By Bob Tkacz
For the Journal

The U.S. Department of Commerce has launched an investigation into the Alaska Fisheries Development Foundation over the use of federal grant funds.

Among the subjects of the inquiry is the hiring of AFDF Executive Director Marc Jones' wife, Shelley Jones, as an independent subcontractor by Reeve Transportation Consulting Services, an Anchorage company researching seafood transportation issues as part of a foundation-funded project.

Mrs. Jones' contract, which had her providing research for the company, has subsequently been canceled.

"There's no wrongdoing here. I'm not an expert on (National Marine Fisheries Service) regulations. There may be, according to some of their internal operating procedures, a failure on our part to notify them of a potential conflict," said AFDF Board President Henry Mitchell.

The AFDF is a nonprofit research foundation that focuses on fisheries issues.

Mitchell said he believed the investigation was prompted by a "disgruntled employee." Michael Nelson, the chief of the grants administration office at the National Oceanic and Atmospheric Administration, appears to be looking broadly at AFDF.

"Serious allegations related to the financial and fiduciary responsibilities concerning the administration of these federal grant funds by AFDF have been brought to our attention," Nelson wrote to Mitchell in a May 25 letter. Neither the letter nor officials from agencies under the Department of Commerce have given specifics on who or what prompted the investigation. The letter notes that AFDF's four current grants from the NMFS total nearly $3.1 million, but does not specify the charges that have been leveled. NOAA and NMFS are both agencies within the Department of Commerce.

AFDF receives about $900,000 a year in Commerce Department funding, including an $896,932 grant last October.

Calls to Nelson were referred to NMFS public relations officer Sheela McLean, in Juneau, who provided minimal information on the inquiry.

"(Nelson's) internal investigation is looking at whether or not AFDF followed terms and conditions of grants they were given and whether or not all that fits within the fiscal regulations of the Office of Management and Budget," McLean said. The Commerce Department's inspector general has been notified of the investigation per standard procedure and could launch its own investigation, she added.

McLean was not familiar enough with the full process of such an inquiry to describe the course of further proceedings.

Before the investigation was launched, Mitchell said the AFDF board reviewed and rejected similar complaints brought before it by a former administrative employee. "The board spent a lot of hours interviewing a lot of people," Mitchell said. "It was part of the whole situation where an employee had brought forth serious questions of supposed misdeeds, but in the course of the investigation it was found the charges she had made, that Marc Jones had forced an individual to sign a contract with his wife, was found to be not true."

Efforts to reach the employee, who worked for AFDF for about four months after leaving the At-Sea Processors Association, were unsuccessful. The employee was later "let go" from AFDF, Mitchell said.

Officials from NMFS have not said who or what brought the allegations against the AFDF to their attention. Nelson's letter, which Mitchell released upon request, includes nine subject areas with one or more questions related to each. It asked for and received responses by June 4, AFDF Director Jones said. Mitchell said the board has been cooperating fully with the federal investigation.

The questions ask for copies of all NMFS grant-supported subcontracts and subawards entered into by AFDF since July 1, 2002 in excess of $25,000. They also ask for all details relating to selection of Reeve Transportation as contractor for the "Fresh Fish Air Transportation" project, and on the choice of subcontractors for the project.

The letter also asks whether AFDF maintains an "unrestricted account" and its relation to the AFDF's "Symphony of Seafood" promotion. The annual competitive showcase for new seafood products is now split between events in Chicago and Anchorage. Nelson's letter indicates that AFDF uses federal funds to pay for the Chicago event "to permit the sponsorship and other sources of income from the Anchorage event to be used in the unrestricted account."

More general questions ask for explanations of AFDF's accounting practices relating to project "administrative overhead ... performance data and safeguards in place to prevent over-obligation and/or over-expenditure of federal funds;" policies and procedures on timeliness of reimbursement for board and employee travel-related expenses; and, foundation use of "bonuses or other incentive programs."

The letter does not indicate that any of the activities noted or questioned violate federal laws or regulations.

Mitchell figured his board spent 30 hours of teleconference meeting time on the overall issue in the last two months, including more than three hours interviewing the employee who brought the concerns before the board.

"She said there were improprieties in terms of AFDF not reporting in a timely manner to the agency in regards to project reports, and also that we were using an accounting method that, in her opinion, was not suitable for suitable reporting to the agency," he explained.

Two NMFS employees visited AFDF's office late in May. "They took all the documents that we provided to them. They are reviewing those at the current time," Mitchell said in a June 17 interview.

He added that he was told, in response to his questioning, that the investigation was not a "criminal matter."

"They said they were obliged to (investigate), having received something (saying) that, potentially, one of their grantees had misused funds. They were under a mandate. I get the impression that in probably two or three weeks we'll have some resolution," Mitchell said.

Mitchell questioned the use of the word "investigation," but McLean, the NMFS spokeswoman, said, "It's under investigation, so investigation's the right word."

Mitchell also noted that AFDF's money handling has been questioned in the past, including an inquiry from the Commerce Department's inspector general in the 1980s. That inquiry was over the question of whether earnings from a surimi-related project should have been given to the federal agency. "In the end they told us we owed them, like, $1,100. They were originally asking for over $1 million back," he recalled, though he was not board president at that time.

"In the end it will be shown that we have not substantially departed from acceptable practices and if, in some way, they feel that we need to somehow change the way our accounting practices are done, or our reporting requirements, we will do those," Mitchell said.

He added that the board does not normally ask who its contractors hire for AFDF-funded projects, but Marc Jones asked members of the board's executive committee whether his wife's hiring as a subcontractor would be a conflict of interest.

"The executive committee said this is no big deal," Mitchell said.

Marc Jones referred all questions to Mitchell, but Shelley Jones called the matter "much ado about nothing."

Mrs. Jones declined to disclose the amount of the contract she had with Reeve.

"I did everything that could reasonably be done to appropriately engage in a business transaction that is the type of work I typically do," she said.

Michael Reeve, sole-proprietor of Reeve Transportation Consulting, has worked for AFDF for the past three years and is continuing under his original contract for the seafood transport project, which he said has not been harmed by the episode. He said he was contacted by NMFS "nearly two months ago," but has heard nothing since.

"I don't know if the Alaska Fisheries Development Foundation did anything wrong. I was not coerced into hiring (Jones), like I've heard alleged. I don't think the AFDF has done anything wrong," Reeve said.

Two of the AFDF's 13 board members resigned since the matter began. Both say their departures were unrelated to the investigation, though the explanations were questioned by Mitchell, among others.

"From my perspective, both of them say they're very busy, but when people start peeling off a board you start wondering is it because something's going to be in the lime light," Mitchell said.

Mark Tupper said he quit the board because his job as national sales manager for Orca Bay Seafoods leaves him no time for AFDF duties.

"I didn't know there was an investigation" by the Commerce Department, Tupper said. "I resigned because I'm too damn busy to deal with it."

Lea Klingert, president of the Commercial Fisheries and Agriculture Bank, said she resigned "primarily for personal reasons," and was not aware of a federal investigation.

"The time requirement was becoming more than I could personally or professionally fulfill," Klingert said, although she, and other board members said theirs was not a hands-on board and left most administrative details to Jones. Other than grants from AFDF to specific applicants, the board would normally approve contract subjects and dollar amounts without knowing the identity of the contractor.

"You would be looking at different proposals and those would be approved by the board. You did not look at the person," Klingert said. "It was not a board that micro-managed."