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Large payments went undetected

by Tom Chillemi
Part three - Conclusion • Part 2Part 1

In 2003 Hurricane Isabel damaged the Town of Urbanna Marina at Upton’s Point. The town received a FEMA grant to repair it. However, the town “reconstructed” and upgraded part of the facility to be compliant with the American Disabilities Act (ADA). The upgrades were beyond the scope of work approved by FEMA. 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, reported Urbanna Town Attorney Andy Bury. On November 19, Bury read a 7-page report to town council during its meeting.

In his report, Bury notes the town’s accounting methods, which are approved by the state and have never been questioned by auditors, made it difficult 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,” states Bury’s report.

Further, the situation developed over almost six years without the knowledge of the town attorney and others associated with the Town of Urbanna.

Bury’s report states that some town records were actually discovered by town staff in “unconventional locations” such as under the seat in one of the former town vehicles and in the personal files located in the office of Lewis Filling, the former Urbanna Town Administrator. “I am not suggesting any impropriety on the part of Mr. Filling,” said Bury.

(Editor’s note: Lewis Filling is currently incarcerated after pleading no contest to felony embezzlement of more than $50,000 in funds from the Central Middlesex Volunteer Rescue Squad, which is located in Urbanna.)

  • A number of years ago the Town Council decided that it no longer needed to review the financial reports generated by the town’s accounting software system.

“The act of foregoing any financial reports helped create a situation where these large disbursements went undetected by the Town Council,” states Bury’s report.

The financial reports generated were basically a general ledger that, for the most part, was “unusable,” Bury wrote. Instead of addressing the format of the report to make it more manageable, the town council elected to forego any future reports.

In addition to being town administrator, Filling was appointed town treasurer by council.

Current town treasurer Bob Calves “has been able to generate reports that provide information necessary for the Town Council to properly manage the town’s finances,” states Bury’s report. “It is my hope that the treasurer and town manager will incorporate these changes, including, without limitation, the need to present to the Town Council on a monthly basis at its regular meeting, a list of all checks written by the Town staff for their review under a unanimous consent calendar so that a similar situation never happens again.”

  • The town council decided to give numerous positions to an individual for a multitude of reasons, including, without limitation, budgetary considerations.

“This practice also gives rise to the potential for abuse and in some respects does not provide for the checks and balances necessary to provide the required protections of the public trust,” states Bury’s report.

“The Town Council now recognizes that there are certain positions that cannot be held simultaneously by one person and has in fact addressed that issue when it appointed Mr. Calves as treasurer. Mr. Calves, in cooperation with (current town administrator) John Bailey, has established a policy whereby both individuals must approve the payment of any bill prior to its payment. I can assure you that Mr. Calves would never approve any bill that was questionable and will report any concerns directly to the Town Council. The position of Town Treasurer must be independent of any other position in the town. No individual can be responsible for the governance of this town in the future and the appropriate policies and procedures must be put in place and enforced to insure that history does not repeat itself.”

  • How did the town pay back $94,500 to FEMA, a sum that represents about 20% of the budgeted general operating expenses?

“I really do not know the specific source or sources of money used to repay FEMA,” states Bury’s report. “However, I believe that a portion of this money (approximately $48,000) was derived from water tap fees for a project just outside the town limits and the rest of the money came from available budgeted funds from other general operating fund accounts. The $48,000 water tap fees should have been placed in an escrow account in accordance with the Town Code for further repairs, replacements or expansion of the water system. This did not happen.”

Bury’s report explains how the accounting system contributed to this problem. “The Town was and is as of this date on a cash basis which means that its financial records reflect actual cash received and payments made regardless of whether or not the income or expense is incurred in a given fiscal year. However, the guidelines for audits for municipal governments require that the auditor address the payables incurred in a given fiscal year even though they were not paid during that fiscal year (the accrual method). The Town had a habit of deferring payment of bills to the next fiscal year if there was no cash available. Furthermore, since the Town uses the funds method of accounting, it appeared in the General Fund that the Town came under budget when in fact it paid $94,500.21 for unbudgeted items in the Grants Fund, a problem with the Funds method of accounting that I previously addressed. The Town has properly addressed this concern and now all bills are properly credited to the appropriate fiscal year regardless of when the bills are paid.”

Bury’s report congratulated town administrator John Bailey and treasurer Bob Calves “for instituting the proper controls to address this concern.”

  • The Town Council is constantly addressing and implementing new policies and procedures to address the system-wide issues identified over the last few years.

Bury’s report states, “I want the public to understand that this Town Council was forced to take extraordinary measures to address deficiencies in the system, to address personnel matters, to address criminal investigations and civil matters, all painful issues that took hundreds if not thousands of hours of their personal time to address. I believe that this town is lucky to have members on its governing body who are dedicated individuals willing to give the necessary time and attention to address these issues.”

In conclusion, Bury wrote, “It is unfortunate that others within the town government were not aware of the FEMA reimbursement. I am of the opinion that this matter could have been resolved in the town’s favor if properly handled. I believe that the town is in a better position to handle these types of matters in the future and has or shortly will implement policies and procedures that, if followed, will provide the proper foundation for the town’s functions.”

posted 12.05.2012

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