UPDATE, 11:30 am: Mayor Charlie Hales says he decided soon after taking office that chief administrative officer Jack D. Graham's aborted attempt to improperly transfer utility funds was "a mess" that wasn't worth reexamining, because the transfer was never made.
"I made the decision that picking this apart wouldn't lead to anything good," Hales said in a 40-minute interview with WW and The Oregonian. "The idea that Jack Graham proposed was not implemented. The transfer wasn't made. For what would he be disciplined? You discipline people for actions that cause harm to the community."
Hales also says he apologized last month to former Mayor Sam Adams for implying in an Oregon Public Broadcasting interview that Graham's transfer attempt was orchestrated by Adams. Hales says he spoke with Adams a few days after the interview.
"He was not happy with my comments," Hales says, "and I apologized."
But Hales continues to insist Graham will act differently under a new administration.
"Whatever climate existed before about how the city managed its money, I've made changes in the climate," Hales says. "We can't do much about the past."
Hales says he learned details of Graham's attempted fund transfer the day before he took office, and chose not to look closely at a "he-said, he-said" case. He has not read the original city attorney's investigation into Graham's actions.
The mayor says he's pleased with Graham's work for him so far—and that he's also worked closely with the second whistleblower, City Budget Office director Andrew Scott.
"I'm not just being Pollyannish to say this wouldn't happen today," Hales says. "Everybody who works for me in effect is always on probation. So am I."
ORIGINAL POST, 10 am: Jack D. Graham, the City of Portland's chief administrative officer, was repeatedly warned by three employees not to attempt to transfer $200,000 from city utility funds into his own department's budget in 2012, according to an outside investigation report (PDF) released this morning by Mayor Charlie Hales' office.
"We conclude that Mr. Graham was warned by at least three employees—Mr. Scott, Mr. Goward, and Mr. Beck —on three separate occasions that the transfer of Water/BES funds was improper," says the Dec. 20, 2012 report written by Yael Livny, a lawyer at the Jackson Lewis firm.
Graham eventually heeded the warnings and did not make the transfer.
The report found no substantiation of allegations Graham tried to retaliate against the subordinates who warned against the attempted transfer, nor does it substantiate the implication Hales has made that Graham was acting under orders from then-Mayor Sam Adams.
The city had previously rejected public records requests from The Oregonian and WW for the investigative report. Multnomah County District Attorney Rod Underhill sided with the newspapers' appeals of those rejections and ordered the city to turn over the report.
The investigation placed Graham in a spotlight that has dogged the Hales administration.
Two whistleblowers told Jackson Lewis lawyer Yael Livny that Graham acted against the clear warnings from subordinates who said transferring Water Bureau funds to general fund bureaus violated the city charter.
The report says that when former city chief financial officer Rich Goward confronted Graham about the transfer, Graham replied, "What are they going to do to me? If it comes up, I'll say 'oops.'" (Graham denied making that statement.)
Hales has repeatedly refused to take disciplinary action against Graham or disclose the results of the investigation until today, saying the city's top financial administrator deserves a second chance after the Adams administration.
Graham, one of the city's top African-American officials, told the independent investigator that the complaints against him by employees were racially motivated. He said city employees formed a "conspiracy" against him because he was trying to increase racial diversity at the Bureau of Management and Finance.
On June 12, Hales made a startling declaration on Oregon Public Broadcasting's Think Out Loud, saying City Hall would "need to charter a couple of buses" to remove every city employee who "worked on a shaky financial proposition or idea" under former Mayor Adams.
But the report released today does not support the implication that Graham was acting under Adams' orders.
More as this story develops.