State Is Auditing San Francisco’s Festival 2000 : Arts funding: The investigation, which began about a week-and-a-half ago, was triggered by local reports that the event was grossly mismanaged.

The California Attorney General’s Office is joining the chorus of people scrutinizing Festival 2000 by launching an audit of the ambitious but botched multicultural arts event that ended $500,000 in debt.

“Yes, indeed, the Attorney General’s Office is doing an audit,” said Audrey Conkright, supervising auditor, days after San Franciscans demanded the city’s Board of Supervisors reimburse artists for losses incurred during the failed October festival.

The investigation, which began about a week-and-a-half ago, was triggered by local reports that the festival was grossly mismanaged. Festival staffers have criticized executive director Lenwood Sloan’s handling of the $2.3-million budget. They charged that he spent thousands of dollars on extravagant gifts, unnecessary travel and personal items. Sloan, who has a new job with the National Endowment for the Arts in Washington, has denied any wrongdoing.

But the accusations caught the attention of the Attorney General’s Office. Now Sloan and members of the festival’s defunct Board of Directors, if found to have violated the California Charity Nonprofit Act, could be liable for the financial losses of artists, according to Jim Schwartz, deputy attorney general in San Francisco.

“It’s just a routine audit we do when we are aware of the allegations of the kind that are floating around here,” he said. “We’re going to do this as quickly as we can. They don’t take that long. The first thing is to look at the financial records. If we have questions that remain unanswered, we will start talking to people. We want to make sure that there had been no money used in a manner inconsistent with California law.”

But bad business is merely bad business.

“You can have a business go under, a charity lose money, and not have it a violation,” he said. “That happens all the time. Simply because someone made an error of judgment from a business standpoint, that doesn’t make a violation of law.”

The District Attorney’s Office in San Francisco has also launched its own investigation into the dealings of Festival 2000.

“We are conducting a preliminary inquiry to determine whether or not an investigation should be done regarding the misappropriations of public funds,” said Peter Aviles, the district attorney’s chief of special operations. “It is not unusual for us to take a look-see where there have been allegations made that public funds may have been misused.”

Al Williams, former vice president of the festival’s board, said he and his colleagues did nothing improper. In fact, most of the contracts with artists were signed before the board had been assembled.

“I am not aware of any act or actions of the board that might be inconsistent to what we were charged to do,” he said. “I’m not aware of any circumstances in which the board may be liable or responsible for any obligations of Festival 2000.”

The seemingly endless sad saga has not only tarnished the image of the city’s arts community, but left some artists near financial ruin. Last week, during a tense and emotional hearing held before the San Francisco Board of Supervisors, artists involved with the festival who were not paid said the fallout from the financial disaster will be felt for a long time.

“This has been as devastating as the earthquake was for a lot of people,” said Alma Robinson, executive director of California Lawyers for the Arts. “There are people who can’t pay their rent because they were counting on that income; people who have been laid off from jobs. It’s affected the credit worthiness of the whole arts community in San Francisco. It’s a public responsibility to take care of these people.”

At least one member of the city’s Board of Supervisors agrees, believing the city is partly to blame for the festival’s financial blunders. City officials, who provided Sloan with $500,000 seed money, didn’t review his finances, despite warnings last spring that the festival was in trouble.

“If I were a lawyer, I’d be licking my chops,” said Supervisor Terence Hallinan. “The city’s involvement is all over the place. I think we will be (liable). If we fight it, we’ll waste as much money on law fights as we would settling with the people who were injured by it. We should pay these debts this year rather than make plans for next year.”