Today is May 1, which is more than three months after my last entry. I was disappointed that I did not receive a job offer from the interview that I mentioned in my last post. I have had several additional telephone interviews and one more face-to-face.
I am completely ready to complete the move to Texas. Presently, I am returning to Nashville for several weeks at a time to work while I search.
When one studies accounting and auditing, one learns a lot of theoretical information about counting inventory. Personally, I had already managed a business (a restaurant) for a few years and had also earned extra money moonlighting with an inventory service before I enrolled at the University of Tennessee in the fall of 1998. None of that remotely prepared me for a BIG investigation that my office conducted during the fall of 2003.
The investigative audit report for this audit is available here.
The main legal-issues were well summarized in Director Dennis Dycus’s letter to the then-comptroller, John Morgan, which is an integral part of the report.
Our investigative audit revealed that 116.6 kilograms of cocaine, with a street value estimated at $2,332,408, and 559.8 pounds of marijuana, with a street value estimated at $447,876, could not be accounted for. Auditors were unable to locate or account for certain cash items totaling $147,218.26, and were unable to account for at least 66 firearms.
Yes, this was unlike any inventory assignment I had seen before!
Last Friday, the Daily News Journal ran its second consecutive front page story about my office’s report on an investigative audit of the Riverdale High School Quarterback Club. The article, titled “Audit: Principal Failed to Monitor Finances,” is here (at least for the moment–the DNJ does not seem to leave its content up for very long).
Last Sunday, this was the DNJ’s editorial: Editorial: “Gill mustn’t fumble in discipline for QB Club.”
Today, the DNJ ran this story: “Audit fallout: Gill eyes policy change for booster clubs” on its front page.
A closer look at the scrap of $200.00 receipt shows the word “Offline.” 
Since Lakewood had only been accepting credit cards for around two months, the recorder was still becoming familiar with the information printed on a receipt. She contacted the processing bank. For this transaction, the then-court clerk tried to swipe a credit card, but it was declined. She knew enough about processing credit cards to force a charge to go through, which caused the receipt that she needed to print. After she printed the receipt, she immediately ran a $200.00 reversal.
Initially, the recorder and I thought that the most likely scenario was that the court clerk had used her own card and just did not have sufficient available credit. We were wrong. The recorder, working with the processing bank, deduced that the reason that the card had been declined was that it had been reported lost. As she followed the clues, she determined that the card belonged to an individual who had used it to pay for a traffic violation at city hall and left it there. The recorder found the citation and receipt filed with paid tickets. She also found the other piece to the “puzzle” that was the scrap of receipt that the court clerk had attached to Brenda L.’s citation (right).
Several months later, the water clerk found the credit card and credit slip (from the reversal) in a box of labels. When the former court clerk was still employed by the city, the labels were in a supply closet at the opposite end of the building from her office.
Other Altered Records
I found the citation pictured below in the paid ticket files.
I thought it was strange that an officer would arrest an individual, but change a careless driving violation to a warning! Fortunately, the officer had his own copy.
Having discovered that the court clerk used several different methods of altering or omitting records to conceal theft from city court collections, I began to examine the records from the entire period of her employment. First, I re-footed each batch of receipts to determine if the totals for cash (coins and currency only, as used here) and checks were identical to those found on deposit slips (as described in the previous post). In all, the former court clerk exchanged $3,953.00 of checks for cash that she had taken from collections.
After that, I examined the city’s copies of the receipts in more detail. The bookkeeper’s work is included in this category. In all, $7,126.00 of theft was concealed by short and altered receipts.
Not surprisingly, there was evidence that the then-court clerk concealed theft by other means. The recorder examined the contents of the paper shredder in the clerk’s office, shortly after the clerk was suspended. She found evidence of several court documents being shredded, including receipts. She found the intact receipt number shown in the picture on the right. The city purchased receipts that were numbered sequentially and used the books in order. The receipt number shown was from the last book, which would not have been used for some time. There was enough evidence to attribute an additional theft of $344.50 to receipts that were issued from this book, which neither the recorder nor the bookkeeper was aware of.
In all, the available records indicated theft of $11,423.50.
In addition to the systematic theft that the former court clerk pled to, one entire $497.25 deposit from the summer of 2008 was stolen. This crime is officially unsolved and I have not included it in the total theft attributed to the former court clerk.. The reader should note that theft of over $500.00 is a class E felony in Tennessee. Since this was just under $500.00, it would have been a misdemeanor, had anybody been charged.
Over the entire nearly three-year period, net cash short or over (not attributable to any specific transaction) was a shortage of $328.33.
Including cash short or over and the missing deposit raised the total that could not be accounted for to $12,249.08.
Lakewood had a greater degree of oversight than several small cities and towns that I have audited. However, the bookkeeper always looked at the same things, at least until the credit card payments went online. In fact, it was the changes necessitated by the new payment method that led to the Brenda L. transaction.
On a day-to-day basis, the city could have had better segregation of duties. Unlike the one-person offices that the Division of Municipal Audit often encounters, the city had a court clerk, water clerk, and recorder in the business office. The court clerk was able to falsify all of the supporting documents to conceal the missing collections.
During the clerk’s period of employment, she neglected to update the court records for several of the individuals that had checks substituted for stolen cash in bank deposits. The court clerk’s office had correspondence with several effected drivers; the recorder said that she remembered others. At the time, all of these were attributed to mistakes and not investigated in more depth.
The city manager decided to suspend the court clerk, pending the results of the investigative audit. He said that he would have preferred to terminate her, but elected to wait. As a city employee, she might be more easily persuaded to be interviewed. She did speak to an audit manager and me later that week, just before she submitted her resignation. She spoke to us again shortly before we issued our report.
When I arrived at Lakewood City Hall, Brenda L.’s receipt still had not arrived. The recorder was concerned that the court clerk, who had a key and the code to disarm the alarm system, would get to the fax first. However, the fax machine’s log showed that it had never arrived.
The problem was that Brenda L. had been trying to send it to a wrong number. Eventually Brenda L. called city hall and the recorder gave her the correct number. Here is the fax, with personal information redacted.
During that first day, the recorder, the bookkeeper, and I each found several similar receipts. Each should have been written for more than $100. However, the city’s copies, which were attached to the citation and in the receipt book, had blank space where the 100’s digit would be. Before the end of the first day, the three of us had found over $1,000.
Another procedure that I used and explained to the city employees who were assisting was adding each day’s receipts and tracing the totals to deposits on bank statements. I was not only interested in determining if the total traced, I also tested to determine if the total cash (meaning currency and coins) and checks matched the corresponding totals on the deposit slip. I found a few instances where the total cash in the deposit was less than the total on the underlying receipts, which meant that the total checks were greater.
I requested research from the bank, which consisted of copies of the deposit slips and contents. The copies from the bank included checks that had no corresponding receipt within the batch. Further investigation indicated that the court clerk often had access to cashier’s checks and money orders that arrived by mail to pay fines and court costs. She neglected to receipt some of the payments that arrived by mail. Then, before she prepared the deposit, she removed an equivalent amount of cash.
After about one week, the court clerk met an audit manager and me at city hall to discuss what I had found. At that point, I had identified slightly more than $2,000 of undeposited collections for which she was responsible. During the interview, she admitted that she sometimes borrowed money from the cash box. After the interview, she resigned from her position.
The court clerk had worked for the city for nearly three years. At that point, I had not yet examined all of the citations and receipts for the majority of the period.
One of the most interesting investigative audits that I performed substantial work on was the 2009 audit of the City of Lakewood. The Division of Municipal Audit’s report is here. Related exhibits, which are court documents from the case are here.
Since this is the first case that I have written about, here is some background about who I work for, what we do, and how we present it.
The Division of Municipal Audit operates withing the Office of the Comptroller of the Treasury (URL = http://comptroller.state.tn.us) of the State of Tennessee (URL = http://tn.gov). The Division of Municipal Audit oversees the audits of cities, utility districts, school activity funds, certain non-profits that receive state funding, and now school support organizations (mostly parent-teacher organizations and booster clubs). Several members of the Municipal Audit staff oversee the annual financial audits that most of the entities are legally require to have. Mostly, these audits are performed by private CPA firms under contract.
The other function of the division is to investigate allegations of fraud, waste, and abuse. I have been a member of the investigative audit staff since 2001, when I was hired.
Information about the cases that we investigate comes to the office through several channels. The contract that the various municipal entities and CPA firms enter includes a mandate that the firm will report any suspected instance of fraud that its procedures reveal. Since 2007, municipal officials have been legally required to report all known instances of fraud to the comptroller’s office. Other investigations begin at the request of a district attorney general. Some cases begin based on reports from citizens, either through hotline calls or by calling or writing directly to the division. Despite all of these channels, occasionally the division’s management will first learn about an allegation from a report in the news media.
The Division of Municipal Audit almost always issues a public report when an investigative audit is complete. Occasionally, when an investigation is done at the request of a DA, the end product will be a letter to that DA that is not a public document. The other exception is the rare occasion when there is essentially nothing to report beyond information that was in the entity’s last annual report.
The City of Lakewood was a small city at the eastern edge of Metropolitan Davidson County. Without going into extensive detail, in the 1960s, when the City of Nashville and Davidson County consolidated their governments, a few smaller towns within the county decided to retain their status as separate municipalities.
My use of the past tense in the preceding paragraph was deliberate. A group of residents petitioned to have a referendum placed on the August 2010 ballot that, if approved, the City of Lakewood would surrender its charter and join Metro Nashville. The measure passed, but only by a handful of votes. Lakewood City Government successfully challenged the result on the basis of procedural mistakes during early voting. The measure was presented again during a special election in the spring of 2011. It passed again and the result stood. As I write this, on June 10, 2011, WTVF still has a link to a story about Lakewood’s final day (there are links to stories about the earlier election on that page). The Lakewood Website is still active as of today.
On January 5, 2009, the Division of Municipal Audit received a report that the Lakewood City Court clerk had apparently stolen $200.00. I was instructed to be at Lakewood City Hall the next day to evaluate the situation.
The investigative audit team consists of two audit managers and usually about six staff auditors. Due to the downturn in the economy, state budgets have been tight. Considering the number of entities for which the Division of Municipal Audit is responsible, the number of experienced staff available, and budgetary constraints, some cases have to be referred back to the entity or to the contract auditors, with explicit instructions to keep the division informed about anything else that is subsequently discovered. On that first day, if I had not found anything questionable beyond the $200 that had been reported, we probably would not have pursued the case. With that in mind, I described my procedures to the city employees that were present throughout that first day, in case they had to conduct an investigation internally. Our standard procedure is generally to reveal as little as possible and to be highly cautious about relying upon client-prepared working papers.
The city manager and recorder explained that the discrepancy was in a credit card transaction. The city had only been accepting credit card payments for about two months. In addition to the full-time city staff, which included the recorder, the court clerk, and a water clerk who accepted court payments when the court clerk was unavailable, the city had a part-time bookkeeper who verified that the amounts collected, as recorded on manual receipts, traced to deposit in the city’s bank account. This part-time bookkeeper realized that there was no oversight for the credit card transactions.
The bookkeeper found that a larger amount had been recorded for credit card p
ayments on the court dockets than the city had received in electronic deposits. She attempted to gather additional information, in case she had to ask the bank to locate missing electronic deposits. The transaction that stuck out was on this docket. Brenda L. appeared to have paid $200 using a credit card and paid the balance in cash.
Lakewood used manual 3-part receipts. The person that remitted payment received the original copy, the yellow (middle) copy was attached to the paid citation, the pink (third) copy was to remain in the spiral-bound receipt book.
The bookkeeper pulled the citation from the file. Attached, she found the yellow copy of receipt 61847, which was consistent with the information on the docket. She also found a small scrap of a credit card charge slip, which contained almost no useful information.
The pink copy also showed $39.75 cash paid, but it had a mark where the 100s digit would be, as if it had been changed.
At that point, the recorder asked the court clerk to find the remainder of the torn credit card charge slip. At that point, the court clerk was left alone in her office, ostensibly to search.
After some time had passed, the court clerk returned with another scrap, which showed a $200 credit card payment.
The recorder was skeptical. Surprisingly, the court clerk offered to call the individual who had been issued the citation, Brenda L. Brenda L responded that she had paid entirely in cash. She still had the receipt and would be willing to fax it to Lakewood City Hall.
I will show the fax of Brenda L.’s receipt and discuss the magnitude of the theft.
Over the past several years, public employees have faced increased criticism. In the post, I hope to address certain perceptions in comparison to what I have experienced.
First, within the past few years, government employees labor unions have been a contentious issue. Tennessee state employees are not unionized, so I am obviously not a union member.
Second, it is difficult to remove an ineffective government employee. While there are many positions within state government that are classified as “career service” (similar to civil service), I am an at-will employee. I serve at the discretion of the Comptroller; I have no more actual protection than at-will employees in the private sector. I think that government employees usually have a lower probability of being laid off, although that measure of security seems to have waned over the past several years.
Third, there is a perception that government employees are lazy. Some are; I am not. During court cases, I have often worked fourteen or more hours, several days in a row. Having also worked in the private sector, I have observed many of the same negative behaviors among unmotivated employees there.
My first reason for registering the domain lewrobbins.info was to set up Email with a domain name that is uniquely mine. I like the impression that [email protected] gives. I am now ready to produce both an updated traditional resume and a Web version. My goal will be to have usable versions of both before this time next week.
Of course, I also want to have something that is an asset at the URL itself.
So far, I like the look of the blog. The banner is cropped from a photograph that I took. I like the reminder to “see” what is out there and the effect of the reflections on the glass.
The full picture is shown below. The “See” is part of “Tennessee” on the marquee of the Tennessee Performing Arts Center (TPAC). The James K. Polk State Office Building rises above the theaters; it was the location of my office for nearly seven years. I have posted more pictures below.
Over the past five years or so, I have become interested in photography. As an accountant type, I could never justify spending the costs of film and processing. With digital photography, the ongoing costs have shrunk considerably.
