SALEM, Ore. — A newly released report dives into the role that Oregon's former Secretary of State Shemia Fagan played in an audit of the state's cannabis regulatory agency, completed just before Fagan stepped down amid ethical concerns due to her moonlighting work in the cannabis industry.
Oregon's audits division, like its election division, is overseen by the elected secretary of state. In April, Willamette Week broke the story that Fagan had taken a consulting job with a subsidiary of prominent Oregon cannabis company La Mota, whose owners have been major donors to some Democratic political candidates, including Fagan.
The day after Willamette Week's story went out, the audits division released its report on the Oregon Liquor and Cannabis Commission and the landscape of cannabis regulation.
Around the time that Fagan resigned from her SOS role, Gov. Tina Kotek requested that Attorney General Ellen Rosenblum conduct an examination of the audits division's OLCC cannabis audit in order to determine if there had been any influence from Fagan's ties to the cannabis industry. The Oregon Department of Justice hired California-based Sjoberg Evashenk Consulting to conduct the inquest.
The Oregon DOJ released that finished report Wednesday. While not precisely damning, the report concluded that the audits division should have pumped the breaks on releasing the cannabis audit once it learned about Fagan's potential conflict of interest. Sjoberg recommended that the audit be shelved for the time being.
"Sjoberg’s recommendation is that the Secretary of State take down the audit from their website and conduct additional work to ensure the public can have full trust in the independence of the audit," AG Rosenblum wrote in a letter to Gov. Kotek. "We concur in that recommendation."
The timeline
The audits division's work on the cannabis audit began in earnest in January 2022, but communications examined by Sjoberg show that Fagan had brought up La Mota co-owner Rosa Cazares as early as June 2021 while things were still in the planning stages, telling both the audits division director and OLCC audit manager that Cazares "will provide helpful industry-side scoping."
Fagan then asked the audit team in December 2021 if they had interviewed La Mota, sharing that "the initial impetus for the audit is a belief that folks who are running cannabis businesses are treated differently," Sjoberg reported.
Cazares came up again in June 2022 when Fagan asked the audit team about the concerns of licensees and store owners and whether they carried any weight.
In February of this year, the audits division shared draft versions of the audit report with the OLCC and Business Oregon, both of which raised concerns about "perceived inaccuracies" in the report. That same week, Fagan notified audits division leadership via email that she was recusing herself from further work on the audit because she would be consulting for a company in the cannabis industry.
At that point, the audits division had already conducted a quality control review for its draft report. By the end of the following week, Fagan had signed her consulting contract with Veriede Holding LLC, an affiliate of Cazares' company La Mota.
It wasn't until early March that the audits division's deputy director forwarded Fagan's recusal email to the team conducting the OLCC audit. The auditors updated their independence assessment, Sjoberg said, concluding that their fieldwork was complete prior to Fagan's recusal so were was "no threat to auditor independence."
That same day, a Willamette Week reporter submitted a public records request to the secretary of state's office for drafts of the OLCC audit's scope and for any conversations between Fagan and La Mota. By April, the publication broke several stories on La Mota's financial troubles, the owners' campaign contributions, and finally Fagan's contract with La Mota.
According to Sjoberg, the OLCC audit team didn't learn until April 24, three days before the Willamette Week story, that Fagan's consulting work was for a subsidiary of La Mota in particular, "which former Secretary Fagan had asked the audit team to interview on at least two occasions during the audit planning process."
The Willamette Week story broke on April 27, and the Secretary of State's office released its OLCC audit on April 28.
Threats to independence
While the auditors who prepared the OLCC report determined that their work hadn't been biased by Fagan's ties to La Mota, Sjoberg concluded that, from top to bottom, the audits division did not take the threat seriously enough.
"Upon learning about the potential conflicts of interest of former Secretary Fagan, and the potential threats to the appearance of the office’s independence that such conflicts could foster, the SOS’ Division of Audits should have taken a broader view of the potential threats to independence of the audit organization — that is, the office of SOS," the consultants wrote.
The division should have taken additional steps after the revelations about Fagan, "beyond what would typically be required" for conducting an audit, Sjoberg said, to demonstrate the audit's integrity.
While the team that conducted the OLCC audit concluded that they hadn't been "unduly influenced" by Fagan — she hadn't been any more involved in the cannabis audit than others and she had not made any changes to the February draft report — Sjoberg faulted the audits division for not considering how the cannabis audit may have been shaped at all levels by Fagan's involvement, or how the public would view its impartiality.
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"As additional information came to the audit team’s attention — press articles, public records requests, concerns raised by OLCC and stakeholders — the SOS’ Division of Audits should have considered the cumulative impact of the continued concerns raised as each event unfolded to reevaluate whether the threat to independence remained at an acceptable level and if the circumstances could lead a reasonable and informed third party 'to conclude that the integrity, objectivity, or professional skepticism of the audit organization, or an auditor, had been compromised,'" Sjoberg said.
The audit itself, Sjoberg noted, also lacked some of the rigor and formality that the Secretary of State's original 2021-22 audit plan implied.
Regardless, Sjoberg concluded, there was no evidence that the audits division's independence was compromised by Fagan's involvement, nor did the team deviate from the standards and practices they're obligated to follow.
Moving forward
After the release of the Sjoberg report, current Secretary of State LaVonne Griffin-Valade issued a statement pledging to move her office in a better direction, taking action on the report's recommendations. While she pointed out that the report did not conclude that the audits division's independence was in fact compromised by Fagan's potential conflict of interest, and that it complied with government auditing standards, she was quick to illustrate that Fagan's decisions hurt the office in the eyes of Oregonians.
"The report reaffirms what we all know to be true: former Secretary Shemia Fagan’s actions compromised public trust in the audit. In auditing we call this a 'threat to independence in appearance,'" Griffin-Valade said. "As a result, the report concludes that auditors should have gone further to reduce that risk by pausing their work and seeking stronger evidence for their conclusions. I agree with the risk that the DOJ report identifies."
Griffin-Valade said she'd oversee a reevaluation of the OLCC audit. Conspicuously absent from her statement, however, was any indication that she will pull the audit from public view in the meantime as Sjoberg recommended.
"With 16 years of experience as a government auditor, including serving on the Association of Local Government Auditors’ peer review team, I am well equipped to ensure that every action is taken to restore the public trust in this report," she said. "Depending on the results of that examination, I may take additional action and will inform the public as appropriate."
Gov. Kotek also issued a statement addressing the report, saying that she trusts Griffin-Valade's experience as an auditor to ensure the office is objective, independent and meets professional standards.
"Oregon's public servants look to performance audits conducted by the Secretary of State’s Office to understand how best to do the people’s business," the governor said. "Audits ensure that public resources are being well managed and that our government is held accountable for providing the best possible customer service. I called for an independent, external review of the OLCC audit because Oregonians needed to have a fuller understanding of the troubling events that shook the public’s trust in that office."
An investigation by the Oregon Government Ethics Commission into Fagan's moonlighting work is ongoing, Kotek's office noted.