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Audits show misuse of funds, lack of controls in Indiana townships

From the TOWNSHIPS: Antiquity or necessity? - A CNHI News Indiana Investigative Report series
  • 6 min to read

INDIANAPOLIS -- Townships in Indiana have a variety of funds, fueled by tax dollars, that pay for fire departments, poor relief, cemetery maintenance, parks and other services.

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Some of the common errors in township budgets, according to a review of State Board of Accounts records, are the over-payment of salaries, failure to have necessary ordinances approved by township boards, such as a nepotism policy, and failure to properly submit payroll taxes.

When such discrepancies are found by board of accounts auditors, the state agency will forward reports to the Indiana Attorney General's Office, which can seek compensation through a civil lawsuit and turn to the local county prosecutor for possible criminal charges.

Critics: Indiana townships ripe for corruption

Of 320 township audits issued in 2017, 24 were designated as suspicious by the board of accounts.

The following summaries were condensed from audits that concluded in 2015, 2016 and 2017:

Jackson County, Salt Creek Township

Former Trustee Autumn Kinser and board members were paid without Medicare or Social Security taxes being withheld. The state, in a 2017 report, asked for repayments including $776 from Kinser, who has since been charged with a felony by the Indiana Attorney General’s Office.

During a four-year span, the office overspent two funds: $15,924 from the township fund and $1,531 from township assistance. Township assistance applications from those seeking help with utility, food or housing were not provided for any checks issued during 2010-13.

"Without the applications, we were unable to determine if the individuals receiving Township Assistance funds were eligible to receive these funds,” the board of accounts wrote in the audit.

Fulton County, Henry Township

The trustee received 35 assessment notices for failing to remit payroll taxes or file them in a timely manner. But Trustee Becky Gearhart ended up paying amounts in excess of what was due.

The board of accounts report noted, “The Trustee either paid the amount of the assessment or ignored them altogether."

Assessments that were ignored resulted in a tax warrant being issued to the Fulton County Sheriff for collection. The Indiana Department of Revenue also utilized the services of a collection agency to pursue the amounts due. The state asked Gearhart to reimburse it for $18,010, in part, for penalties and interest for failing to report state taxes.

Fulton County, New Castle Township

A flooded basement damaged records from 2012-16, which essentially violated state law barring the destruction of records without either an SBOA audit or records being copied.

Few of the township funds – administration, cumulative fire, firefighting, poor relief – balanced properly between the financial reports sent to the state and the township’s ledger book, according to a 2017 audit.

In 2016 alone, balances were off by a total of $66,670. Trustee Linda Erp paid herself an extra $400 annually for maintaining the community building, although the payment was never approved by a board resolution. The state asked for reimbursement of $1,600.

Starke County, Wayne Township

Trustee Clara Schacht was overpaid by $11,082 from 2009-16; her husband, Donald, as deputy trustee, was overpaid $3,747 those years. The attorney general’s office filed a civil case against both Schachts.

Vermillion County, Vermillion Township

In March 2015, Trustee Anna Denise Mitchell wrote herself checks totaling $5,000, noting in the township ledger that the money was for construction of a new office.

But Mitchell maintains the office in her home; she collected rent of $3,000 annually for the office (yet 2016 payments totaled $3,500). She also paid herself $5,000 as personal loans.

In a civil lawsuit, the attorney general was awarded judgment of $21,487 against Mitchell. In a plea agreement accepted in October, she pleaded guilty to theft and official misconduct.

She was sentenced to a year in jail with 363 days suspended with those days to be served on probation. She was also to pay restitution.

Delaware County, Salem Township

The trustee misstated the cash balance on hand as a receipt, causing the fire budget balance to be overstated by $48,475. The mistake was corrected.

Bartholomew County, Rock Creek Township

From 2012-16, former trustee David Buzzard received $24,812 in excess of the appropriated salary. His clerk and wife, Jacqueline Buzzard, was overpaid $2,729. Salaries were not reported to the IRS.

The SBOA noted: "There was no required oversight of Township financial activity on an ongoing basis by another individual. Due to this lack of segregation of duties, the salary overpayment, payment of personal expenses, reimbursement for unallowable cell phone and internet expenses, and payment of penalty, interest, and overpayment of payroll taxes were able to occur and not be identified timely."

Jennings County, Geneva Township

In 2011-13, then-trustee Kathryn Wint was paid $577 for mileage without proper documentation. She reimbursed the township. Her husband was paid $775, without documentation, as a consultant for the purchase of a firetruck.

Warrick County, Ohio Township

Former Trustee Lorraine Wittenbraker was asked to repay a total of $53,328 after receiving $22,431 in excess of the salary compensation approved by the board for 2012-14.

In 2010, Wittenbraker failed to renew a state form allowing for sales tax exemption in funds paid to vendor and utilities, which led to unneeded payments of $5,712.

According to the SBOA: “The Trustee served as the Township executive and Township fiscal officer and, also, has two employees to help perform financial duties. However, the Trustee and Township Board did not set up a system of internal controls to ensure these excess payments did not occur. As a result, there was no oversight of Township financial activity on an ongoing basis by another official.”

Jasper County, Union Township

The SBOA found record-keeping deficiencies including failure to record all deposits and differences between electronic state filings and ledger tallies (the firefighting fund had excess disbursements over appropriations in 2013-15), as well as not having an annual meeting to adopt annual reports.

Sullivan County, Jackson Township

Trustee Randy Swalls, serving since 2011, didn’t withhold taxes from his paycheck and overpaid himself by $900 in 2012. His clerk and wife (and former trustee) Beth Swalls was also overpaid. They reimbursed the township.

Auditors found math errors in the ledger. Also, the trustee didn’t have an approved budget because he didn’t submit it to the state. That meant the township actually had a $0 budget and overspent all of its appropriations from 2012-16.

Owen County, Morgan Township

Trustee Patricia Flowers, board members and a clerk were paid without the proper withholding for taxes. Disbursements in three funds -- township, assistance and firefighting -- were in excess of budgeted amounts.

The trustee did not document poor relief payments totaling $6,057 and had not established standards for township assistance for 2012-16. Such standards are necessary, the SBOA says, to reflect “changes in the costs of basic necessities” in the township or updates in the law.

Allen County, Eel River Township

Trustee Selma Hough was asked to reimburse the state $1,018 including $684 to the township for penalties incurred for failing to remit tax payments.

Spencer County, Grass Township

Former trustee Karen McCormick, who died in 2014, received $1,652 more than than her $10,800 salary in 2012. Board members were paid without Social Security and Medicare taxes being withheld.

The board did not have the state-required meeting to adopt the annual report for 2012-15. Payments were made for cemetery mowing and recreation programs (including a summer baseball league) although there were no contracts.

Wayne County, Greene Township

Trustee Rebecca Brown was asked to reimburse the state for $506 for an electronic tablet, several iPad cases, an iPhone case, several USB chargers, a backpack, children's books and supplies that were considered personal in nature.

The SBOA reported: "The Township office was located in the home of the Trustee. The Township paid 100 percent of the internet service for the years 2012, 2013, 2014 and 2015. The internet basic service fee was $73 per month. Internet service basic fees paid by the Township for the period Jan. 1, 2012, to Nov. 30, 2015, totaled $3,431. ... Based on the criteria documented above, the Trustee was entitled to be reimbursed for 50 percent of the base cost of service or $1,716 ($36.50 per month for 47 months)."

Hendricks County, Eel River Township

Taxpayers paid $3,236 for a fire department Christmas dinner, although the state bars the use of public funds for expenses that do not relate to the functions of the unit of government.

In a letter to the SBOA, Trustee Diane Greene explained, “The fire Dept. Christmas dinner has been paid from their personal services budget for many years without ever being noted in an audit but this will be discussed and corrected.”

Greene’s salary in 2015 was $15,420, but she received $20,982.

Also, township assistance standards weren’t established; W-2s weren’t available for all employees; township employees were paid without withholding taxes; and there were few internal controls over expenses.

Greene responded, "Internal control admittedly has been practically non-existent for many years due to the fact that there is one person that works in the office, but all board members have access to any and all financial records upon request. ... The Township of course now has adopted an internal control policy in order to be in compliance with the state’s new requirement. All financial reports will be inspected on a regular basis and signed."

Bartholomew County, Clay Township

On Nov. 1, 2014, Trustee Rebecca Smith reimbursed herself $2,674 for two years of cellphone and internet expenses; the use was not solely for township purposes. Smith was actually entitled to reimbursement of $1,038.

Elkhart County, Baugo Township

The township paid penalties, interest and various charges totaling $1,134 to vendors for failing to pay them in a timely basis. In response to a previous audit findings, the trustee blamed a former fire chief for the penalties.