Review finds former Secretary of State Shemia Fagan’s consultancy did not taint state cannabis audit

tate of oregon

An outside review has concluded that former Secretary of State Shemia Fagan’s consultancy for a cannabis company did not impair the work of state auditors, whose report found flaws in state regulation of the industry.

But the outside review, which Attorney General Ellen Rosenblum made public Wednesday, Oct. 11, also concluded that the staff of the Audits Division did not move quickly enough to guard against the apparent conflict of interest posed by Fagan’s involvement.

Fagan, a Democrat elected in 2020, first apologized — and then resigned the next day, effective April 3.

The audit has been removed from the secretary of state’s website. Gov. Tina Kotek and LaVonne Griffin-Valade, the former Portland city and Multnomah County auditor who Kotek appointed to succeed Fagan, said more work has to be done to restore trust in the auditing process.

Griffin-Valade is serving the remainder of Fagan’s elected term and has announced she will not run in 2024.

A separate investigation continues by the Oregon Government Ethics Commission into whether Fagan violated state government ethics law by using public office for personal gain. Violations of the law are punishable by fines, but they are not considered crimes.

The controversy started after news disclosures that Fagan had accepted a consultancy even as state auditors were looking at how the Oregon Liquor and Cannabis Commission regulates the industry. Voters in 2014 legalized marijuana for adult use — they had done so for medical use back in 1998 — and the OLCC was put in charge of all aspects from cultivation, processing and retail sales. The state imposes a 17% tax on retail sales; cities and counties can add 3%, but only if they allow sales within their boundaries.

The original audit raised questions about some aspects of regulation. But in a rare addition after the news disclosures, Audits Division officials said their findings were not influenced by Fagan.

Kotek requested Rosenblum on April 28 to conduct an investigation — the attorney general is elected independently of the governor — and the Department of Justice contracted with the Sjoberg Evashenk Consulting firm in Sacramento, Calif. Rosenblum forwarded its report to Kotek, Griffin-Valade and legislative leaders on Oct. 10 and made it public the next day.

The report said that the firm did not attempt to redo the audit in question or look at other work by the Audits Division.

Its key conclusion in the executive summary said this:

“We did not find that the independence of the OLCC audit team or the Division of Audits was impaired; nor did we find that audit planning, field work, or reporting processes deviated from the SOS’ Division of Audits’ typical standards and practices, which were consistent with (government accounting) requirements.

“We found no evidence in the documents we reviewed that the audit team was compromised, that former Secretary Fagan exerted undue influence, or that the audit team failed to follow its internal policies and procedures.”

In response, Griffin-Valade — who spent 16 years in public auditing, and was elected Portland city auditor and Multnomah County auditor — said the whole episode compromised the public trust in audits.

Part of her written statement said:

“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.

“In response, I will personally oversee a re-evaluation of the evidence presented in the OLCC audit.

Kotek issued a statement that said in part:

“I called for an independent, external review of the OLCC audit because Oregonians needed to have a fuller understanding of the troubling events that shook the public’s trust in that office. 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 told reporters before she was sworn in on June 30 that Kotek sought her out for the appointment — and she did not seek it herself.

Rosenblum’s Oct. 10 letter said:

“In short, Sjoberg has concluded that, once a potential threat to the independence of the audit arose (due to the actions of the former secretary of state), the SOS and its Audit Division should have taken steps to mitigate that threat – including pausing to determine whether additional work needed to be done to ensure the audit was supported by sufficient high-quality evidence.

“Sjoberg’s recommendation is that the secretary of state take down the audit from their website and conduct additional work to ensure the public can have full trust in the independence of the audit. We concur in that recommendation.”

Since Democrat Kate Brown was thrust into the governorship in February 2015 as a result of John Kitzhaber’s resignation under pressure of an ethics scandal, Griffin-Valade has been the fifth person as secretary of state, excluding interim caretakers. Brown appointed Jeanne Atkins, who did not seek a full term in 2016. Dennis Richardson, the Republican who lost to Kitzhaber in 2014, won in 2016 but died of cancer in February 2019. Brown then appointed Republican Bev Clarno, who did not seek a full term in 2020, when Shemia Fagan won the open position.

pwong@pamplinmedia.com

Link to outside review of state cannabis audit commissioned by the Oregon Department of Justice and conducted by Sjoberg Evashenk Consulting of Sacramento, Calif.

https://www.doj.state.or.us/wp-content/uploads/2023/10/Oregon-DOJ-SOS-Report-10.10.23.pdf

Full statement

The full statement by Secretary of State LaVonne Griffin-Valade upon the release of a report commissioned by the Oregon Department of Justice and conducted by the firm of Sjoberg Evashenk Consulting:

“I’d like to thank Governor Kotek and the Oregon Department of Justice for promptly reviewing the Oregon Audits Division’s report on the Oregon Liquor and Cannabis Commission, conducted under the former Secretary of State Shemia Fagan.

“The report shows that the independence of the Oregon Audits Division was not compromised and the OLCC audit report complied with government auditing standards during the planning, field work, and reporting processes. I thank the division for voluntarily complying with the DOJ in this review.

“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.

“In response, I will personally oversee a reevaluation of the evidence presented in the OLCC audit. With 16 years of experience as a government auditor, including serving on the Association of Local Government Auditors’ peer review team, I am well equipped to ensure that every action is taken to restore the public trust in this report. Depending on the results of that examination, I may take additional action and will inform the public as appropriate.”

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