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Accounting methods made it difficult to trace Urbanna funds

by Tom Chillemi
Second in a series (Part 1)

The Town of Urbanna had to refund $94,500 in grant money to the Federal Emergency Management Agency (FEMA), reported Urbanna Town Attorney Andy Bury. On November 19, Bury read a 7-page report to the town council during its meeting.

The money had been granted by FEMA to repair the Urbanna Town Marina at Upton’s Point following Hurricane Isabel, which occurred in September 2003. 

Bury emphasized the grant money was for “repairs” to the marina. However, the town “reconstructed” and upgraded part of the facility to be compliant with the American Disabilities Act (ADA).

These upgrades were beyond the scope of work approved by FEMA and the Virginia Department of Emergency Management (VDEM). Further, the town could have amended its grant application but failed to do so. As a result it had to repay $94,500, making the last payment in April 2011.

“The question that should be asked of the Town is how this situation could have progressed over almost six years without the knowledge of the Town Attorney and others associated with the Town of Urbanna,” states the report by Bury, who became the town attorney in August 2007.

  • There were severe system-wide issues within the town.

Accounting issues were revealed as the result of a Virginia State Police search warrant for town records executed at the town hall in June 2011, Bury wrote in his report. “Most of us are familiar with the basic bookkeeping and accounting methods as they apply to businesses. However, a municipal government uses the ‘funds’ method for accounting that quite frankly makes it difficult to trace money within a municipality unless one is familiar with this particular method of accounting.

“For example, the Town of Urbanna has (or in the past had) a General Operating Fund, a Water Fund, a Marina Fund, a Grants Fund, a Street Beautification Fund and the Tabor Fund to name a few. However, all of the checks were written from the cash account of the General Operating Fund and the appropriate fund account was charged with that transaction. In the FEMA case, there was a total of $94,500.21 written out of the General Operating Fund checking account but charged to the Grants Fund. As such, it was difficult if not impossible for anyone reviewing the transaction to determine that this large sum of money was paid back to the Commonwealth of Virginia over a 7-month period because of the peculiarities with the fund accounting method. Unfortunately the fund accounting method cannot be changed by the town and coupled with the general unfamiliarity of this method of accounting lends itself to potential abuse.”

  • The town did not list the checks individually in the check/general ledger, and instead simply made one entry for the total of all checks written.

Bury’s report notes that he became aware that the Town was not using the “Accounts Payable module” sometime in 2009 or 2010 and “pushed to have the Town utilize this module within its accounting software package. At the time I was not aware of the total shortcomings that this represented. Specifically, I learned in June of 2011 when the Town was served with the subpoena duces tecum for the check register that not only did the Town hand write all of its checks (other than payroll) but that it did not list the checks individually in the check/general ledger and instead simply made one entry for the total of all checks written from the checking account and then made the corresponding charges against the particular accounts in the appropriate funds via a general journal entry.

“For example, if the total of the checks written on a given day equaled $15,500, then there would be one entry in the cash account of $15,500 representing the total of the checks written and then the appropriate counter entries would be made against the account in the individual funds.”

Based on this accounting approach, Bury was unable to respond to the subpoena and search warrant and provide the information requested regarding the checking account ledger. “Furthermore, this practice of making one entry for the total of the checks written on a given day made it impossible, in my view, for anyone to first recognize that large payments were being made to the Commonwealth of Virginia but more particularly then question why the payments were made.”

Bury said he immediately contacted the town’s auditors and the auditor for the Commonwealth of Virginia. “To my surprise I learned that this was an acceptable method of accounting.”

Bury’s report noted that these accounting practices preceded town administrator Lewis Filling and “that over the years either the Town’s auditors never recommended a change in this practice, or the Town never implemented such a change.

“Personally, I would never run a business using this method.”

  • It became apparent to the Town Council in early 2011 that they could not rely on the prior year’s actual numbers to formulate a new budget.

Even though Urbanna adopted a budget once a year, “the town, under Mr. Filling’s leadership, did not always charge a payment to the appropriate account especially when the town reached or exceeded the budgeted amount for that particular line item,” states Bury’s report. “For example, I was questioned by the State Police on individuals who were paid from the town funds that were charged to attorney fees. None of the individuals listed were attorneys and I learned that Mr. Filling instructed this account to be charged because there were budgeted funds remaining in this account. I can give a multitude of other examples and it became apparent to the town council in early 2011 that they could not rely on the prior fiscal year’s actual numbers to formulate a new budget.” However, the town addressed this matter during the budget process beginning last January when the new town administrator John Bailey reviewed the individual entries made in the prior year so that the Town Council had reliable figures they could use in formulating the current budget, Bury explained.

“In fact, there were other severe consequences that resulted from the practice Mr. Filling adopted and, more importantly, the incorrect way of handling this data, in my opinion, resulted in the false impression and in some respects accusations against (town clerk) Gina Daniel, a long time dedicated employee.

“In hindsight, I can understand why the State Police investigator had the requisite concerns to obtain the search warrants based on the manner that the town handled its finances under the direction of Mr. Filling. I am happy to state publicly for the record that Gina Daniel has been cleared by the State Police and she is not under any investigation for any impropriety. It has been a difficult time for Gina and it is unfortunate that she was under a cloud of suspicion regarding these matters. I want to personally apologize to Gina Daniel on behalf of the town for the pain caused her during this difficult process. She did not deserve the negative publicity or the suggestions of any criminal conduct on her part.

“The fact is and always has been that Gina Daniel is a dedicated employee of this town and would do nothing that would even suggest any wrongdoing. She was simply following town policy established by the town over time and the direction of the town manager, policies that were apparently blessed by the town’s auditors and other financial professionals. It is simply a shame that she has had to endure these accusations and the embarrassment that came with it and I want to put this matter to rest once and for all.”

In his report Bury states, “The town council is constantly addressing and implementing new policies and procedures to address the systemic issues identified over the last few years.”

Next: A look at how the town changed its accounting system and an investigation into how $94,500 was repaid to FEMA.

posted 11.28.2012

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