Fraud investigation report shows $48,268 in misappropriation for the Town of Lind

The Washington State Auditor’s Office released a Fraud Investigation Report for the Town of Lind on Dec. 21. The investigation period went from Jan. 1, 2010, through Feb. 28, 2014.

The official report of misappropriation for the Town of Lind was released after a nearly two-year investigation by the State Auditor’s Office. Mayor Jamie Schmunk contacted the office on Feb. 24, 2014, regarding the potential loss of public funds.

The State Auditor’s Office began an investigation of the former Clerk/Treasurer Patricia Phillips because of unallowable activities during the four-year period of time. The purpose of the investigation was to determine if a misappropriation had occurred, the report stated.

The State Auditor’s Office determined the internal controls at the Town of Lind were inadequate over cash receipting, deposits, utility billings, utility adjustments and bank reconciliations.

The misappropriation amount totaled $48,268. The total amount was made up of $44,723 in cash payments not deposited in a timely manner, $550 in checks for Phillips’ personal utility payments not deposited in a timely manner, and $2,995 in unpaid utility charged on Phillips’ personal accounts.

The investigation determined the Town of Lind suffered a loss of $1,183 in stale-date checks unable to be deposited.

The report also included questionable adjustments of $3,906 to customer’s accounts and payments of $1,650 that were manually receipted but not entered into the system or deposited.

In 2006, the State Auditor’s Office issued two findings for money collected not being deposited in a timely manner and inadequate monitoring of the duties performed by the Clerk/Treasurer.

“Specifically, we identified $52,870 in utility receipts that were recorded as payments in the utility subsidiary ledger, but not deposited to the bank in a timely manner. The deposits were made from two to 25 months later. According to the Clerk/Treasurer, the cash was held and not deposited so it was less accessible for expenditure and could be used to build cash reserves,” the report states.

In 2007, the office issued another finding on the Town’s inadequate internal controls to ensure accurate accounting and financial reporting.

Phillips worked as the Clerk/Treasurer for the Town of Lind from November 2003 until January 2014.

Phillips resigned in January 2014, but continued to work in the evenings through the month of February to train and assist the new Clerk/Treasurer.

In February 2014, the report states Phillips asked the new Clerk/Treasurer to make several deposits totaling $46,656. The deposits were for payments entered into the utility systems dated from March 2, 2011, through Jan. 5, 2014.

The deposit included $1,933 in checks, but a total of $1,183 of the funds could not be deposited because the checks were too old.

Of the deposits, $44,723 was in the form of cash and $35,000 of it was in $100 bills. The deposits also included several checks from Phillips from May 2011 to January 2013.

The State Auditor’s Office interviewed Phillips in March 2014 regarding the four-year period and the deposits made in February of that year. Phillips explained customers had provided her with postdated checks or had asked for the checks to be held, but she forgot to deposit them.

Phillips stated she had no logical explanation for the matter and inconsistent timeframe the deposits were made. She said on many occasions she had forgotten to deposit the money in a timely manner.

The investigation focused on the report of loss from the Town and the interview with Phillips.

The State Auditor’s Office determined through this investigation utility payment information was entered into the customers’ accounts in the system, but some of the payments were not deposited timely.

They also found many of the deposits made seven days or later had more cash than the deposits made within six days of the receipt date.

“In 2010, outstanding utility deposits ranged from about $23,000 to more than $36,000. These were payments receipted in the system but not deposited as of the end of each month when the bank reconciliation was performed, “ the report states.

“There was a significant decrease in outstanding deposits in February 2011 to less than $5,000. This was the time of the prior accountability audit. At the end of March 2011, the outstanding deposits were more than $14,000 and continued to grow to around $40,000 to $60,000 by the end of 2013.”

The report stated the review of receipts had multiple discrepancies for whether check or cash were who received and who completed the receipt.

They also discovered system printed receipts could be reprinted from the system. In some instances, the system receipt numbers were used twice while other receipt numbers could not be found in the system, the report said.

In the review of the airport leases, the State Auditor’s Office noted six payments from 2011 through 2013 for $725, were manually receipted into the accounting system or deposited.

The report also addressed the adjustments to customers’ accounts, where the auditors identified adjustments in a three-year period totaling $4,988. Of this amount, $3,906 was on the account of a customer who commonly pays in cash.

The report states, “None of the adjustments had adequate supporting documentation to identify the purpose of the adjustment or identify any review or approval of the adjustment.”

The auditors subpoenaed Phillips’ personal accounts for review of her financials, and also reviewed a detailed personal budget made by Phillips.

The report states the auditors compared the payroll checks issued to Phillips’ banking records and did not find exact matching amounts, but it is possible that $4,660 and $9,050 of cash deposits in 2013 and 2012, respectively, could be from cashed payroll checks.

In order to determine if any additional misappropriations had occurred, the auditors examined systems Phillips had access to. They reviewed general disbursements, credit cards, use of grant monies and payroll, and did not find any additional misappropriation.

The report said the internal controls of the Town were not adequate to safeguard public resources. The clerk/treasurer handles billing, receipting, recording, adjustments, month-end bank reconciliations and depositing. The position was also responsible for maintaining a ledger of billings, payments and amounts due from utility customers.

The report states no one independent of the clerk/treasurer’s duties monitored Phillips work.

The State Auditor’s Office mentioned the Town of Lind had indicated they have made several internal control improvements.

The auditors recommended the Town strengthen internal controls with billing and cash receipting processes to safeguard public resources and comply with town policies. The report includes a recommendation for the town to deposit cash receipts in a timely manner as required by state law.

The State Auditor’s Office also recommended the Town seek recovery of the funds owing on personal utility accounts, transactions, and related investigation costs of $20,435 from Phillips and/or the Town of Lind’s insurance bonding company.

The Town has filed a report with the Adams County Sheriff’s Department, which is investigating this case. The auditors sent the report to the Adams County Prosecuting Attorney’s Office.