OLCC audit should be pulled offline following Shemia Fagan controversy, report finds

Oregon's Audit Division did not take the necessary steps to mitigate potential threats to the independence of the audit at the center of the controversy surrounding former Secretary of State Shemia Fagan, according to the Oregon Department of Justice.

Fagan resigned shortly after the Oregon Liquor and Cannabis Commission cannabis program audit was released, following the revelation that she had accepted a $10,000-a-month consulting contract with cannabis company La Mota as her office oversaw the audit of the marijuana industry.

Fagan faces additional ethics investigations related to the controversy.

Gov. Tina Kotek requested an examination of the audit.

The Department of Justice hired California-based Sjoberg Evashenk Consulting to perform an examination of the audit.

Sjoberg concluded that the Audit Division should have taken additional steps to mitigate a threat to the independence of the audit, including pausing the audit.

Sjoberg is recommending current Secretary of State LaVonne Griffin-Valade take down the audit from the website and conduct additional work for better trust in the independence of the audit.

Audit team had information questioning objectivity

Sjoberg concluded that there was no evidence the OLCC audit team deviated from typical practices but did find that auditors were aware of information "that could have led a reasonable and informed third party to question the independence or objectivity of the audit division."

The report includes a timeline of information received during the audit.

On June 25, 2021, Fagan forwarded an email from La Mota owner Rosa Cazares to the director of the Division of Audits and asked the director and audit manager to reach out to Cazares. She asked the team nearly six months later if they had interviewed La Mota.

Fagan sent an email Feb. 15 recusing herself from all further work on the OLCC audit, after the division had conducted a quality control review of the evidence used in the draft report. She signed a consulting contract with an affiliate of La Mota on Feb. 24.

Sjoberg said audit staff and management told them the OLCC audit team met in March to discuss whether they believed the team or individual members were "unduly influenced" by Fagan and concluded they had not been. Specifically, they said Fagan was no more involved than usual in this audit and that she had made no changes to the draft report.

Despite that, Sjoberg concluded that standards require additional safeguards when threats to independence appear.

"The Division of Audits should have implemented such safeguards, and the OLCC audit could have benefited had the audit team reassessed the threats to independence as facts and circumstances changed," the report said.

Potential safeguards should have been considered

Sjoberg's report said the team's assessment in March should have included all parties that influenced the audit, including Fagan, the Secretary of State executive office, quality control team and peer team to ensure a uniform understanding of potential conflicts and threats and to determine actions to mitigate the threat.

The team should have also reassessed the stakeholders interviewed given that part of the threat was derived from them. The team could have considered expanding the group of stakeholders who were asked for perspectives.

Another experienced quality control team could have been assigned to re-review the team's work and evidence after facts surrounding Fagan became known, Sjoberg's report added.

Sjoberg also suggested that the division should have pulled the report from its website to allow the reassessment and reexamination of the audit after its release.

Response to review

The Department of Justice concurred with Sjoberg's recommendation that the SOS remove the audit from the website and reassess whether additional work needs to be done to ensure "full trust in the independence" of the audit.

Kotek also released a statement in response to the letter from Attorney General Ellen Rosenblum.

"Oregon's public servants look to performance audits conducted by the Secretary of State’s Office to understand how best to do the people’s business. Audits ensure that public resources are being well managed and that our government is held accountable for providing the best possible customer service," Kotek said. "Secretary Griffin-Valade has years of experience as a widely respected auditor, and I expect that this report will inform her ongoing efforts to make certain that Oregon’s audits are objective, independent, and meet professional standards.”

Griffin-Valade in a statement thanked the Audits Division for voluntarily complying with the DOJ. She said the report showed the division was not compromised and complied with standards during planning, fieldwork and reporting.

"However, the report reaffirms what we all know to be true: Former Secretary Shemia Fagan’s actions compromised public trust in the audit. In auditing, we call this a 'threat to independence in appearance.' As a result, the report concludes that auditors should have gone further to reduce that risk by pausing their work and seeking stronger evidence for their conclusions. I agree with the risk that the DOJ report identifies," Griffin-Valade said in the statement.

She said she will "personally oversee" the reevaluation of the evidence within the OLCC audit and cited her 16 years of experience as a government auditor as evidence that she is "well equipped" to do so and restore public trust in the OLCC report.

The full Sjoberg report is available online.

Dianne Lugo covers the Oregon Legislature and equity issues. Reach her atdlugo@statesmanjournal.com or on Twitter @DianneLugo.

This article originally appeared on Salem Statesman Journal: Examination of OLCC audit following Fagan controversy complete