Investigation finds more than $456K may have been misappropriated from McCleary

A former McCleary utility account manager could be facing felony charges after an investigation found more than $456,000 may have been misappropriated, including some that went into her personal utility accounts.

A two-year investigation by the state Auditor’s Office released today allegedly found the former manager used several methods to put city money toward her own utility bills.

“I’m glad it’s over,” Mayor Gary Dent said of the lengthy investigation. As a result of this incident and the auditor’s investigation, Dent said the city has made numerous changes to its hiring and money-handling practices. Among other changes, all new finance employees must have background checks, multiple employees check deposits each day, the financial software is streamlined, no manual checks are issued, and employees are no longer allowed to make the kinds of adjustments to accounts that allegedly allowed the former manager to take cash.

“We’ve really reformed a lot since I’ve come in,” Dent said.

In 2010, two city employees were put on administrative leave for owing money on their utility accounts, which is not allowed for city employees, the auditor’s report said. Dent said he became suspicious of the former billing manager in the course of observing city employees after he first came into office. He declined to go into detail because of the ongoing criminal investigation.

After a city investigation, the other employee was allowed to return to work and the manager was terminated. The investigation suggested the former manager did not follow proper procedures for billing and receipting. A special investigation from the state auditor was called, reviewing financial information from January 2005 to April 2010.

Investigators found a misappropriation of $53,009.90 by the former manager, and another $403,799.11 in “questionable adjustments to utility accounts and City of McCleary Checks written to the City of McCleary,” according to the report.

Investigators found $5,724 of city funds used to pay her two personal utility accounts.

The bulk of the misappropriation came from negative cash receipts: when a payment was made on an account, a negative cash receipt might be issued to give cash back. For example if a $500 receipt was posted, and a -$100 receipt was also posted to that account, the amount expected for the daily deposit would be $400. Employees also shared cash drawers at that time, which would make it hard to detect where errors or misappropriations came from.

“By posting … in this way, an employee could take cash and reconcile the daily receipts without detection,” the report said.

Over the five years reviewed, more than $141,000 in negative cash receipts were used, and $41,547 were identified as misappropriated. The report also states that investigators couldn’t conclude if the remaining money was misappropriated because the city didn’t have documentation for that type of adjustment.

Negative cash receipts are no longer allowed by the city. Adjustments are now made as billing adjustments and signed off on by the city clerk, according to the city’s response to the report.

The report found another $5,198 misappropriated from security deposit refunds. At that time, utility customers paid a deposit held for the first year of their service, to be refunded after a year if their account was paid in full. Residential customers paid $195, and businesses ranged from $250 to $1,500.

The former manager told investigators when she applied the deposits to an account, she wrote the check to the city, but the investigators found most of the checks written that way didn’t have any customer information on them. That made it hard to verify whether those customers had received any of their money back.

Investigators sent out 111 letters to people who should have received refunds to confirm they received them. They received 38 responses, 28 of which said they didn’t receive any refund or credit. The amount for those accounts totalled $5,198.

Investigators interviewed the former manager again.

“She stated she wrote checks for refunds on accounts after a customer was deceased or on inactive accounts. She stated she then applied the amount to her own utility account or took cash in the amount of the manual warrant. The former utility account manager stated she also did this when customers did not ask for a refund,” the report said.

She added that she didn’t take anything from active accounts and never much at one time, the report said. She estimated an average total she would take to be around $390.

Shut off fees represented the smallest chunk at $500. The city charges $20 when customers fail to pay their bills, and when they pay that fee it should be deposited to the city account. The investigation discovered that some were reflected in customers’ accounts but not deposited in the city’s bank account.

Investigators recommended the city attempt to collect the $53,000 and the audit fee from the former manager or the city’s insurance. The city ultimately was not charged for the audit, which would have cost about $15,000.

Dent said the rest would likely be covered by the former manager’s bond that she had to carry with the city while she worked there. He said the investigation was also including the $403,000 listed as questionable in the report. “It’s going to be hard for us to get that money back,” he said.

Reports have been filed with the Grays Harbor County Sheriff’s Department and are under investigation.

Copies of the eight-page auditor’s report are available at McCleary City Hall for 15 cents per page.