South Jersey Economic Development District will suspend its revolving-loan program after officials discovered nearly $400,000 in unaccounted funds.

Board members unanimously approved the measure during a meeting Monday night in Salem.

The unaccounted funds likely went toward operational expenses rather than being retained in the loan program as intended. However, officials need more time to sort through the situation. Interim executive director Steve O’Connor recommended that the district stop issuing any new loans until the discrepancy has been cleared.

“You are not calling in any loans,” he said in explaining the measure. “You’re not going to reloan anything.”

The revolving-loan program provides low-interest financing to local businesses. Once the money is repaid, new loans can be issued to other businesses. The district collects 5 percent interest on the loans, which should have been used for administrative costs. However, in this case, the loan repayments appeared to have gone to pay for operational expenses.

The district is trying to dig its way out of debt that accumulated while ousted executive director Gordon Dahl was leading a $7 million infrastructure installation at the NextGen park. Board members have said they are unaware of the district’s financial position and the decisions Dahl was making.

Between the unaccounted money from the loan program, funds associated with the NextGen park and money still owed for a simulator being used at Atlantic Cape Community College, the district has debts totaling nearly $1 million, O’Connor said.

Overall, the district spent more money than it had — the cost of salaries and benefits far exceeded the resources available to the district. At some point, the district began dipping into its fund balance — sometimes referred to as a “rainy day” fund — until that money ran out and the debts continued to accumulate.

The organization also had questionable practices, based on findings of a preliminary audit that was made public Monday.

For instance, Dahl was paid for unused vacation time even though the district had no policies that would have authorized that practice. Dahl had two separate payouts totaling about $12,000, with no evidence to substantiate those amounts, Ocean City auditor John Sabella said.

Under the district’s policy, Dahl also was among the people who were authorized to cut checks, even if the recipient was himself, according to officials.

“Too much power rested with one individual,” Sabella said.

O’Connor presented the board with recommendations for new bylaws, which he said would prevent similar abuses in the future. One recommendation is to require a full board vote on policy decisions.

The magnitude of problems led some board members Monday to talk about possibly disbanding the district.

“What we have is a big hole, and the board of directors is at the bottom of it,” said Robert Vanderslice, a board member from Salem County. “The way we get out of it is dissolve the authority.”

The development district is a partnership between Cape May, Salem, Cumberland and, to some extent, Atlantic counties. Atlantic County officials said they had pulled out of the district in light of the questionable practices that have surfaced. However, Howard Kyle, chief of staff to Atlantic County Executive Dennis Levinson, was at Monday’s meeting and said the county would “stand by” SJEDD.

O’Connor advised board members that the decision to dissolve the district was a complicated one and would require approval from other governmental authorities. In addition, there would be financial ramifications.

“There is a cost,” he said.

Debts that the district has accumulated still would need to be paid off by the county.

The executive director also said if the district were to “resurrect itself,” there would be a cost associated with it, but there also would be benefits. NextGen remains a potential project and could create jobs in the long term, O’Connor said, adding that development districts have worked successfully in other regions.

“They are the hub of economic resources for the region that they serve,” he said.

Contact Hoa Nguyen:

609-272-7203