and BED failed to monitor BCC approved 2017 and 2018 leases
and they allowed over $1 million dollars of improvements to a county airport property
without payment on the lease; $37,522.80 in rents remain uncollected and unpaid.
BED failed to track EII’s leases and basic details such as payment due dates, late payment fees, renewal
dates, and past due payments. As a result, there was no assurance that payments were made in a timely
manner or recorded on the financial statements correctly.
EII made over $1 million in leasehold improvements to County property without paying rent.
EII made leasehold improvements to a county owned facility at the Immokalee Airport, using Grant
funds, without a paying the lease in place, depriving the Collier County Airport Authority of $37,522.80
in rents for Fiscal Years 2017 and 2018.
Conclusion:
BED failed to record and monitor the 2017 and 2018 leases approved by the BCC resulting in $37,522.80
in unpaid rents accrued by EII to the Collier County Airport Authority.
Lease and leasehold improvement activity, is a significant component of the Immokalee Airport annual
budget and EII’s Grant with DEO. This review evaluated the internal controls of key operational and
financial components of this process, and notes that the implementation of the recommendations noted
below, may further improve current fiscal operations.
Recommendations:
The Board of County Commissioners should require leases be made current.
The County Manager should follow Florida Statute by properly supervising the care and custody
of county property.
The BCC should be notified of all violations of the terms of EII’s lease of the Immokalee airport
space.
Controls should be established to ensure that lease payments are made in a timely manner.
Late payment penalty clauses should be enforced in all leases.
Policies and procedures should be implemented for managing all leases and leasehold
improvements of property.
County Management Response:
At the March 13, 2018 meeting with the Director of BED, EII staff, and the Clerk’s Internal Audit team ,
EII disputed this finding by stating that EII is current on their Immokalee lease for FY2018 and that there
is no other lease for which that they owe back rent.
EII’s Volunteer Mr. Fred Krieger, stated that EII has fully amortized the lease and is current. The Clerk’s
Internal Audit staff informed Mr. Krieger that the lease from the previous year was not paid, which is
the majority of the $37,522.80 that EII is has failed to pay.
Mr. Krieger stated, “There is no other lease, there is not a lease for last year.”
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EII’s COO Jennifer Pellechio then explained, “There was a lease for FY2017 but EII does not have to pay
that lease because we never signed it.” Mr. Krieger indicated that he was unaware of the FY2017 lease
obligations.
Mr. Krieger defended EII’s position by explaining that it happens all the time in business, in the private
sector, where someone enters a lease, renovates the property, and then begins to pay the lease after
they move in.
Dr. Marshall Goodman claims that the County has realized a significant increase in value of the
Immokalee Regional Airport as well as to the value of the building that EII leases because EII made
improvements to the systems already in place.
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Internal Audit Response to County Management Response:
This is an example of the systematic, on-going course of conduct, taken by the Director of BED and EII
staff. On one hand, EII intentionally withheld signing the FY2017 lease in an attempt to avoid payment
to the taxpayers of Collier County of no less than $32,162.40 in lease payments due in FY2017. On the
other hand, EII reported to DEO the deliverable is “100% complete” for the purpose of receiving the
reimbursable grant, even though the lease was not executed by EII’s own admission as of June 28, 2017
(see Exhibit 12-A below).
The FY2017 lease that is un-signed by EII is enforceable as it was publicly approved by the BCC on
September 13, 2016. The County has fulfilled its obligation to EII by providing the space. In effect, EII
took possession of the space, made over $1 million in leasehold improvements to the space, and then
stated to the Clerk’s Internal Audit staff that EII does not owe rent for FY2017 because they never signed
the lease. EII intentionally withheld signing the FY2017 lease and is intentionally withholding payment
owed to Collier County Airport Authority.
Included in Invoice Submittal Package #16 (referenced in Finding #1) dated June 28, 2017 is a statement
detailing that EII has negotiated the lease for the Immokalee facility but has not executed the lease
because, “the ’Federal agency’ notified EII that the lease was not able to be executed.” EII
subsequently claimed on the June 28, 2017 submittal to DEO that the lease “will be executed at the July
11, 2017 [BCC] Commissioner meeting” (which is after the closing date of the Grant, see Finding #1).
The current lease for FY2018 was approved by the BCC on December 12, 2017, with an effective date of
October 1, 2017.
Exhibit 12-A: Invoice Submittal Package #16 to DEO for Grant funds, dated June 28, 2017,
explaining that EII negotiated the lease for the Immokalee facility. EII further explains why,
acting on the advice of the “Federal agency,” EII has not executed the lease .
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The Director of BED failed to route the FY2017 lease for signatures because, “grant funding for the
project had not been finalized,” as explained by the Director in the Executive Summary publicly
submitted for the December 12, 2017 BCC meeting (see Exhibit 12-B below). It is unclear as to what
authority the Director of BED was acting under when he decided that he was not going to route the
lease, which was approved by the BCC, for signatures.
However, the Director of BED apparently had no objection to allowing EII access to the space for the
purpose of constructing the Immokalee accelerator beginning in February 2017 and did not receive the
Certificate of Occupancy until January 17, 2018.
Exhibit 12-B: Executive Summary for the December 12, 2017 BCC meeting submitted by the
Director of BED, Jace Kentner, for the approval of the EII Lease at the Immokalee Regional
Airport.
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Exhibit 12-C: Executive Summary for the July 11, 2017 BCC meeting referenced by EII in Exhibit 12 -
A, the meeting that EII will purportedly sign the lease for the Immokalee facility. Please note that
EII attempts to have the BCC fund the lease for FY2017 t hrough a Budget Amendment.
(1)
(3)
(2)
(4)
(5)
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The Director of BED made multiple intentional misstatements to the BCC in the Executive Summary, also
described in Finding #6 and Exhibit 12-C, above.
1) Start-up funding for the Immokalee accelerator requested in July 2017. The Director of BED knew
that the Immokalee accelerator was not complete at the time of the requested Budget
Amendment in July. The intended use of the funds was to cover the misallocation of Personnel
Cost Reimbursements described in Finding #4, see Exhibit 4-H on page 50.
2) Misrepresentation of 71 companies and 86 Job Year Equivalent publicly submitted to the BCC in
July 2017. The Director of BED explained the misrepresentation was due to a miscalculation in
the spreadsheets. The companies and jobs claimed by the Director of BED in July 2017 contradi ct
BED’s deliverable reported to DEO for Grant #SL007 described in Finding #3 on page 38, see
Exhibit 3-C and Table 2.
3) The Director of BED knowingly and intentionally misrepresented to the BCC in July 2017 that
construction of the Immokalee Accelerator is now complete (see Exhibits 1-C, 1-N, and 1-O in
Finding #1).
4) The Director of BED requested funding for Rent and Insurance, on behalf of EII, for a lease that
EII has failed to pay during FY2017 and that the Director of BED failed to route for signatures (see
and Exhibit 12-B on page 85).
5) The Director of BED publicly submits to the BCC in July 2017 language in the proposed Budget
Amendment that would eliminate the Exhibit G Roles and Responsibilities of Administrative
Entity from the existing Agreement between Collier County and EII. This is another example of
the systematic and on-going course of conduct by the Director of BED to minimize performance
requirements for EII while increasing the financial burden of EII to the taxpayers.
During the March 13, 2018 meeting, Mr. Krieger indicated that he was unaware of the FY2017 lease
obligations. It appears that EII has not fully disclosed all contracts, agreements, and liabilities to their
volunteer CPA.
Mr. Krieger defended EII’s position by explaining that it happens all the time in business, in the private
sector, where someone enters a lease, renovates the property, and then begins to pay the lease after
they move in. One would assume that this type of arrangement allowing for leaseho ld improvements
would be negotiated into the lease prior to execution.
Dr. Marshall Goodman claims that the County has realized a significant increase in value of the
Immokalee Regional Airport as well as to the value of the building that EII leases becaus e EII made
improvements to the systems already in place. At the meeting on March 13, 2018, Dr. Goodman did not
provide support, written or otherwise described, to this claim.
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Dr. Marshall Goodman’s claim to the increase in values for the Immokalee Regio nal Airport are
erroneous. Whereas, EII’s false certification by Compass Construction and failure to obtain the
Architect’s signature on the AIA Document G702, which was subsequently submitted to DEO for
reimbursement on June 28, 2017, actually jeopardizes funding from a Grantor Agency claw-back (see
Exhibit 1-E in Finding #1).
Exhibit 1-E: AIA Architect’s Certification included in Invoice Submittal Package #16 with
signature of Architect missing.
Certified by Compass Construction on June 28, 2017
Missing Architect’s Signature
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13) Mismanagement of Woodstock’s Micro-Market including licensing, accounting, and
inventory controls.
EII Management Displayed an Expired Business Tax Receipt; and Failed to Obtain a
Current Collier County Business Tax Receipt
Business operating in Collier County must have a county business tax receipt. The receipt is for the
privilege of engaging in a business activity either for profit or non-profit. Business Tax Receipts run
through September 30th and are to be renewed by September 30th of the following year or are held
delinquent and are penalized.
During the week of January 22, 2018, internal audit conducted several unannounced on -site visits of
Woodstock’s located at 3510 Craft Rd., Suite 100, Naples, Florida. One visit included examining
Woodstock’s Collier County Business Tax receipt. We found the business tax receipt had expired on
September 30, 2017, 118 days prior to our visit.
Inadequate Inventory Management
In examining the Woodstock’s food service location, we found numerous expired food items in both the
dry storage and refrigerator sections of the retail sales operation. The lack of inventory management
may contribute to increased inventory expenses, the extent of which cannot be determined due to the
absence of inventory records.
During this visit, internal audit additionally noted: the lack of a triple basin sink; the $3,000+ coffee
machine does not appear to have readily available location to clean and sterilize certain parts as
required; and dust and biological growth appeared to be present in the retail coolers. Failing to
thoroughly clean refrigeration units and disposing of any items that expired may be a violation of EII’s
Annual Food Permit Number 2018-R-1707006.
Exhibit 13-A: Expired Collier County Business Tax Receipt #162093 as of January 22, 2018.
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EII’s absence of reliable inventory records and inventory management increases the risk of inventory
misappropriation and excess inventory costs. EII should continue to report losses of operations by
regularly and thoroughly conducting physical inventories with recordkeeping sufficient to verify the
accuracy of the inventory count; and provide inventory information useful to BED and EII management.
Food and supply purchases should contain descriptions adequate to ensure a correct determination of
book inventory. The inventory results, including any shortages, should be reviewed by EII management
with a signoff indicating management review.
A spoilage/waste log should also be required, noting the amount of disposed inventory. Inventory and
waste records should reconcile to the revenue tracking sheets which include beginning and ending
inventory predetermined time periods.
Procedures and training to ensure appropriate future food storage should be implemented. Random
audits of food storage should be performed, and supplies and inventory should be securely stored to
reduce the risk of misuse or misappropriation.
This is important as it impacts the Accelerator project’s ongoing revenues and expenses through
Program Income, staffing, and other costs.
Woodstock’s License
Notably, the President and CEO of EII, at the direction of the BCC created an updated business plan for
the Accelerators, dated January 3, 2017 [sic]. In his 2018 updated business plan, the CEO makes the
below assertion regarding the timing of this Annual Food Permit:
Exhibit 13-B: Expired Beverages Exhibit 13-C: Expired Food Products
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On January 25, 2018, the Clerk’s Internal Audit staff spoke with Mr. Holzworth and another official from
the Department of Agriculture and Consumer Services. During the conversation, the internal audit
manager learned that there are many of these food permits located throughout the state of Florida, i.e.
it is not unique to Woodstock’s. Mr. Holzworth indicated he may have said that this permit was the first
of its kind, however this would have been years ago when he made this statement. He further stated, “it
is the same type of permit issued to convenience stores, there is nothing unique or particular about
[Woodstock’s] permit, in fact they have [micro-markets] all over the state and many are in Orlando.”
Failure to Conspicuously Display Requisite Documentation at Permitted Location
A food permit from the Florida Department of Agriculture and Consumer Services is required of nearly
to operate a food establishment or retail food store. (F.S.A. § 500.12) The Department of Agriculture
and Consumer Services is the exclusive regulatory and permitting authority for all food outlets, retail
food stores, food establishments, convenience stores, and minor food outlets, and application for a food
permit must be made on forms provided by the Department Generally, a food permit from the
Department of Agriculture and Consumer Services is required of any person who operates a food
establishment or retail food store. A common method of insuring that prescribed standards of quality
and purity are met is by inspection of specified establishments. The conspicuous display of the permit
issued to the owner, subsequent to an inspection, is required by Florida Statute (F.S.A . § 500.12(8)).
During review, IA also found EII management failed to display its 2018 Annual Food Permit inside this
retail location. Upon the internal audit manager’s discussion with EII’s COO, it was discovered that this
permit was on a desk of the second floor of EII, and not properly posted.
Exhibit 13-D: Excerpt from A Business Plan for Collier County Innovation Accelerators Update,
January 3, 2017[sic] Deliverable 5 - Final
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Recommendations:
Business receipts should be kept current
Receipts and permits should be appropriately displayed
Inventory should be reviewed and kept current
County Management Response:
Jennifer Pellechio, COO of EII, stated they were not aware of the expiration dates. However, now that it
has been brought to their attention they have removed all expired items from Woodstock’s. The C OO
also stated that EII will continually monitor the expiration dates of food products.
Exhibit 13-E: Image of the 2018 Annual Food Permit
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14) Multiple potential conflicts of interest exist within EII’s organization including self -
dealing, President of EII’s Board of Directors is the owner of the Naples Accelerator
facility, and potentially improper rental arrangements.
Internal Audit has noted the following conflicts of interest within EII’s organization.
Self Dealing
EII’s COO, Jennifer Pellechio, owns a consulting business, JP Consulting Team, LLC., that has received
payments directly from EII for work. JP Consulting Team charged EII $85 per hour for designing a flyer
for the Consumer Electronics Trade Show as well as Invitations to a fundraising event for the introduction
of the French Chef. EII has paid JP Consulting Team, LLC. $850 for these two projects.
EII’s Board President is also their Landlord
The Chairman of EII’s Board of Directors, Mr. Fred Pezeshkan, is the manager of Kraft Office Center, LLC.,
which houses the Naples Accelerator. Collier County pays rent, on behalf of EII, directly to Kraft Center,
LLC. FY2018 rent is $197,900, and the total rent over the 5-year lease term is over $1 million.
It is worth noting that while EII has not paid the County for their use of the facility that houses the
Immokalee accelerator (see Finding #11 above), Mr. Pezeshkan and Kraft Office Center, LLC. have always
received their rent payment on time from the taxpayers.
BED Hired VCTC & Appropriation Services, LLC to Provide Professional Services to
Support Collier County in Seeking Authorization for an Amendment to it’s Agreement
#SL007, as Amended, with the DEO. Elizabeth Walker, the Former DEO Agreement
Manager of Grant #SL007, is the Represented LLC Manager and/or Owner.
The BED hired VCTC & Appropriation Services, LLC. It is worth noting that Elizabeth Walker was a former
Agreement Manager at DEO and was responsible for the very grant (SL007) for which she us now
providing professional services.
The BED has submitted two invoices on behalf of “Elizabeth Walker” (see Exhibit 14-C). The first invoice
was on November 21, 2017 in the amount of $2,793.75 and the second invoice was on January 17, 2018
in the amount of $2,493.75. Additionally, the BED Director requested a $50,000 Purchase Order for on-
going consulting. This was not approved by the County’s Purchasing Department.
Exhibit 14-A, below, shows an email conversation between Elizabeth E. Walker from DEO, County staff,
Director of BED, and the CEO of EII regarding the accuracy of reported capital investments and jobs
reported of an Accelerator participant company.
The email discussion shows Elizabeth Walker’s intimate knowledge of the Accelerator on an operational
level, for which she is the Agreement Manager for Grant #SL007, while working for DEO.
VCTC & Appropriation Services, LLC/Elizabeth Walker was tasked to submit draft documents to DEO for
amendments to Agreement #SL007.
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Exhibit 14-A: Elizabeth E. Walker email on September 20, 2016 stating, “I do not understand how
this project is contributing to a positive return of benefits to the people of Florida.” At the request
of the Director of BED, the entire email is included. Please note that this email is descriptive of EII
and BED’s inability to validate capital investments and jobs created by the Accelerator participants.
Additionally, the second paragraph references a June 23, 2016 email from Mr. Zand in which he
was quoted, “no employees and no capital raised for the US subsidiary.”
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Exhibit 14-B: Elizabeth E. Walker, Agreement Manager for Grant #SL007
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Exhibit 14-C: Proposal by VCTC & Appropriation Services, LLC to seek an Amendment to Grant
#SL007 submitted by Elizabeth E. Walker, Owner.
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Exhibit 14-D: State of Florida Commission on Ethics addressed to Ms. Elizabeth Walker stating
that F.S. 112.3185(4) applies to her as a former Agreement Manager .
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The Clerk Has Been Advised That People Are Being Awarded County Contracts For Re-
locating Into The Naples Accelerator.
EII participants have been awarded no less than $558,362 in county contracts since joining the Naples
Accelerator.
1.) HyperTeam USA joined the accelerator on October 1, 2015 and has invoiced $437,500 to the County
since September 19, 2016, while receiving the 50% Promotional Discounted Rent from the Naples
Accelerator for over two years.
2.) Juice Technologies, Inc., dba Plug Smart, was assured additional county contracts if they would move
into the accelerator, as reported to the Clerk from the owner Richard D. Housh. Juice Technologies
moved from existing commercial space into the accelerator on November 30, 2016 and has invoiced
$120,862.42 since July 18, 2017. Prior to joining the Naples Accelerator, Juice Technologies had one
contract with Collier County $2,980.00 dated June 6, 2016.
Exhibit 14-E: HyperTeam USA, a current participant in the Naples Acce lerator, has invoiced the
County $437,500 since joining the Accelerator on October 1, 2015.
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Exhibit 14-F: Juice Technologies, Inc., a former participant in the Naples Accelerator, has invoiced
$120,862.42 since moving into the Naples Accelerator on November 30, 2016.
$120,862.42
between
7/18/2017 and
2/9/2018, since
joining the Naples
Accelerator
$2,980.00 on 6/6/2016, prior to
joining the Naples Accelerator
Joined the Naples
Accelerator on
November 30, 2016
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EII Does Not Have a Written Conflict of Interest Policy
EII does not have a written and approved Conflict of Interest policy, as confirmed by COO Jennifer
Pellechio on January 8, 2018.
Conclusion:
EII’s lack of internal controls and lack of conflict of interest policy(s) creates significant risk fraud and the
misuse of taxpayer money. Absence of a written conflict of interest policy and/or violation of conflicts
may jeopardize EII’s 501(c)3 status.
Recommendation:
The Board of County Commissioners should consider their alternatives in regards to the contract
with EII and notify them of potential reimbursements that may be required to State of Florida
and Federal grantors and/or the County taxpayers.
EII should adopt a written and approved conflict of interest policy as well as other operational
policies and procedures.
Exhibit 14-G: Email reply from COO Jennifer Pellechio on January 8, 2018 that EII’s Board of
Directors has not approved a written Conflict of Interest Policy.
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County Management Response:
The Director of BED objected to the Elizabeth Walker email referenced in Exhibit 14 -A, saying that the
email was regarding the recognition of AirFi Network’s, an Accelerator participant, foreign direct
investment for reporting purposes. The Director states that the highlight ed text which states, “I do not
understand how this project is contributing to a positive return of benefits to the people of Florida” is
regarding AirFi Networks and not the Accelerator projects as a whole.
Internal Audit Response to County Management Response:
Internal Audit’s intention was not to insinuate that the DEO or Elizabeth Walker questioned the positive
return of benefits regarding the Accelerator projects in Exhibit 14-A. Rather, this email was intended to
show that Elizabeth Walker, the Agreement Manager for the Grantor Agency (DEO), was intimately
aware of the performance of the Grantee (EII) on an operational level, and she was questioning the
fiduciary responsibility of EII management; thereby demonstrating a possible conflict of interest
precluding her from being employed to assist with this grant agreement upon her terminating her
employment with DEO. At the request of the Director of BED, Internal Audit has included the entire
email in Exhibit 14-A and the appendix.
The Clerk has been unable to determine the legality of payment requested in the amount of $5,287.50
due to the questioned conflict of interest with DEO.
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15) EII has failed to become a financially viable business entity and shows little or no
progress in that direction.
The 2014 Agreement between the County and EII executed on October 1, 2014 states that “the Collier
Accelerator’s [sic] must be largely self-sustaining, with positive cash flow, and positive end of the year
fund balances.” It is further noted in Attachment 1 of this agreement in the Scope of Work that “Collier
County intends for this project to create a financially self-sustaining program.” Finally, the CEO of EII has
reported in the Accelerator Revenue and Cost Analysis that the time period for substantial sustainability
“can take anywhere from 18-24 months before incubators/accelerators achieve a form of sustainability.”
Furthermore, Article XXVII of the Fiscal Year 2018 Agreement calls for the establishment of a self-
sustaining organization.
However, the President of EII’s Board of Directors, Mr. Fred Pezeshkan is under the assumption that EII
is under no obligation to become a self -sustaining organization.
Exhibit 15-A: Article XXVII on page 11 of the FY2018 Agreement which states, “The establishment
of a self-sustaining organization is paramount to the relationship created by this Agreement.”
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Accelerator Costs
EII has estimated its Accelerators will cost $1,086,500 for Fiscal Year 2018, of which $800,000 is to be
covered directly by Collier County taxpayer funds; $211,200 in business income generated by subleasing
county leased space, at a loss, to participants and the remaining $80,000 to be generated from private
contributions (for both Naples Accelerator and Immokalee Accelerator), which they have failed to meet
in any prior year. This will result in EII generating a Net Surplus of $4,700. As of January 15, 2018 EII has
not collected the projected private contributions nor met projected incomes. This failure to obtain
private contributions and meet projected business income is estimated to continue a financial shortfall
between forecasted revenues and both Accelerator operational costs throughout the remainder of the
year.
Since the Accelerators’ inception in 2014, first under the management of Southwest Workforce
Development Board, then on September 14, 2014 as the newly created Economic Incubators, Inc., the
Clerk has had difficulty obtaining documents and financial information. EII has expended over $5 million
of taxpayer money since 2014 (no less than $2,469,929 from Collier County + $2,723,525 from DEO
Grants + $112,536 in USDA Grants) however, EII did not produce audited financial statements for Fiscal
Years 2014 and 2015. EII did not produce audited financial statements for FY2016 until July 2017 and
the Clerk has not received Fiscal Year 2017 audited financial statements as of February 1, 2018. If new
viable participants are not secured during Fiscal Year 2018, the long-term sustainability of EII remains in
question. This concern is exacerbated by the current absence of activities at the Immokalee Accelerator,
and the fact that the participant rate and business income in the Naples Accelerator has decreased for
the First Quarter of Fiscal Year 2018.
The Clerk is aware that during Fiscal Year 2017-2018, proposed funding by the State of Florida of
$5,750,000 was requested and denied. This request for grant funds is contrary to the 2014 business
model requiring all grants to go through the County. EII and BED planned to ask for $10,500,000 for the
State Fiscal 18-19 request. To date, requests for funding have not been approved.
Exhibit 15-B: Paragraph 3 on page 2 of the January 8, 2018 Letter to the BCC by Mr. Fred
Pezeshkan and Dr. Marshall Goodman.
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The proposed 2018 draft business plan perpetuates total continued reliance on taxpayer funds to sustain
the entity.
Exhibit 15-C: Email from Dr. Marshall Goodman to Jace Kentner on June 26, 2017 discussing how
to request $10,500,000 from the State of Florida in Fiscal Year 18 -19.
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Dr. Goodman Stated That He Knew Immokalee Would Never Become Self-Sustaining
On February 1, 2018. Dr. Marshal Goodman explained to the Clerk’s staff that he knew from the very
beginning that the Immokalee Accelerator would never be able to sustain itself. He stated that he had
many meetings with prior Commissioners and he would ask, “how can a community of 20,000 poor
people support this accelerator (in Immokalee)? It can’t. I was told don’t worry about it, it’s a County
issue, you are just the service provider, we (Commissioners) want it there.” Dr. Goodman concluded
by saying, “that is the original plan, if you want an accelerator in Napl es, then Immokalee gets one,
don’t worry about it.”
As of February 15, 2018, the Florida Culinary Accelerator @ Immokalee is still not operational.
Recommendations:
The Board of County Commissioners should consider their alternatives in regards to the contract
with EII and notify them of potential reimbursements that may be required to State of Florida
and Federal grantors and/or the County taxpayers.
EII should develop and implement a business plan to assure that the Accelerators are “largely
self-sustaining with positive cash flow and positive end of the year fund balances” not previously
achieved.
The CEO of EII and the BED should ensure that all future grants are compliant with the EII Business
Plan and contracts.
County Management Response:
As of March 16, 2018, neither the Director of BED nor representatives of EII have provided a response
to this finding.
Exhibit 15-D: Collier County to Host Groundbreaking Event for the Florida Culinary Center @
Immokalee, Press Release dated February 24, 2017. The Director of BED states, “This is another
bold and well calculated project.”
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16) EII and BED have failed to meet contract and facility deliverables during Fiscal Year
2018
Failure to Open the Florida Culinary Accelerator @ Immokalee
The Florida Culinary Accelerator @ Immokalee was originally scheduled to open in 2015. EII knowingly
misrepresented to Florida DEO on June 29, 2017 that the facility was 100% complete, even though it was
not.
On November 14, 2017, Dr. Goodman told the BCC, “We have scheduled an open house of the business
office on November 29th with the opening of the culinary operation in early January.” An article dated
December 15, 2017 (Exhibit 16-A, below) shows the accelerator is now scheduled to open in mid-
January.
As of January 15, 2018, EII has failed to hire any of the staff that will be operating the Immokalee facility
and EII only has a Temporary Occupancy Permit to work out of the business office. (Note: EII has hired
two staff members for the Immokalee Accelerator on or about February 1, 2018 .)
EII’s latest assertion is that the Florida Culinary Accelerator @ Immokalee will have a soft -opening in
February (no specific dates) and a Grand Opening on March 28, 2018 (see Appendix D).
Please note that the latest projected opening date is six months into the fiscal year, which means EII will
have accrued six months of expenses for the facility and lost four months of generating revenue. On
March 28, 2018, EII’s operation of the Immokalee accelerator will be $19,400 below budgeted revenues
($4,850 x 4 months = $19,400) and will have accrued $16,081 in rent expenses for leasing the facility
($2,680 x 6 months = $16,081).
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The above article states that the delay in opening the Immokalee Accelerator was due to “unforeseen
regulatory issues.” On February 1, 2018, the Dr. Marshall Goodman and COO Jennifer Pellechio stated
that “they have been on a learning curve with everything for Immokalee. We didn’t even know what
permits or licenses we needed. The problem is the State (Florida), the Culinary Accelerator is in a gray
area.”
It is clear that EII did not sufficiently research the permitting or licensing requirements for the Immokalee
Accelerator prior to spending over $1.2 million in taxpayer dollars.
Exhibit 16-A: Immokalee Bulletin news article on December 15, 2017 stating that the accelerator
is scheduled to open in mid-January (2018). https://immokaleebulletin.com/news/culinary-
accelerator-immokalee-nears-completion/
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Failure to File Payroll Requests in a Timely Manner
BED sent the October and November 2018 payroll reimbursement requests to the Clerk for processing
on December 19, 2017 and then falsely claimed that the Clerk was delaying payment. See timeline
below:
Timeline of EII Pay Requests for FY2018
Date Event
11/14/2017 BCC Approves EII Contract
11/22/2017 Jennifer Pellechio Sent Deliverable #2 to BED – October Financials
11/28/2017 Jennifer Pellechio Sent Deliverable 1 to BED – Payroll FY18-01, FY18-02, FY18-03 to
BED
11/30/2017 Jennifer Pellechio Sent email recap to all parties (county & clerk), however there was
no PO# at this time and BED had not approved the request
11/30/2017 James Molenaar emailed Jennifer Pellechio and copied EII Board Member that the
Clerk had not received the pay request documents
11/30/2017 EII Board President Fred Pezeshkan emailed Jennifer Pellechio to “get it to the Clerk
ASAP”
12/7/2017 Jennifer Pellechio claimed to have a fully executed contract from County
12/11/2017 Phyllis, The BED Accounting Technician, sent an email to EII Staff that the BED has a
PO (Clerk was not included in this communication, Clerk staff has confirmed SAP has
doc and the PO doc date)
12/12/2017 Phyllis sent email that FY18-01 & FY18-02 was submitted through the system (Clerk
does not have record of receiving this email on this date, this information was
obtained by Clerk staff from Jennifer Pellechio)
12/15/2017 Jennifer Leslie emailed the Clerk’s Accounting Supervisor, that the documents had
been uploaded to SAP as previously agreed business practice. Suzanne was not in
the office on Friday; and on the 19th both pay requests were downloaded
12/19/2017 Jennifer Pellechio sent email to entire group checking status before the upcoming BCC
meeting on January 9, 2018. Pay Requests are in the process of being Audited.
1/8/2018 EII sends letter to BCC threatening to shut the doors, refusing to use their Letter of
Credit to sustain operations and chastising the Clerk for non -payment less than the 45
days allowed by statute
1/9/2018 BCC Meeting - The Clerk, again, advised the BCC of the continuing issues with EII
EII, while claiming cash flow shortfalls, gave their staff a 2.9% pay increase for 2018. EII withheld
December Pay Requests until after the BCC meeting on January 9, 2018, BED submitted the first payroll
reimbursement for December that included the 2.9% pay increase, retroactive to October 1, 2017. The
retroactive payment is listed as “Retro-Re” on the payroll summary sheet with the following amounts;
Marshall Goodman $799.32, Nicole Kreuzer $193.32, and COO Jennifer Pellechio $435.00.
Recommendations:
The Board of County Commissioners should consider their alternatives in regards to the contract
with EII and notify them of potential reimbu rsements that may be required to State of Florida
and Federal grantors and/or the County taxpayers.
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County Management Response:
As of March 16, 2018, neither the Director of BED nor representatives of EII have provided a response
to this finding.
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17) EII and BED have made numerous misrepresentations to the BCC, the Clerk, and the
taxpayers including jobs created, capital investments made, project completion dates,
and financial and budget status.
Contrasting Goals:
EII volunteer, Fred Kreiger, stated to the BCC on November 14, 2017, “the first thing we said, we need
to stop using county money.” In contrast, EII and BED have indicated that they will need $2.3 million in
Collier County funding over the next four years. Additionally, EII and BED are planning on requesting
$10.5 million in future grants.
EII’s Mission to Create Jobs and Economic Investment or to Provide Education?
The 2014 plan was for the Accelerators to report Jobs Created in the County. The 2018 revised plan
indicates they will become another education facility requiring ongoing and increasing subsidies from
the taxpayer. The Immokalee facility may not be zoned for educational purposes, the current zoning is
for culinary kitchen/manufacturing; and the Naples Accelerator zoning violatio ns remain unresolved.
It is worth noting that the operator of the now-closed Florida Kitchen (startup rental operation) that had
to close due to low participation rates and participants skirting the rules & regulations. This is an
example of a kitchen accelerator in Collier County, cited by EII in their business plan, which had to close
shop after 5 years because they could not sustain the operation due to participants cooking from home
while presenting their certifications from the accelerator. It appears that while the model may work in
other locations, it may not be a viable model in Collier County.
Accurate Reporting to the BCC
During Fiscal Year 2017, EII failed to provide accurate Revenue Reuse Plans to the BCC, pursuant to the
Agreement. BED failed to enforce this provision of the Agreement.
EII failed to accurately and timely file their IRS Form 990’s.
EII has failed to open the Immokalee Facility after nu merous promises made to the BCC, citizens of
Immokalee, and the taxpayers of Collier County.
The Clerk is not the first to notice this, as example see emails from prior EII Board member, Thomas R.
Grady, regarding his concerns (see Appendix F)
EII Mixed Cash and Accrual Accounting Methods in their Budget vs. Actuals Report
EII’s budget proposal is misleading or what may be construed as an intentional attempt to mislead the
BCC and the Public. EII is unable to meet revenues at the same time not reporting expenses, which
paints a much better picture than reality.
EII used the Accrual method for recording Revenues and Cash Method for recording Expenses, this has
the misleading effect of inflating Net Revenues compared to Expenses . EII rationalized mixing
accounting methods on the same schedule by stating “they are not operating in there yet (regarding the
Immokalee facility)” even though they have a lease and are accruing expenses.
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Additionally, it does not appear from financial reports that the rent from Woodst ock’s Micro-Market has
been recorded. Woodstock’s rent was reportedly pre-paid by grant funds for January 1, 2017 through
December 31, 2017.
Recommendations:
The Board of County Commissioners should consider their alternatives in regards to the contract
with EII and notify them of potential reimbursements that may be required to State of Florida
and Federal grantors and/or the County taxpayers.
County Management Response:
Fred Krieger, Volunteer for EII, stated during the March 13, 2018 meeting that EII’s financial systems
were a mess before, but now they have corrected these problems and EII is no longer mixing cash and
accrual methods. Mr. Krieger further stated that EII is now properly amortizing all expenses and leases.
Internal Audit Response to County Management Response:
Internal Audit will continue to monitor EII’s contract deliverables for accuracy and completeness. As of
March 16, 2018, Internal Audit found no evidence of payments on the FY2017 lease nor the accrual of
the FY2017 lease obligation in the financial statements submitted to the Clerk.
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18) BED approved $1,631.96 in unauthorized and unbudgeted expenditures on behalf
of EII for the Immokalee Accelerator Project.
Internal Audit identified recorded expenditures related to Collier County Accelerators and paid from the
Business & Economic Development Office (BED) funds. Expenditures 1-4 relate to utilities for the
Immokalee Accelerator, were not budgeted under the BED purchasing group, and should have been paid
by Economic Incubators as part of their budgeted expenses. This understates the costs of the
Accelerator.
Table 9: BED Payments for Services at the Immokalee Accelerator that are the responsibility of EII
Vendor Name Amount Status Public Purpose
1 AMERIGAS PROPANE LP $1,120.84 Paid PROMOTE ECON. DEVELOP. IN
COLLIER COUNTY
2 IMMOKALEE WATER & SEWER DISTRICT $218.40 Check
cashed
MAINTAIN BUILDING SERVICES
3 IMMOKALEE WATER & SEWER DISTRICT $256.50 Check
cashed
06/26/17-08/03/17 170 AIR
4 IMMOKALEE WATER & SEWER DISTRICT $36.22 Check
cashed
HEALTH HAZARD SAFETY
Total $1,631.96
Recommendations:
Expenditures should be authorized and properly reported .
County Management Response:
As of March 16, 2018, neither the Director of BED nor representatives of EII have provided a response
to this finding.
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19) EII failed to facilitate Capital Investments, assist in creation of viable business plans
for participants, provide assistance in accelerating client independence.
An individual reported to the Clerk’s office that he had gone to the Naples Accelerator looking to invest
in start-ups or possible venture investing. This individual was told that EII does not really do that, and
they should contact Tim Cartwright with the Adrenaline Venture Funds. Tim Cartwright is a former
director of the Economic Development Council of Collier County.
The individual then requested business plans for any of the Accelerator participants for review and
possible investment. The individual was told that there were not business plans on file and that EII does
not really do that.
This individual asked to remain confidential in fear of retaliation.
Exhibit 19-A: The Naples Accelerator’s website explai ns the process for utilizing the ‘Naples
Adrenaline Fund’ http://naplesaccelerator.com/resources/funding/.
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Recommendations:
The Board of County Commissioners should review this report and EII’s activity and reporting.
County Management Response:
As of March 16, 2018, neither the Director of BED nor representatives of EII have provided a response
to this finding.
Exhibit 19-B: The Naples Adrenaline Fund is not listed on the Adrenaline Fund website:
http://www.adrenalinefund.com/
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20) EII and the BED have consistently failed to submit pay requests and contract
deliverables in a timely manner.
EII and BED submitted the Financial Reports for two months (October -November) to the Clerk’s SAP
system on December 19, 2017.
The Clerk’s role is to audit to BCC contracts, we review EII’s documentation. EII continues to create a
“crisis” to get paid and the BCC continues to fund them – But the taxpayers need to know what they are
paying for and not getting.
This is not the first time this has happened, it appears to be a tactic. Whereas EII and BED delay
processing the payment requests for as long as they can and then pressure the Clerk to make immediate
payment without taking sufficient and statutory time to review the submittal.
Please note the emphasis on ‘promptly’. Due to EII’s lack of controls, lack of management capacity, lack
of oversight on the part of the BED, and the risk of fraud, the Clerk has determined the risk associated
with anything submitted by EII is extremely high. The Clerk will conduct a full audit of every
reimbursement request from this entity going forward and will not be pressured by any vendor with this
level of risk to make any payments without full satisfaction as to completeness and legality.
Exhibit 20-A: January 8, 2018 letter from Fred Pezeshkan, Chairman of EII’s Board, and Dr. Marshall
Goodman, President and CEO of EII, questioning the Clerk’s role in auditing Agreement
Deliverables.
Exhibit 20-B: January 8, 2018 letter from Fred Pezeshkan, Chairman of EII’s Board, and Dr. Marshall
Goodman, President and CEO of EII demanding ‘prompt’ attention to reimbursement requests.
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County Management Response:
As of March 16, 2018, neither the Director of BED nor representatives of EII have provided a response
to this finding.
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Summary
In summary, the Clerk’s Office has spent thousands of hours assisting EII in an attempt to get financial
and other information. Clerk’s staff went so far as to try to construct statements when they could not
be produced. The Clerk’s staff even provided hours of QuickBooks training to the COO. Yet four years
and over $5 million later, EII is unable to meet even basic financial and operational requirements, provide
accurate reports, correct zoning violations, nor successfully operate either the Naples or Immokalee
Accelerators.
The Clerk’s office will further review any additional documentation or comments provided in response
to this audit when provided by EII or County staff.
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Table 10: Summary of Taxpayer Funds Paid to EII from 2013 to Present
Taxpayer Funds To Date – All Sources
County Funds – Dr. Marshall Goodman Consulting Fees FY2014 $70,617
County Funds – 2015 Actual FY2015 $65,845
State Grant #SL007 (Finding #1, pg. 17) - $2,500,000 awarded,
only $723,525 received
FY2015 $723,525
Collier County Matching Funds to Grant #SL007 FY2015 $46,017
County Funds – 2016 Actual FY2016 $340,637
Collier County Matching Funds to Grant #SL007 FY2016 $124,412
Business Income Expended FY2016 (Audited) FY2016 $244,981
County Funds (Finding #4, pg. 37) – 2017 Actual FY2017 $309,800
Collier County Matching Funds to Grant #SL007 FY2017 $8,412
State Grant #SL025 (Finding #1, pg. 6) – Florida DEO to EII FY2017 $2,000,000
Federal Grant – USDA RBDG (Finding #2, pg. 22) FY2017 $112,536
Kraft Office Center, LLC – Rent for the Naples Accelerator (Finding
#8, pg. 49)
FY2014–FY2017 $323,466
Business Income Expended FY2017 (Un-Audited) FY2017 $316,925
Fiscal Year 2018 Quarter 1 Rent Promotions (Finding #4, pg. 38) FY2018 $19,400
Unpaid Rent for the Immokalee Accelerator (Finding #12, pg. 65) FY2016-2017 $37,522
Fiscal Year 2018 Collier County Funding – Payroll Reimbursement
through Pay Request #FY18-08, pay period ending 1/31/2018
FY2018 $124,234
Fiscal Year 2018 Collier County Funding – Rent Payment to Kraft
Center, LLC., October 2017 through March 2018
FY2018 $98,946
Sub-Total To Date $4,967,275
Collier County Budget Remaining in FY2018
Remaining FY2018 Payroll Reimbursement (estimated) FY2018 $430,352
Remaining FY2018 Rent Payments to Kraft Office Center, LLC FY2018 $98,946
Sub-Total Through Fiscal Year End 2018 FY2018 $529,298
TOTAL ESTIMATED BUDGET AT FISCAL YEAR END 2018 $5,496,573
BUDGET PROJECTIONS THROUGH 2021
EII Future Funding Requests through FY2021 (See Exhibit 11-B,
pg. 60)
FY2019-2021 $1,500,000
Kraft Office Center, LLC, remaining Lease ending 2021 FY2019-2021 $630,012
Sub-Total Remaining Budget 2019-2021 $2,130,012
TOTAL ACTUAL AND FORECAST FY2014-2021 $7,626,585
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