Commerce Department auditors have reported that they are unable to account for about $1 million in federal funds sent to bolster economic development in northeastern Minnesota, and the department has asked the FBI to investigate the disbursement of the money.
About $500,000 of the total was sent to a Duluth, Minn., economic development project even after Commerce auditors investigated the project director's books and found he had no records to substantiate an initial expenditure of $475,000 in federal funds, said the federal co-chairman of the Upper Great Lakes Regional Commission.
As a consequence, the commission,which operates under the Commerce Department, has suspended further funding for Minnesota and is urging a civil lawsuit to recover the federal money, William Bechtel, the federal co-chairman, said yesterday.
Homer Boyington, spokesman for the FBI in Washington, said the bureau was "conducting a preliminary investigation to verify an allegation of fraud against the government."
The federal commission's Minnesota office in Duluth was run until a few months ago by Michael Pintar, whose appointment was arranged by then-Gov. Wendell R. Anderson, a Democrat who, in effect, appointed himself to the U.S. Senate to fill the seat vacated by Vice President Mondale.
Bechtel said Commerce auditors have attempted to determine the procedure in which federal grants were funneld through Pintar's office to Donald C. Boyd, director of a program that began operating as the Duluth Area Economic Development Project but subsequently operated under half a dozen names.
The Upper Great Lakes Commission, with annual appropiations of $7.2 million, is one of eight regional commissions around the nation that provide Commerce Department grants to state and local agencies to encourage economic development and new businesses. Presided over by the governors of Michigan, Minnesota and Wisconsin, it is an independent federal agency technically under the umbrella of the Commerce Department.
Bechtel, who became federal co-chairman of the commission July 12, said that soon after he took office he began receiving reports of improprieties in the Duluth office.
One allegation, he said, was that Boyd, instead of promoting economic development in Duluth, had closed that city's office and moved to Brimson, Minn, a remote community.
On Aug. 9, Bechtel said, he asked Commerce's Office of Audits to investigate the program, but that auditors subsequently reported that their efforts were frustrated by a lack of records in the office.
A week ago, Bechtel sent two officials of Commerce's Office of Investigations and Security to Duluth, where they conducted a number of interviews and collected what records they could find, which were turned over to the FBI. Boyd was "uncommunicative and virtually incommunicado," Bechtel said.
Emil Marotzke, the new commission representative for the present Democratic governor, Rudy Perpich, said, "It was on the recommendation of Mike Pintar that the payment were made to Donald Boyd, and those recommendations are in writing in my office." Marotzke replaced Pintar in the federal slot last August.
Last March Pintar asked that the federal funds be sent directly through the Duluth office without first passing through two Minnesota state agencies, which was the normal route, Pintar has refused to comment on the case.
Boyd could not be reached for comment, and sources in Duluth said he has been seen there in weeks.
Commission officials said applications for grants routinely were screened by the three governor's representatives to the commission, by their staffs and, eventually, by the governors, who periodically met to approve applications.
Bechtel said the most disturbing discovery so far is that a June 30, 1975, Commerce audit was conducted and an "extremely negative" report on Boyd's operations was issued.
Bechtel said the report showed that Boyd, a civil engineer and operator of a gravel business, had received $475,000 in federal funds and that the Commerce Department auditors "disallowed every penny of it."
He said the report was addressed to his predecessor as head of the Upper Great Lakes Regional Commission, Raymond C. Anderson.
In spite of the audit report, Bechtel said, approximately $500,000 more in the federal public works money "was made available to Boyd and his projects."
Anderson has said that although the report was addressed to him, he never received it and did not learn of its existence until a few days ago. Moreover, Anderson told a reporter, the commission was not responsible for monitoring its grants because it did not have adequate staff.