Independent review: Secretary of State auditors failed to safeguard against Fagan’s moonlighting

Auditors under former Oregon Secretary of State Shemia Fagan failed to maintain the public trust when their boss moonlighted for a cannabis company amid an audit about marijuana regulation, an Oregon Department of Justice review has concluded.

The report, released on Wednesday, recommends that the state temporarily remove the audit linked to the rapid downfall of Fagan from its website and review it. Fagan resigned in May after Willamette Week reported she had a $10,000-per-month consulting contract with Veriede Holding LLC, an affiliate of the La Mota cannabis dispensary chain. 

At Fagan’s urging, secretary of state auditors interviewed La Mota representatives as part of an audit of the Oregon Liquor and Cannabis Commission’s marijuana regulation, the review said. The Oregon Department of Justice hired California-based Sjoberg Evashenk Consulting – an expert in audits – to complete the outside review after Gov. Tina Kotek requested an outside examination.

Oregon Attorney General Ellen Rosenblum said in a letter to Kotek that was released Wednesday that the Secretary of State’s Office needs to review the audit to help regain the public’s trust. 

Secretary of State LaVonne Griffin-Valade, appointed to replace Fagan, said in a statement she will reevaluate the evidence in the audit and based on its results, may take additional action. 

“The report reaffirms what we all know to be true: former Secretary Shemia Fagan’s actions compromised public trust in the audit,” Griffin-Valade said. “In auditing we call this a ‘threat to independence in appearance.’”

The audit called for the Oregon Liquor and Cannabis Commission to update marijuana regulations to encourage growth in the industry and ensure equitable opportunities for various communities.

Until the review is finished, Griffin-Valade will not decide to remove the audit from the website, said Laura Kerns, a spokesperson for the office. 

The secretary of state earns $77,000 a year and with a staff of more than 200 employees, oversees elections, audits of state agencies and business filings for Oregonians. 

In a statement, Kotek said she has confidence in Griffin-Valade, a former Multnomah County auditor, and her plans to review the case and restore trust in the office. 

“I expect that this report will inform her ongoing efforts to make certain that Oregon’s audits are objective, independent and meet professional standards,” Kotek said.

Review’s findings 

The review didn’t find evidence that Fagan or her consulting work influenced the outcome and findings of the audit. But it did find that auditors did not take her conflict seriously enough or consider the impact it would have on the perception of their independence, which is key for the public’s trust. 

Fagan recused herself from the audit, but that wasn’t enough, the review concluded.

“When the circumstances surrounding former Secretary Fagan’s recusal and resignation became known to the Division of Audits, it did not take sufficient steps to identify and assess threats to (its) independence,” the review said. 

The audits team should have taken steps to ensure public trust in the audit, such as adding audit reviewers or obtaining more evidence to bolster the findings and show the work was accurate and balanced, the review said.

The audit team considered the conflict of Fagan’s consulting on individual auditors and the team, but failed to consider its impact on the organization’s reputation.“The SOS Division of Audits did not fully vet the situation to evaluate whether the independence threat at the organization level was acceptable or not,” the review said.

The Oregon Department of Justice paid the company $88,000 for the review, with hourly rates that range from $130 to $255, a spokesperson said.

The political saga isn’t over yet. The Oregon Government Ethics Commission has two pending cases: one on Fagan’s consulting contract and another on her travel and whether she improperly brought family members on trips or double-dipped into her campaign fund and the state.

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Ben Botkin - Oregon Capital Chronicle

Ben Botkin covers justice, health and social services issues for the Oregon Capital Chronicle. He has been a reporter since 2003, when he drove from his Midwest locale to Idaho for his first journalism job. He has written extensively about politics and state agencies in Idaho, Nevada and Oregon. Most recently, he covered health care and the Oregon Legislature for The Lund Report. Botkin has won multiple journalism awards for his investigative and enterprise reporting, including on education, state budgets and criminal justice.