Under former Mayor Vern Breland’s direction, the town of Sterlington spent $3.1 million on unlawful expenditures, flouted public bid law on projects as big as $2 million and falsified its applications to the state to incur bonded indebtedness.
That was the grim conclusion reached by the state Legislative Auditor’s office, which investigated Sterlington for months for fraud and abuse and published its report earlier this week.
State and federal laws may have been broken, investigators determined.
The investigative audit depicts Sterlington as a small town of fewer than 1,600 people that became saddled with $20 million in debt as Breland took money from this trust fund or that trust fund to cover mounting project costs or to pay legal fees on lawsuits that ultimately failed. Sterlington now has a fiscal administrator, appointed by the state, to help the town avoid bankruptcy.
A number of the issues detailed in the Legislative Auditor’s investigation were first reported by The Ouachita Citizen, including Sterlington’s ongoing expenditure of bond proceeds for unauthorized expenditures in spite of warnings that the activity was illegal.
Legislative Auditor Daryl Purpera said his office received complaints about Sterlington’s expenditure of bond proceeds and initiated the investigative audit to determine the validity of the complaints.
Purpera said copies of the report were delivered to Fourth Judicial District Attorney Steve Tew’s office as well as to the office of the U.S. Attorney for the Middle District of Louisiana.
“The District Attorney’s Office will review that report and decide what action will be taken in light of it,” Tew said.
Sterlington incurred some $18.2 million in bonded indebtedness and some $2.9 million in lease purchase obligations from 2011 to 2018, mostly as part of Breland’s crusade to build a sports complex and spur the town’s growth through water and sewer system expansions. As Sterlington continued to incur debt, the town also operated at a net loss in 2013, 2015, 2016 and 2017.
In an Oct. 28 letter, Sterlington Mayor Caesar Velasquez affirmed the findings and recommendations of the Legislative Auditor’s team.
“One of the positives to come out of this report has been to determine that no one on the current administration or staff has taken any actions to misappropriate funds or resources from the Town,” Velasquez said.
in bond proceeds
Investigators discovered that Sterlington raided trust funds for $3,118,103 to spend on expenditures forbidden by state law. Breland directed the unlawful expenditures, investigators said.
Under state law, bond proceeds held in a trust fund shall not be spent for any purpose outside the scope for which the bonded indebtedness was originally incurred. In other words, if Sterlington incurs several hundreds of thousands of dollars in bonded indebtedness to build a water plant, the town cannot spend any of that money on payroll, but that’s exactly what Sterlington did.
Breland directed the unlawful expenditure of bond proceeds from Jan. 4, 2016 to Sept. 10, 2018, according to investigators. He continued the expenditures in spite of an audit finding during the 2016 fiscal year. The Ouachita Citizen reported about the finding at the time.
For example, the 2016 fiscal year audit report revealed Sterlington improperly spent $322,280 of bond proceeds. Breland pledged to repay the money to the trust fund by Dec. 31, 2017. Only $39,800 was ultimately repaid while even more bond proceeds were removed for unlawful expenditures, according to investigators.
Most of the unlawfully spent bond proceeds (some $2.6 million) stemmed from a 2017 Utility Revenue Bond.
“The Town Clerk told us she processed all the bond payments and recorded them in the Town’s accounting system as directed by Mayor Breland,” investigators stated. “Since former Mayor Breland knew that bond proceeds could only be used as specified in the bond ordinance yet continued to direct the bond proceeds to be used on other Town expenses, he may have violated state law.”
to seek bids
on sports complex work
In September 2017, Sterlington entered into a 10-year lease purchase agreement with Musco Lighting to buy an $840,000 lighting system for the Sterlington Sports Complex, investigators found.
State law requires that any purchase of materials and supplies costing more than $30,000 must be publicly bid. Investigators could not find any evidence that the lighting lease purchase was advertised for bids.
“The Town Clerk told us she could not remember why this lease purchase was not bid,” stated investigators’ report. “Town records include a written opinion from the Town attorney that the purchase was in accordance with public bid laws. The Town attorney told us that the Town’s bond counsel had reviewed the lease purchase and determined the lighting did not have to be bid.”
Bryan Racer, of Monroe, was Sterlington’s attorney at the time.
Sterlington's bond counsel denied advising Breland or any other town official about bidding on the lighting project.
Under Breland’s direction, Sterlington entered into a 14-year lease purchase agreement with Government Capital Corporation to fund the town’s purchase of the water management system from Capstone Metering LLC. Under the agreement, Sterlington received $2,064,000 to buy a water management system that Capstone would install in the town.
Under state law, public works projects like the construction of a water system must be publicly bid if the contract is greater than some $154,000.
“We found no evidence of a public bid for the water management system in the Town’s records,” stated investigators’ report. “The Town clerk told us she did not have any records of a public bid for the water management system and that the first time she heard of this transaction was at a Board of Aldermen meeting where a resolution was passed to authorize the Mayor to enter into the contract.”
Ultimately, Sterlington spent some of the loan proceeds from the water management system lease purchase on items not authorized by the agreement’s price quote. Some of the unauthorized expenditures included spending some $400,000 digging water wells to find a viable water source or paying the town’s financial advisor, Aaron Fletcher, according to the report.
“Since the Town does not have sufficient funds to complete the water management system that was financed by the lease purchase, the Town will not generate the additional revenue to pay the amount due on the lease purchase,” stated investigators’ report.
A Capstone official informed state investigators that some of the expenditures were on a “contingency” basis. The official also told investigators that Capstone was unable to complete the construction of a water filtration plant because of a delay in obtaining state approval for the project.
In his letter, Velasquez disputed Capstone’s account.
“However, in my opinion the comments from the CEO of Capstone are not accurate,” Velasquez’s letter stated. “I do not feel that Capstone provided the documentation necessary to accurately show the use of the funds obtained for the water system.”
State debt applications
Sterlington’s municipal advisor, Fletcher, prepared financial projections and reports to bolster the town’s applications to the state Bond Commission to incur bonded indebtedness. The Bond Commission reviews and must weigh each public entity’s application to sell or incur bonded indebtedness.
Investigators determined that Fletcher’s projections and reports either overstated the town’s actual revenue or understated the town’s actual expenditures to make Sterlington’s fiscal situation appear more secure.
“If the municipal advisor knowingly submitted financial projections based on incorrect financial information to the SBC and financial institutions, the municipal advisor may have violated state and federal law,” stated investigators’ report.
Fletcher served as Sterlington’s municipal advisor on eight issues of bonded indebtedness and as a financial advisor on two lease purchases from 2013 to 2018. In 2015, Fletcher started Twin Spires Financial LLC, through which he was paid for his work as Sterlington’s municipal advisor. In March 2018, Twin Spires also became Sterlington’s cash management officer. Fletcher’s company was paid $209,119 between 2015 and 2018 for municipal advisor work, and he earned $2,000 a month as the town’s cash management officer.
Investigators’ report detailed a few instances where Breland and Fletcher were aware of the disparity between their false applications and the town’s actual data.
For example, Sterlington billed 960 sewer customers in December 2016, though Fletcher’s financial projects claimed the town had 1,574 sewer customers in the same month.
During questioning, Fletcher defended the difference by claiming he used Greater Ouachita Water Co. water usage reports to arrive at the number, 1,574.
“The Town’s utility clerk told us she also used the GOWC water usage report to bill the Town’s sewer system customers, and that the Town has never had that many sewer system customers,” stated investigators’ report.
“The Town’s utility clerk told us that former Mayor Vern Breland asked her ‘off and on all the time’ about how many sewer system customers the Town had. The utility clerk told us that Mayor Breland and Mr. Fletcher were aware the Town did not have 1,574 sewer system customers.”