Thursday, January 31, 2008

Forensic audit released, many questions remain

By James Robinson
Staff Writer

Internet pornography, online gambling, poorly documented wire transfers and a financial management system seemingly devoid of internal controls and rife with deviations from generally accepted accounting principles were the hallmarks of the county’s financial practices between 2003 and April 2007, according to the Clifton Gunderson forensic audit report released Wednesday.

The county commissioned the audit in May 2007 when key county staff and members of the Board of County Commissioners learned they faced a multi-million dollar deficit after it was revealed many county funds had vaporized and former finance director Bob Burchett described $2.87 million in the Road Capital Improvement fund as “not real money.”

Facing an unprecedented fiscal shortfall, county staff sought assistance from the Department of Local Affairs, and the audit began in earnest to identify if fraud or other illegal activity had led to the county’s financial demise.

According to the document, key county staff — including former Archuleta County Administrator Bob Campbell — have been in possession of the report since November 2007, however Archuleta County Commissioner and Board Chair Bob Moomaw said he had not seen the document until Jan. 18, when Clifton Gunderson presented a “first draft” for the board’s review.

Despite public requests to release the report, Moomaw said questions regarding attorney client privilege, personnel issues and concerns over whether the report should be sent first to the district attorney, had squelched the board’s desire to release the document. And those concerns apparently persisted through an executive session Tuesday, when the board again decided to withhold the report.

Following the executive session, The SUN filed a request through the Colorado Open Records Act asking for the report’s immediate release, or to provide the legal basis for the continued withholding of the document. Following the request, the county released the report Wednesday.

Consistent with previous comments from former administrator Campbell and members of the Citizen’s Financial Advisory Task Force at an Oct. 30, 2007, “Town Hall” style meeting, the report reveals no conclusive evidence of overt criminal activity; however, auditors from the firm acknowledge that further analysis of county financial documents, electronic transactions and hard drive data is needed before criminal activity can be ruled out.

But, while criminal activity remains a question mark, it appears clear that poor financial management, coupled with incompetence and overspending were the culprits behind the county’s financial unraveling.

In the report, Clifton Gunderson outlines 10 main areas of investigation, including an analysis of Burchett’s computer hard drive, the county server, wire transfers, bank account activity, charitable donations, possibilities for fraudulent invoicing, duplicate payments, and county staff or elected officials overriding what few internal controls the county had in place.

For example, auditors noted four examples of efforts to circumvent the county’s $1 million check writing limit between 2003 and 2005 — one check was written for $999,999.99, followed by “some strange transactions that may be of concern.”

One “strange transaction,” details the movement of money between the State of Colorado, and the Archuleta County Treasurer’s office in February 2007. According to the report, the transaction begins with a $764,866 wire transfer from the state into the county’s general account, followed by the cutting of an unnumbered check, a strange deposit, and part of the money ultimately paid to the Town of Pagosa Springs. The transaction appears to lack clear documentation or clear explanation, and the report suggests the county review its policies on wiring money in and out of the county’s main bank accounts. In addition, auditors state they aren’t sure how many transactions of a similar nature occurred.

According to the report, and by way of explanation, the Treasurer’s office under Lois Baker said the “process was put in place by Traves Garrett (former Archuleta County treasurer) and is no longer occurring.” However, Garrett left office in February 2006 following an automobile accident, and Baker has been at the helm since.

Related to wire transfers, auditors also found 660 outgoing wire transfers between June 2005 and April 2007 totaling $20 million.
“We have categorized the wire activity during the period 6/2005 to 4/2007 and identified 250 transactions that did not have sufficient description on the bank statements. We requested and received supporting documentation from the Treasurer’s office for the 50 largest wire transactions.” Of those 50, the report continues, 15 “do not have sufficient detail to firmly establish the wire destination.”

In addition, the report reveals a series of possible double payments for goods or services between May 2004 and April 2006 and questions on fraudulent invoicing, fraudulent vendors and the possibility that a deeper analysis of the county’s server may lead to “substantial evidence about Burchett’s activities,” including his active pursuit of purchasing a plane.

Furthermore, while analyzing data in the county server, auditors discovered “a variety of inappropriate content, including a considerable amount of pornography and some indications of gaming site usage,” although auditors noted nothing illegal, i.e. child pornography. However, auditors noted, due to lax controls over terminal usage — auditors observed employees’ children using county computers — “... we are not able to say with great certainty who may have accessed the inappropriate content.”

And this is just one of the many questions the audit reveals but fails to answer, and is key to a situation which has left Moomaw frustrated and irate.

“This so-called ‘final version’ is the same as the draft the commissioners received January 19,” Moomaw said. And he added that the incomplete, unprofessional nature of the report appears to be business as usual for Clifton Gunderson in their dealings with Archuleta County.

“First it (the forensic audit) was supposed to be done by September. Then it was guaranteed by October 30 with presentation scheduled for a town hall meeting. Now it’s February and we have an incomplete report. Clifton Gunderson’s inability to provide a complete and professional product has hurt the county’s credibility. We have been made to look like idiots. Every time we say something is going to occur it doesn’t. What should have been a very simple process has turned into a nightmare.”

And despite his frustration, Moomaw said he doesn’t anticipate much more from Clifton Gunderson, as the report alludes to the fact that auditors will need more time and money to unravel certain unanswered questions.

But, with the project already well over budget — the county originally anticipated a $150,000 tab, although current invoicing puts the total at $262,000, with $102,000 paid thus far — Moomaw said the board will use county staff such as finance director Don Warn, and a separate firm, preferably the county’s government auditors, Wall, Smith, Bateman & Associates, to complete the project.

In a prepared statement Moomaw writes, “Given the difficulties experienced with Clifton Gunderson during the audit, the County feels it is prudent to use a different accounting firm and compensate them from the remaining DOLA funds for work required to finish the forensic audit such that the information is received by the County in a timely fashion and the necessary changes to policies and procedures can be made. The Board of County Commissioners expects to consider engaging such a firm at its regular meeting on February 5.”

Although Moomaw acknowledges the report has not found evidence of fraud, he said upon completion of the additional investigation, the Clifton Gunderson report and any additional information will be forwarded to the district attorney, “to determine if there are any areas that warrant charges and/or further investigation.”

With a balanced 2008 budget the recent hirings of finance director Don Warn, interim county administrator Gregory Schulte, and continued input from the Citizen’s Financial Advisory Task Force, Moomaw is optimistic that the worst of the county’s troubles are behind it, although the process, particularly dealing with Clifton Gunderson, has left a bitter taste in his mouth.

“We have gotten through the financial crisis and we need this (a complete forensic audit) to close the door and move on. However, it is an incomplete and inconclusive document that doesn’t provide the closure the county had hoped for.”

NEWS

COUNTY

TOWN

Town considers funding economic development coordinator

The Pagosa Springs Town Council has approved a commitment to explore funding of an economic development coordinator position on the town staff.

Creation of the new position is part of an effort to alleviate the work load on staff members and promote economic growth and stability in downtown Pagosa Springs.

According to Town Manager Mark Garcia, the person filling the position will head a future Downtown Development Authority.

“The person would promote downtown development,” Garcia said. “We identified the need.”

The Downtown Master Plan states, “The Town does not have an economic development office and many inquiries are directed to the Town Manager. The Town should consider the creation of a Downtown Development Authority that assumes responsibility for infill and redevelopment projects and works to stimulate the local economy through Downtown revitalization efforts.”

According to councilwoman Angela Atkinson, “It (the position) is supplementing Archuleta Development Association (AEDA) and identifying the gaps that need resources.”

“We need all the players to come together and work strategically to work toward common goals,” she said.

AEDA is the only organization currently in the area addressing economic development, and “there is so much to do that we should work at this together. It is really a partnership we are talking about,” said Atkinson.

Activity involving retail development in and revitalization of the downtown area is not AEDA’s focus, said Bart Mitchell, director of AEDA. AEDA’s efforts go toward creation of revenue sources and bringing jobs to the county, he said.

Atkinson recognized the need for more “unbiased and objective” input regarding downtown development. “Having that person in house is important. It has just been the builders that come forth,” she said.

“Our administrative costs have gone up significantly. The staff has a lot on their plate,” Atkinson said. “With increases in staff and administration levels, this is where an economic coordinator position will more than pay for itself.”

In another staff change at town hall, the former special projects position will become an assistant manager position, funded in the 2008 budget at $62,000.

Atkinson expressed interest in integrating the role of the economic development coordinator into the assistant manager position.

Although the interest was not shared across the board, council members agreed to seek funding for the economic development coordinator position.

Since the mechanisms for funding the economic development coordinator position are not yet established, no estimated time frame yet exists for final approval of the position.