Minneapolis' Folwell neighborhood teeters on financial edge

The Folwell Neighborhood Association in north Minneapolis is still trying to claw its way back after winning federal money for youth programs and then abruptly losing the windfall.

The group secured hundreds of thousands of federal dollars for youth programs in 2005, then lost money two years later due to congressional cuts. The neighborhood association tried to keep those programs running while it sought new money, falling $375,000 in debt and running up big penalties for not paying state and federal payroll taxes.

The organization's longtime director admits mistakes were made in trying to keep the City Kids Co-Op program and other activities running.

"We should have pulled the plug on it way before we did," said Roberta Englund, who remains on the job.

The Folwell Neighborhood Association has been among the city's most active groups, due partly to Englund's aggressive style. It played a key role in uncovering the illegal property flipping scam of the 1990s and more recent housing issues. It plays a leading role in community efforts to fight North Side crime. It was quick to respond to resident needs after a 2011 tornado.

But the organization's most recent audit, still in draft form, questions the group's ability to continue and said accounting records were too incomplete to document how much the group owes.

David Rubedor, who heads the city's neighborhood programs, inherited the issue from the city's Neighborhood Revitalization Program, which it now supervises. He said the city decided the organization was worth trying to continue, but 2015 funding will depend on whether it follows an auditor's recommendations.

Robert Miller, who headed NRP until the end of 2011, said the Folwell grants from the federal departments of education and justice were secured by former U.S. Rep. Martin Sabo, a Democrat in a powerful seat for federal appropriations. But Sabo retired in 2006, and federal spending reform blocked further money for Folwell.

"They'd spent a significant amount of money against the grant," Miller said.

The organization failed to pay its withholding taxes as it tried to keep the programs going, while turning to other fundraising.

At one point, Folwell turned to Wells Fargo for credit, paying 13.25 percent interest on a loan of more than $51,000. At others, it borrowed a total of $110,000 from two nonprofits to meet its payroll and other expenses. Things got so desperate that two board members made interest-free cash-flow loans to the group for a total of $12,500.

"That's not a practice we encourage whatsoever," Rubedor said. Being owed money by an organization can pose conflicts for its board members, he said.

In 2009, auditors got a corrected ledger from Folwell in mid-audit that reported a sixfold jump in income and a fourfold increase in spending from earlier reports.

Just where the organization's finances stand today is unclear. Englund asserted that all back taxes are paid, although she said an attorney for Folwell is negotiating with the IRS to try to erase a proposed penalty for a filing issue. But there's no independent audit to verify that.

The organization's most recent outside audit, for 2012, remains unfinished. Financial statements in a draft audit show an operating deficit for that year of $78,589 and a negative net worth of $92,538.

Auditor Michael Wilson raised concerns about the organization's ability to survive.

The audit remains unfinished because of a standoff between Englund and Wilson.

Rubedor said he's planning to have a different auditor review by the end of the year how well Folwell has met concerns raised in the draft audit, with 2015 city funding riding on the outcome.

"We're trying to manage this in a way to protect public dollars, continue the organization and implement a workout plan," Rubedor said.