Anchorage Daily News

WASILLA -- The overseers of Matanuska Maid dairy were wrong to give nearly $40,000 to four dairy farmers in the Matanuska-Susitna Borough after the state-owned creamery shut down, according to state audit results released Wednesday.

But the Valley lawmaker who asked that the state audit the now-defunct dairy said the finding didn't trouble her.

The state Creamery Board, whose seven members exercised oversight of Mat Maid, may have erred in handing farmers the money, said state Senate President Lyda Green, R-Wasilla. But they did so with good intentions, she said.

"I didn't view it quite that harshly," she said Thursday.

The four dairy farmers relied on Mat Maid as the sole purchaser of their milk. The money was a grant meant to help them make ends meet, said Creamery Board vice-chairman Ben VanderWeele.

Green asked auditors to answer seven questions about the Mat Maid operation. One was not addressed. They found no problems associated with four others, including how Mat Maid spent a $600,000 state grant to cover expenses in its final months.

Auditors found issues in two questions, including the grant to dairy farmers.

The 47-page audit also contends the state inappropriately allowed a state employee to run Mat Maid for several months at no cost to the dairy, effectively subsidizing the creamery at state expense. The state Department of Commerce, Community and Economic Development said Joe Austerman's work at the dairy was within his departmental duties.

Austerman ran the dairy for several months after CEO Joe Van Treeck left the company in August 2007. The audit pegged the value of Austerman's work at $25,000. Green said the Commerce Department and the dairy should have had a formal agreement covering Austerman's work.

The Anchorage-based dairy, which was taken over by the state in the mid-1980s after going bankrupt, shut down in December 2007 after more than 70 years in operation.

A second phase of the audit will examine how proceeds from any forthcoming sale of Mat Maid land and equipment are distributed, Green said.

Legislative auditor Pat Davidson, who wrote the audit report, found the Creamery Board violated its charter by making payments to farmers.

"Making payments to individuals who are neither creditors nor shareholders is not consistent with the financial interest of the corporate shareholder -- the State's Agricultural Revolving Loan Fund," she wrote.

State Creamery Board chairwoman Kristan Cole defended its decisions in written responses to the audit.

Cole argued that giving the four farmers money preserved the chance for a new dairy to spring up in the state. Without farmers to produce milk, it would end "any realistic hope, now or in the future, of re-establishing a domestic, integrated dairy industry," she wrote.

Audit: Read a copy at

www.legaudit.state.ak.us/pages/digests/2008/30049Adig.htm

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