County Council Considering Plan To Replace Stolen Funds
June 10, 2022 at 2:42 a.m.
County Council Considering Plan To Replace Stolen Funds
By David L. Slone-
Several of her points were that - despite what people have said - Warsaw Mayor Joe Thallemer had nothing to do with the issue, the city and county governments are not interchangeable and that repaying the stolen money from the Rainy Day Fund will have no impact on property taxes.
The theft of $313,951 came in the form of a fraudulent Automated Clearing House (ACH) request in which the perpetrator imitated a vendor (J & K Communications) for Kosciusko County government seeking payment of invoices. An ACH transfer is the electronic movement of money between banks through the ACH network.
The scam began April 7 when the county administrator’s office received a request for payment using ACH, but with a different routing number. The auditor’s office then included the request among other ACHs being issued at the same time. The bills were sent on April 26, and officials realized there was a problem three days later. The county’s insurance carrier and police were notified. New rules were put into place to safeguard from any potential future scam.
At Thursday’s Council meeting, Mitchell said, “As a former auditor, I want to clarify that the process for making payments starts with the department where that bill originated. They have the first-line connectivity with the company’s billing department. The department verifies the bill is true and correct and they must sign off on all bills that are processed. Then it goes to the auditor’s office for process, and then, from there, (County Auditor) Michelle (Puckett) is going to explain how that whole ACH process is going to work moving forward.”
Puckett then gave the Council an update on the county’s ACH process and the internal controls associated with that process.
“So, over the past several weeks, we have utilized every resource that we have available to us that I can think of,” Puckett said. “We have talked to Council, Commissioners, department heads, State Board of Accounts, sheriff’s department. We have really utilized every resource we could possibly think of to review our current policy and make the appropriate updates.”
With the new policy, Puckett said the county has put in several points of verification where people from the auditor’s office or department head will personally reach out to verify vendor information, as well as account numbers.
“We also have a step in the process that we will work with the bank and send out test files and verify, again, personally with those vendors that they have received those exact amounts. So this updated policy has been reviewed and distributed to every department within the county. We are accepting feedback from them because any feedback is welcomed at this point,” she said. “This is a document that is not going to be put on the shelf and allowed for dust to lay on it at all. This is a living, breathing document. We will be reviewing this on a quarterly basis.”
After Council Vice President Joni Truex thanked her for all of her hard work on this, Puckett said, “This has been a very difficult time for the county and I would really like to thank the Council and Commissioners, the department heads for their support in reviewing these processes and trusting other processes will go through. I’m so very proud to work for this county and understand that we did address the process failures. These will be shared with the State Board of Accounts.”
Puckett said she did hear from the SBA initially and the fraud was disclosed to them as required. There was a conversation with four people from the SBA. Since the theft happened in 2022, the SBA let Puckett know it would not affect her 2021 audit. However, when she spoke to the SBA on Thursday, the SBA changed their mind and there will be a statement in the audit. The SBA knows the county addressed the fraud and updated its internal controls with additional safeguards.
Councilman Mike Long asked if the fraud would affect the county’s credit rating. Puckett said the county is pretty fortunate because it doesn’t have a lot of debt. Long term, she said, she didn’t anticipate the theft affecting the county’s credit rating.
She said it was a “great loss that everybody here takes to heart,” and then paused as her emotions overwhelmed her.
Mitchell said, “But this is something that the plan is going to take care of, and if we follow the plan and the department heads - I came and spoke to them on Thursday - the department heads bought into it and I think they understood it.”
Reading what she presented to the county department heads, Mitchell said, “Because the County Council is the fiscal body of the county, we are responsible for budgets, appropriations and setting tax rates along with several other tasks that are directly or indirectly related to the finances of the county. Appropriating funds is included as one of our tasks.
“While the County Council is not involved in any way in the loss or theft of funds, the County Council must be the body to address how to fund the fraud/theft loss. I know there has been a lot of talk about the loss of money, including the who, what, where, when and why. The information is still an ongoing investigation in the hands of the authorities. Aside from funding the payment to the vendor, no further actions can or will be taken by the County Council at this particular time, pending the receipt of the completed investigation report.”
She continued, “Now for the history of where the money came from that was taken. This is an issue of ‘no good deed goes unpunished.’ The payment was federal (American Rescue Plan Act) funds that were approved to purchase radios for each of the fire departments in the county due to the changes that the county made to enhance radio coverage for all units. Technically, this was federal money, but when it came to our bank, it became our money and, obviously, our responsibility.”
She asked the County Council to consider approving the advertisement of an additional appropriation of $313,951.90 from the Rainy Day Fund to be considered at the July County Council meeting to replace the stolen funds. Since the additional appropriation requires legal advertising, the appropriation could not be approved Thursday. The Rainy Day current fund balance is $3,681,874.74 and has remained untouched since 2017.
“By making this transaction, it will make the ARPA money whole. Once the account is made whole, a payment can be issued to the vendor for the same amount to pay the outstanding debt from the Rainy Day fund,” Mitchell explained.
Then she started setting the record straight.
“After reading the comments made by so many people when it hit the internet, there are many people that do not understand how government works, or the interactions of them,” Mitchell said. “First and foremost, I want to assure you that Mayor Joe Thallemer did not take any of this money nor did he have any part in this. And, believe it or not, that was one of the most common things mentioned in the comments. So I want to set the record straight: City and county governments are not interchangeable. That was one of the comments that really, really bothered me because I understand being associated with this issue that the County Council had absolutely nothing to do with, but Joe, like the County Council, had nothing in this.”
She’s also read and heard comments about taxes being raised to cover the stolen money.
“I want to make it clear that I have given a great deal of thought to this proposal I am making tonight,” she said. “The Rainy Day fund is money that was set aside when there was a large income tax settlement when the state withheld too much money from the county’s income tax distribution back when I was auditor in 2003. The original intent for this money was to supplement income tax receipts should there ever be a serious income tax shortfall while we were still paying off the jail bond for the building across the street. That debt obligation is long behind us and so it is no longer an issue. This money has been safeguarded to be spent for emergencies, therefore, it has been accumulated and has not been touched (except) for very specific items.”
Mitchell said she guarantees that repaying the stolen money from the Rainy Day fund will have zero impact on property taxes.
“I want to repeat: I guarantee you that repaying this stolen money from the Rainy Day fund will have zero impact on property taxes,” she emphasized. “There is no tax rate for the Rainy Day Fund.”
She provided paperwork to show how the county’s tax rate is set and said there is no Rainy Day funds because that money is already in the bank. The funds that determine the county’s tax rate include general, reassessment, highway, local roads and streets, cumulative bridge, health and cumulative capital development, according to that paperwork.
“I want everyone to understand that this is taxpayers’ money, absolutely, but it was not collected through the property tax process,” Mitchell said. “But, even though it is income tax dollars, and has no bearing on the tax rate, if we take this step tonight and agree that we are going to advertise (the additional appropriation) and then we’re going to approve it out of the Rainy Day fund, I can not guarantee that property taxes will not increase but I can guarantee that they will not go up because of this loss.”
Taxes vary from year to year for various reasons, she said, including individual assessments, increase in the assessed value of farm ground, annexations, new TIF districts, the elimination of the mortgage exemption or additions added to homes.
“I believe that if we take this step (of an additional appropriation), I think we can at least start to put this piece behind us and hope that at some point in the future, we’ll be able to recoup some of the money,” Mitchell said.
Long made a motion to approve the advertisement for the additional appropriation and the motion was seconded and then approved unanimously.
Several of her points were that - despite what people have said - Warsaw Mayor Joe Thallemer had nothing to do with the issue, the city and county governments are not interchangeable and that repaying the stolen money from the Rainy Day Fund will have no impact on property taxes.
The theft of $313,951 came in the form of a fraudulent Automated Clearing House (ACH) request in which the perpetrator imitated a vendor (J & K Communications) for Kosciusko County government seeking payment of invoices. An ACH transfer is the electronic movement of money between banks through the ACH network.
The scam began April 7 when the county administrator’s office received a request for payment using ACH, but with a different routing number. The auditor’s office then included the request among other ACHs being issued at the same time. The bills were sent on April 26, and officials realized there was a problem three days later. The county’s insurance carrier and police were notified. New rules were put into place to safeguard from any potential future scam.
At Thursday’s Council meeting, Mitchell said, “As a former auditor, I want to clarify that the process for making payments starts with the department where that bill originated. They have the first-line connectivity with the company’s billing department. The department verifies the bill is true and correct and they must sign off on all bills that are processed. Then it goes to the auditor’s office for process, and then, from there, (County Auditor) Michelle (Puckett) is going to explain how that whole ACH process is going to work moving forward.”
Puckett then gave the Council an update on the county’s ACH process and the internal controls associated with that process.
“So, over the past several weeks, we have utilized every resource that we have available to us that I can think of,” Puckett said. “We have talked to Council, Commissioners, department heads, State Board of Accounts, sheriff’s department. We have really utilized every resource we could possibly think of to review our current policy and make the appropriate updates.”
With the new policy, Puckett said the county has put in several points of verification where people from the auditor’s office or department head will personally reach out to verify vendor information, as well as account numbers.
“We also have a step in the process that we will work with the bank and send out test files and verify, again, personally with those vendors that they have received those exact amounts. So this updated policy has been reviewed and distributed to every department within the county. We are accepting feedback from them because any feedback is welcomed at this point,” she said. “This is a document that is not going to be put on the shelf and allowed for dust to lay on it at all. This is a living, breathing document. We will be reviewing this on a quarterly basis.”
After Council Vice President Joni Truex thanked her for all of her hard work on this, Puckett said, “This has been a very difficult time for the county and I would really like to thank the Council and Commissioners, the department heads for their support in reviewing these processes and trusting other processes will go through. I’m so very proud to work for this county and understand that we did address the process failures. These will be shared with the State Board of Accounts.”
Puckett said she did hear from the SBA initially and the fraud was disclosed to them as required. There was a conversation with four people from the SBA. Since the theft happened in 2022, the SBA let Puckett know it would not affect her 2021 audit. However, when she spoke to the SBA on Thursday, the SBA changed their mind and there will be a statement in the audit. The SBA knows the county addressed the fraud and updated its internal controls with additional safeguards.
Councilman Mike Long asked if the fraud would affect the county’s credit rating. Puckett said the county is pretty fortunate because it doesn’t have a lot of debt. Long term, she said, she didn’t anticipate the theft affecting the county’s credit rating.
She said it was a “great loss that everybody here takes to heart,” and then paused as her emotions overwhelmed her.
Mitchell said, “But this is something that the plan is going to take care of, and if we follow the plan and the department heads - I came and spoke to them on Thursday - the department heads bought into it and I think they understood it.”
Reading what she presented to the county department heads, Mitchell said, “Because the County Council is the fiscal body of the county, we are responsible for budgets, appropriations and setting tax rates along with several other tasks that are directly or indirectly related to the finances of the county. Appropriating funds is included as one of our tasks.
“While the County Council is not involved in any way in the loss or theft of funds, the County Council must be the body to address how to fund the fraud/theft loss. I know there has been a lot of talk about the loss of money, including the who, what, where, when and why. The information is still an ongoing investigation in the hands of the authorities. Aside from funding the payment to the vendor, no further actions can or will be taken by the County Council at this particular time, pending the receipt of the completed investigation report.”
She continued, “Now for the history of where the money came from that was taken. This is an issue of ‘no good deed goes unpunished.’ The payment was federal (American Rescue Plan Act) funds that were approved to purchase radios for each of the fire departments in the county due to the changes that the county made to enhance radio coverage for all units. Technically, this was federal money, but when it came to our bank, it became our money and, obviously, our responsibility.”
She asked the County Council to consider approving the advertisement of an additional appropriation of $313,951.90 from the Rainy Day Fund to be considered at the July County Council meeting to replace the stolen funds. Since the additional appropriation requires legal advertising, the appropriation could not be approved Thursday. The Rainy Day current fund balance is $3,681,874.74 and has remained untouched since 2017.
“By making this transaction, it will make the ARPA money whole. Once the account is made whole, a payment can be issued to the vendor for the same amount to pay the outstanding debt from the Rainy Day fund,” Mitchell explained.
Then she started setting the record straight.
“After reading the comments made by so many people when it hit the internet, there are many people that do not understand how government works, or the interactions of them,” Mitchell said. “First and foremost, I want to assure you that Mayor Joe Thallemer did not take any of this money nor did he have any part in this. And, believe it or not, that was one of the most common things mentioned in the comments. So I want to set the record straight: City and county governments are not interchangeable. That was one of the comments that really, really bothered me because I understand being associated with this issue that the County Council had absolutely nothing to do with, but Joe, like the County Council, had nothing in this.”
She’s also read and heard comments about taxes being raised to cover the stolen money.
“I want to make it clear that I have given a great deal of thought to this proposal I am making tonight,” she said. “The Rainy Day fund is money that was set aside when there was a large income tax settlement when the state withheld too much money from the county’s income tax distribution back when I was auditor in 2003. The original intent for this money was to supplement income tax receipts should there ever be a serious income tax shortfall while we were still paying off the jail bond for the building across the street. That debt obligation is long behind us and so it is no longer an issue. This money has been safeguarded to be spent for emergencies, therefore, it has been accumulated and has not been touched (except) for very specific items.”
Mitchell said she guarantees that repaying the stolen money from the Rainy Day fund will have zero impact on property taxes.
“I want to repeat: I guarantee you that repaying this stolen money from the Rainy Day fund will have zero impact on property taxes,” she emphasized. “There is no tax rate for the Rainy Day Fund.”
She provided paperwork to show how the county’s tax rate is set and said there is no Rainy Day funds because that money is already in the bank. The funds that determine the county’s tax rate include general, reassessment, highway, local roads and streets, cumulative bridge, health and cumulative capital development, according to that paperwork.
“I want everyone to understand that this is taxpayers’ money, absolutely, but it was not collected through the property tax process,” Mitchell said. “But, even though it is income tax dollars, and has no bearing on the tax rate, if we take this step tonight and agree that we are going to advertise (the additional appropriation) and then we’re going to approve it out of the Rainy Day fund, I can not guarantee that property taxes will not increase but I can guarantee that they will not go up because of this loss.”
Taxes vary from year to year for various reasons, she said, including individual assessments, increase in the assessed value of farm ground, annexations, new TIF districts, the elimination of the mortgage exemption or additions added to homes.
“I believe that if we take this step (of an additional appropriation), I think we can at least start to put this piece behind us and hope that at some point in the future, we’ll be able to recoup some of the money,” Mitchell said.
Long made a motion to approve the advertisement for the additional appropriation and the motion was seconded and then approved unanimously.
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