State audit finds conflicts of interest in city’s use of flood-recovery money

Homes and businesses are surrounded by floodwater on March 20, 2019 in Hamburg, Iowa. (Photo by Scott Olson/Getty Images)

State auditors say City of Hamburg officials and their relatives appear to have personally benefitted from grant funds intended to help the city rebuild after the flood of 2019.

“Our investigation found that a Hamburg city council member and a city employee may have unfairly benefitted from programs designed to help the city recover from the flooding of 2019,” Auditor Rob Sand said Wednesday. “The city also violated Iowa law by giving away city property to private citizens.”

Sand said his office’s report on the city highlights conflicts of interest that are egregious.

“We’re talking about a town here where we have tens of thousands of dollars given out for flood recovery,” he said. “And there’s really no excuse for it to have been going to people connected to city government.”

The report focuses on grant funds and a forgivable loan received by the City of Hamburg in the aftermath of the 2019 flood. The financial assistance was provided by the Iowa Department of Homeland Security and Emergency Management in the form of federal funds and by the Iowa Economic Development Authority.

In the fall of 2022 and early 2023, the auditor’s office received several complaints regarding city officials’ handling of the money.

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One of those complaints, later verified, alleged the city had turned over the grant money to the Hamburg Economic Development Council. Other complaints alleged preferential treatment was given in awarding financial assistance to city council members, city employees and their friends and family.

Among the auditor’s findings:

— Questionable properties: The city never entered into a formal written agreement with Hamburg Economic Development Council to administer its Nuisance Property and Abandoned Building Remediation Loan Program, and city officials had no documents supporting the claim that the properties acquired under the program were nuisance properties as defined by the Iowa law. HEDC officials stated that the properties were identified by simply driving through the community and selecting lots that were deemed favorable for potential buyers.

— City Council conflicts of interest: Six properties were purchased by HEDC, and the city provided funding to build two new homes. Several familial relationships existed between recipients of grant money and city council member Kent Benefiel. Benefiel applied for grant funds to assist with two properties and collected the largest share of one set of grant funds, the auditor found.

For one vacant-lot property, Benefiel transferred ownership to his daughter, Kaitlin Stockstell. She then had a house constructed on the lot and collected $86,730 in reimbursements for that expense from the Iowa Economic Development Authority.

— City employee conflicts of interest: Four property owners were the relatives of the city’s public works director, Alan Dovel. A total of $128,000 in grant money tied to the Nuisance Property and Abandoned Building Loan Program was spent on property acquisition, and of that, $95,000, or 75%, was paid out to a parent of, or to the siblings of, Alan Dovel.

For example, the HEDC purchased one property, without an appraisal, for $30,000 from Michael M. Dovel. The HEDC paid $12,600 for demolition of a home on the site, after which the property was assessed at $1,680. The HEDC still owns the property.

Alan Dovel and Benefiel did not immediately return messages left by voicemail at City Hall.

— Lack of reimbursement: Although the program allowed money to be spent on property owned by private citizens, those owners were supposed to reimburse the city for those expenses. However, the city paid 60% of the construction costs for two privately owned homes, and the owners did not repay the city as required. The total amount of grant money used for the two homes was $191,306.

— Financial irregularities: There were signs of financial mismanagement, with the city making a duplicate payment to the HEDC for $50,000, and HEDC cashing and depositing $23,690 worth of checks that were written to the city as public donations to help with the rebuilding effort.

— HEDC questions: The HEDC federal status as a tax-exempt entity was revoked at some point in 2022 – apparently because the organization had not filed the required publicly available tax returns that detail the income and expenses of all nonprofits. The HEDC’s tax-exempt status was reinstated in 2023, but according to the auditor’s office, the organization’s tax returns for the preceding four years still aren’t publicly accessible. Melinda Gilbert, HEDC’s treasurer for the relevant period, declined to speak to auditors without a lawyer present.

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