A late deposit short just $105 was all it took to trigger a state Auditor’s investigation revealing $15,690 misappropriated from the South Bend Municipal Court over the past four years, according to a report released Tuesday.
“The first thing we found was a very small thing,” Mayor Kirk Church said. “But because there’s a lot of other systems involved with it, we just called the state Auditor right away.”
“We’re really sorry that this happened, we’re very glad that we caught it at this point and it’s only approximately $16,000 the taxpayers were defrauded. But we’re working diligently with every agency we can bring into this to fix it and get us going on the right path,” Church added.
Court staff noticed the error in May 2012 after the city’s court clerk at the time had been placed on paid administrative leave for another unrelated infraction. Shortly after that, several people contacted the city saying their court payments were not reflected in their statements. City staff found another $250 in cash payments had not been properly receipted.
Auditors worked for more than six months, reviewing 6,958 manual receipts over the four years the clerk had been with the city. In addition to the nearly $16,000, the audit revealed another $1,075 missing, but did not find enough documentation to show that it had been misappropriated.
“We investigated these concerns and determined (the clerk) misappropriated $15,690 over four years … by taking cash receipts from customers,” a report said.
Part of the problem, the audit report notes, is that the clerk position was responsible for receipting, depositing funds and making account adjustments without any oversight. The audit report noted that in 2011 alone, the court had $141,550 in adjustments with no one checking them. The court handles approximately $108,000 in fines and fees every year on average.
Deposits were not made daily as required by law. In one instance, a $3,092 deposit was held 28 days.
Auditors met with the clerk during their investigation.
“She was unable to explain why many manual receipts were not posted to (the Judicial Information System) or why many deposits did not agree with receipts. When we started asking her about specific transactions, the court clerk declined to answer our questions and left the interview,” the report stated.
“The city of South Bend is working diligently with the Auditor, State Patrol, Attorney General’s Office, and Camfield Industries,” the city’s insurer, Church said. “The employee that’s targeted on this is on paid administrative leave and will remain on paid administrative leave until the investigation is complete.”
In the city’s response to the findings, it outlined new controls implemented since the theft was discovered: The Clerk/Treasurer prepares all deposits, which are then double-checked and compared to receipts and signed off on by another employee. Bank statements will be promptly reconciled and signed off on by another employee. All reports are printed and reviewed by the Municipal Court judge. All court funds are deposited weekly.
The city also notes it will seek recovery of the stolen money, plus the cost of the investigation, currently about $9,200, as well as wages paid to the clerk while on paid administrative leave, so far about $28,000. Church declined to comment on how that recovery might be enacted, but noted reports had been forwarded to police agencies including the State Patrol.
The internal controls are a work-in-progress, Church said. The court is already operating with minimal staffing, and while the clerk remains on leave, her role is filled as much as possible by a temporary employee to handle office work and the Raymond City Clerk on loan a few hours a week. The labor-intensive internal controls will be tough to maintain in the long-term without a full-time person in that position.
“If we bring her back or if we end up hiring somebody else, we will need that extra set of hands and eyes on that,” Church said.
The city will have an internal audit from its insurance company to make further revisions.
“They can help us get to that point where this will never happen again,” Church said.