Two federal agencies are investigating private businesses and two nonprofits in which Mount Vernon Mayor Ernie Davis is involved, investigators told Newsday on Thursday.
Word that the IRS Criminal Enforcement Division and the FBI are investigating a second nonprofit established by the mayor -- the Ernest D. Davis Scholarship Fund -- comes two days after it was revealed that the IRS is investigating a disaster relief fund also set up by Davis in the wake of Hurricane Katrina.
The FBI and IRS also are investigating unnamed private businesses in which Davis is involved, federal law enforcement sources said.
"Where there's smoke there's usually fire," said one law enforcement source. "But not always," the source added, emphasizing that the investigations might not result in charges.
Davis, 74, has shrugged off the probe into the Mount Vernon Disaster Relief Fund, founded in February 2006, as a politically motivated "witch hunt." He claims he has done nothing wrong with the fund, which raised more than $12,000 but paid out only $1,500 to a woman who relocated to Mount Vernon after the Category 3 hurricane that killed at least 1,833 people.
"They won't find anything because we didn't do anything wrong," Davis said Thursday. "The money is still there."
The FBI is not involved in the investigation of the Katrina fund, law enforcement sources said.
Davis did not respond to calls seeking comment on the other federal probes.
Two of Davis' former secretaries have been subpoenaed to testify before a grand jury that is investigating the Mount Vernon Disaster Relief Fund.
Federal law enforcement sources said that investigation involves the IRS' Criminal Enforcement Division, which investigates tax fraud. A spokeswoman for the IRS division in New York State declined to comment. Davis failed to file federally required documents for at least three years for the non-profit, which lost its tax-exempt status as a result.
A spokesman for the FBI in New York also declined to comment.
SECOND DAVIS-RUN FUND
The mayor created the scholarship fund to assist Mount Vernon college students majoring in architecture, engineering or construction in covering the cost of their tuition.
The scholarship fund, like the relief fund, had its tax-exempt status taken away because Davis didn't file the required financial reports to the IRS with details of revenue and expenditures, as well as other information. Removing the tax-exempt status means Davis is required to pay income taxes for both funds or face fines and other sanctions.
Scholarship fund financial statements from 2002 to 2004 show that more than $80,000 was collected from private donors. The most recent financial statement showed the fund had $42,420 as of 2004.
The fund paid out $12,250 in scholarships to six college students ranging from $1,500 to $5,000 each to help pay their tuition at schools including Clarkson University and Worcester Polytech Institute in Massachusetts, records show.
A large chunk of the money raised for the scholarship fund went toward "special events," and $45,000 in liabilities was used for an undisclosed transaction listed in the nonprofit fund's 2004 financial statement as "due to other business entity."
According to the 2003 statement, an unspecified event cost $23,900. After the cost of the event, the fund raised just $378.
Davis said he wasn't involved in the bookkeeping for either fund and couldn't provide details about the tax filings. He said others -- including Mount Vernon Corporation Counsel Nichelle Johnson -- were in control of both funds.
"I'm not in charge of these funds, so I wasn't involved in filing paperwork," Davis said.
Nichelle Johnson could not be reached Thursday for comment.
The scholarship fund is now under the Mount Vernon Youth Bureau, but it isn't clear whether scholarship money has been doled out since 2004 or whether the fund is still active. Dena Williams, director of the Youth Bureau, couldn't be reached.
There's no indication that Davis' scholarship fund is being probed by federal authorities.
In 2011, Congress approved new IRS rules for nonprofit funds, organizations and foundations, stripping them of tax-exempt status if they failed to file annual financial statements, known as 990s, for three years in a row.
The new rules included fines up to $10,000 for nonprofits that don't file financial statements or pay income taxes if the tax-exempt status is removed. It isn't clear whether Davis has been fined or whether he has paid income taxes on the funds.
'RIPE FOR FRAUD'
Experts say small nonprofit funds often fly under the radar of state and federal regulators. In most cases, it's up to the board of directors for the nonprofit to ensure money is being used properly and that financial reports are filed.
"The way the nonprofit system is set up these funds are ripe for fraud and self-dealing," said Rebecca Tekula, an economist and executive director of Pace University's Wilson Center for Social Entrepreneurship, which follows trends in the nonprofit industry. "Nobody is usually watching the cookie jar until all the cookies are gone."
With Davis' funds, it's not clear if either have active boards. Davis' scholarship fund listed only three board members in 2004 -- Mary E. Fleming, John Maddeo and Barry McCormick. None of them could be reached for comment Thursday.
Allegations that Davis was mismanaging the funds surfaced in 2011, when city Comptroller Maureen Walker, a mayoral candidate, and her opponent, Davis, swapped allegations on the campaign trail. Davis alleged that Walker was the custodian of the relief fund after he was voted out of office in November 2007; but she denies having control over either fund.
Davis and Walker are bitter political rivals who have feuded publicly since Davis returned to City Hall in 2011.
One of Mount Vernon's longest-serving mayors, Davis has had brushes with federal law enforcement agencies in the past. In 2007, he was voted out amid a flurry of federal investigations and a raid on City Hall prompted by an audit of the city's housing program.
He never was formally accused of wrongdoing, but the allegations cost him his 2007 re-election bid.
Federal law enforcement sources said grand jury proceedings on Thursday at the U.S. District Court in White Plains were canceled. It's not clear whether that grand jury was supposed to hear testimony for anyone related to the disaster fund.