INDIANAPOLIS (WISH) — Alarm bells are sounding among some at the Statehouse over a new risk of public corruption. They say Indiana is missing the key tools it needs to crack down.
Those tools come from Indiana’s State Board of Accounts (SBOA). That’s the agency charged with investigating allegations of financial fraud in the government. Over the last five years alone, SBOA has investigated at least 250 cases of public fraud worth over $8 million.
But, an I-Team 8 investigation discovered a growing amount of government spending has little oversight left on it at all, because there’s simply no one left to watch it.
CLOSING IN ON CORRUPTION
On a cold, quiet day in sleepy Spencer, the feds closed in on former Owen County auditor and County Councilwoman Angela Lawson.
County attorney Richard Lorenz was among the first officials to get a call last July from the current Owen County auditor notifying him that his office had uncovered something that didn’t seem to add up.
“I got a call from the county auditor and one of the commissioners who indicated they had found a receipt, or an invoice for payment from a credit card company that was a surprise to them. We had never seen that type of invoice before. So, we looked closer. And, it was patently obvious from the very beginning of our research on the matter that something had gone awry, and that people had misused their office,” Lorenz told I-Team 8.
Lawson is accused of using five different county credit cards to ring up personal purchases, primarily at Wal-Mart stores in and around the Spencer area.
Morgan County Chief Deputy Prosecutor Robert Cline, who was assigned as a special prosecutor in the case, called the scope of the allegations against Lawson troubling.
“It’s a lot of money,” Cline told I-Team 8. “Over $300,000 is a lot of money, especially when you’re talking about a county the size of Owen County. And, she was masking it all. She’s the one printing out the checks. She’s the one receiving the invoices on the Wal-Mart cards. She was the only one seeing that. So, if she’s the only one seeing it, there’s no one to question it.”
The shock went even deeper as Cline subpoenaed credit card records to see what the purchases were.
“There was alcohol, jewelry, clothing, gift cards and the like,” Lorenz said. “There were as many as three transactions sometimes in Wal-Mart stores on the same day.”
“We received a search warrant based on that, and went back and recovered those goods,” Cline said.
Many of the purchases that hadn’t been consumed were later found in Lawson’s home, he added.
Lawson’s attorney wouldn’t comment on the charges, but said she is cooperating with prosecutors and has agreed not to sell off any “significant assets.” She is due to appear in court again in March.
The investigation into Lawson’s alleged personal spending of public funds began in July 2014. Charges came at the end of the year. The audit detailing the abuse and a state lawsuit seeking repayment and restitution of more than $400,000 was finally filed in mid-February 2015.
But, investigators say Lawson’s credit card abuse began way back in 2004. That means the alleged malfeasance went unchecked for nearly a decade.
“It should have been caught earlier,” said Lorenz. “A check to Wal-Mart standing alone would not stand out. But, checks to Wal-Mart of this magnitude, and over that period of time, would immediately, in my mind, call a red flag. There should have been a finding of this particular discrepancy far earlier. There are annual routine audits conducted by the State Board of Accounts. And, in my impression, one of the principal things they would look for was to reconcile things involving the payroll and the claims process. There are lots of things I would love to have seen happen that didn’t happen here.”
So, why didn’t they?
Cline, the prosecutor, said part of the problem is that Lawson became skilled at covering her tracks.
“When you have someone that really is knowledgeable of the system, it gets harder and harder to detect. It’s not just your entry-level field auditor that can go out and find that type of criminal activity, and be able to document it in such a way that it’s evidence in court,” he said.
But, pressed further, Cline said Lawson’s case brought up a new level of concern.
“We need better accounting controls,” he said. “When you can print out a $20,000 check and not have anybody sign it, and some clerk can do that, it seems to me that the control has been bypassed.”
HIDDEN FROM SCRUTINY
State Board of Accounts auditors are charged with opening the books annually on more than 3,500 units of local government, including cities, counties, townships, schools and libraries.
But, I-Team 8 uncovered a problem inside the agency that’s made accomplishing that task essentially impossible.
Records obtained by I-Team 8 show the agency’s budget has been cut by more than $3 million over the last three years. Nearly 100 SBOA employees have disappeared during that time, including many field auditors charged with overseeing audits like the one on Lawson in Owen County.
Since the cuts began, more than 1,000 statutorily mandated audits — mostly in smaller towns like Spencer — have simply been ignored. Some have been delayed by as many as five years.
In total, more than one-third of all governmental units — from utilities, libraries, airport authorities, and fire protection districts to towns and townships — have gone unexamined, according to SBOA records obtained by I-Team 8.
Indiana State Examiner Paul Joyce, the head of the agency, is now facing a difficult reality.
“Just because it’s not being reported, we know it’s still occurring,” Joyce told I-Team 8.
Units of government receiving more than $500,000 per year in federal grants are guaranteed an audit. Those that don’t may never be audited.
Joyce says his team presses to complete as many of the so-called “leftover” audits as it can. But, he admits, that’s been a challenge.
“We’ve had people in the last four to five years actually retire because they felt we were pressing them too hard,” he said. “We have an issue that we have to find a way to address, because (the governmental units that aren’t getting audited) aren’t getting what they need.”
RIPE FOR RIPOFFS
Last year, the non-partisan Association of Certified Fraud Examiners estimated that 5 percent of Indiana’s annual revenues were at risk of fraudulent transactions.
For Joyce, it’s a concerning figure.
“We oversee right at $77 billion (in government assets and spending) each year,” Joyce told I-Team 8. “So, if you take just 5 percent of that, you’re looking at $3.8 billion that is susceptible to some form of either fraud, waste or abuse.”
If even a portion of that money isn’t being audited regularly — and it isn’t — Joyce said taxpayers are being put at risk.
“Right now, I have 20 active fraud audits going on,” Joyce said. “And, that is pretty typical. But, we know there are likely more out there.”
STATE SPENDING RECORDS
With that in mind, last year I-Team 8 made a public records request to get spending records from dozens of state agencies. Our request asked for details on any charges made the previous year, 2013, on state-owned credit cards by both elected office holders and anyone on their staffs given a credit card to use.
After waiting more than 10 months, the state finally responded, providing electronic records on 72 cardholders from the State Auditor to the State Director of Youth Services — and dozens in between.
The charges were mostly comprised of travel and lodging expenses that appeared to be used for legitimate state business purposes.
The records showed Attorney General Greg Zoeller, for example, spent nearly $26,000 on travel expenses during the one-year time period we requested, including more than a dozen trips to Washington D.C. Zoeller also took quarterly trips to conferences for the National Association of Attorneys General, many of which were held in expensive hotels like Ritz Carltons in New Orleans and Washington D.C., the Fairmont Chicago and Gaylord National Hotel in Washington D.C.
Secretary of State Connie Lawson spent nearly $28,000 on travel expenses during the same time period, according to records provided by her office. Her trips also included multiple conference expenses, and often included travel charges for staff members.
More questionable charges came from inside records from Indiana’s Economic Development Corporation (IEDC), which charged more than $44,000 in purchases on one state credit card during the time period we requested. Again, the charges focused mainly on travel, but also reflected more than $10,000 in charges on food and drinks — including dozens of expensive meals featuring things like steak and lobster and multiple occasions where alcohol was purchased.
I-Team 8 took the findings Joyce, the state examiner, for a closer look. He said the travel expenses didn’t seem to set off immediate red flags. And, because the IEDC is partially funded by private donations, he said the agency’s purchases on things like food and alcohol likely didn’t break any state ethics policies.
But, Joyce also said the State Board of Accounts had never actually looked at such individual receipts, as I-Team 8 did, to see for sure.
SKIMMING THE SURFACE
The problem, Joyce said, is that SBOA is now forced to weigh quantity versus quality.
“At state government, we actually have the authority to do efficiency and performance type audits. But, we don’t do them because I just don’t have staff to go do that kind of audit,” he said.
That’s meant that a series of audits, including those on the IDEC, have fallen by the wayside.
“We have the authority to audit IEDC. And, we get the audits from IEDC, and review them. But, we don’t currently go over to IEDC and audit. Looking (into receipts) at that level would be beyond the normal scope. You would have to have an indication that something was probably wrong there. There’s just too many to go down there and dig around to find problems,” Joyce said.
But, Joyce said his staff has pulled back from what he called a dangerous trend toward audits that only “skim the surface.”
“We made an attempt to speed the process up some,” he said. “Looking back, I wouldn’t probably do it again.”
For IUPUI School of Public and Environmental Affairs Public Policy Professor Sheila Kennedy, the trend toward lower levels of oversight on government spending sets a dangerous precedent.
“When you’re dealing with public funds and you are entrusted by the public to spend those funds in a fiscally responsible fashion, then there should be a higher degree of scrutiny,” she told I-Team 8. “And, even if something isn’t immediately sticking out as a red flag, there is what we call in my classes the appearance of impropriety. You’re not only supposed to be ethical, you’re supposed to seem ethical. Auditing does that. When it’s not there, people can start assuming that you’re having a high old time on the taxpayers’ dime, that really undercuts the authority of government across the board.”
Rep. Tom Saunders, R-Lewisville, believes the time has come for the state to stop rolling the dice.
“SBOA used to do in-depth audits. Now, they might do an examination. And, they don’t get to go as deep into the audit as they used to. And, part of the problem is: they don’t have the staff. We just need to give them the assistance to do the job we’re asking them to do,” Saunders said.
To do that, he filed House Bill 1137, which would more than triple the price local governments pay for annual audits, from $45 per day to $175 per day. The money raised through the move could only be used to hire more auditors to help oversee the governmental units that are currently being missed.
“They used to audit anybody that had any association with tax dollars,” Saunders said. “Now, it’s only the larger of the units they audit. They’re just stretched too thin. How do we know those spending figures are correct if somebody isn’t being the watchdog for us? I think the public expects us to take care of their dollars and we need to answer those questions.”
HB 1137 did not get a committee hearing early in this year’s session, but Saunders’ proposals have been rolled into the bi-annual budget bill that passed out of the House this week. It now moves on to the Senate for consideration.
Several other Senate bills that would allow additional flexibility in the audit process, including SB 326 and SB 394, are also under consideration. Both were approved on final reading by the Senate this week and now move to the House for debate.